NX - Earnings call transcript Q4 2019 | Quanex Building Products Corporation

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Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter and Full Year 2019 Quanex Building Products Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. Instructions] [Operator

hand Mr. to Scott now Officer Chief conference Treasurer, and Zuehlke. the would the over Financial I

Scott Zuehlke

Thanks for joining the call this morning.

On Bill Griffiths, Executive me today President Officer. with Wilson, Chief Operating George Officer; the and and Chief our call Chairman, our are

forward-looking will non-GAAP and some This measures. contain discussion conference statements call of

Forward-looking and our discussed earnings expectations. release call guidance statements current this are and on in based on

forward-looking update and may to any Actual from guidance, no materially information events new events. statement and differ Quanex results or obligation or to or statements such undertakes revise reflect

For statement our a directly of to our yesterday more comparable detailed description to release most earnings disclaimer non-GAAP of forward-looking posted the see reconciliation and website. and a please issued GAAP measures, our measure

sales million due American to decreased by now will our softness I X.X% in XXXX, mainly fourth Net $XXX.X quarter to of continued Components segment. North in discuss the Cabinet results. the year-over-year financial

of represents fiscal XX for in raw generated million the was to and we $XXX.X our The North increase which recovery. of XXXX. inflation points net basis above was result segment, increases driven price American year, market However, mostly which Fenestration by material related approximately growth sales compared of European growth the to

in impact, revenue exchange we Excluding foreign compared growth fiscal of realized to X.X% XXXX XXXX. fiscal

a share diluted October XXXX, to per net compared three net or $X.XX $X.X three XX, October or XXXX. per the $XX.X $X.XX XX, reported loss We million months the income of ended diluted share months for during million ended of

volume $X.XX non-cash fiscal to were reported to income of in cabinets quarter, the fourth lower strategy attributable per a million losses Cabinet net and per from mainly For or semi-custom changes. fiscal ongoing the net impairment share, $XX.X Components the diluted primarily $XX segment, $XX.X we compared loss million of million a for goodwill in net stock due to second non-cash to related shift quarter in million XXXX. share expectations diluted to market North $X.XX in goodwill a the both American reported The XXXX, the impairment $XX.X and or customer-specific

basis, $X.XX or share adjusted fourth of net share or quarter during to million per an On XXXX. was per $XX the of diluted $X.XX ‘XX, the $X.X quarter during diluted income compared fourth million

income fiscal advisory Adjusted currency impact million share certain fiscal accelerated executive XXXX. non-cash charges, transaction impacts, to deferred $X.XX Jobs net per the share loan million $XX.X and diluted $XX.X restructuring for XXXX, on Cuts adjustments and for the of sale a EPS related being of for adjustments transaction was $X.XX charges, or credit diluted The to costs impairment per fees, or are compared Tax made D&A, to severance Act. facility, asset the loss and foreign for the plant charges,

fourth to in $XX.X an the increased basis, million $XX On of EBITDA to in of adjusted compared the million fourth quarter XXXX, quarter XXXX.

XXXX. year XXXX. and was of operational EBITDA largely adjusted million late compared For in by accruals, $XXX.X million, the a full XXXX, efficiency were earnings pricing initiatives The $XX.X increases driven incentive gains implementation adjusted successful in lower to in

operating XXXX will free generated on XXXX. $XX.X move flow provided now in Cash sheet. in $XX.X cash million flow balance cash of compared in $XX.X We $XXX.X by activities I million to million to the XXXX. million in and XXXX, was and

maintain fiscal stock cash bank capital in million free XXXX. repurchased approximately to As with debt a returning profile we balance strong of repaid flow $XX.X shareholders, to our while a result during sheet consistent million strong our and commitment of $X.X

goal. with ‘XX ratio fiscal of surpassed exited to debt net X.X also adjusted a EBITDA, which leverage times last months We XX our

to our release, current taking we earnings latest measured outlook of forecast. a macro as our and are trends in guidance, section data, XXXX for the As approach in the based on XXXX noted revenue

in and growth North offset sales European American single-digit Components continued fenestration our in American segment. North by revenues Cabinet We segments, expect in decline our low

approximately $XXX to basis, consolidated expected million $XXX a to are million in sales On be fiscal XXXX.

EBITDA However, margin million approximately to at basis XXXX, continuing expansion fiscal repurchase adjusted we on stay $XXX balance generate midpoint focused a cash and points and guidance. of to while which generating expect plan million would yield in XX between of to strong $XXX the opportunistically to also maintaining stock. We sheet,

SG&A to to of purposes, $X million of million, approximately XXXX, appropriate interest of $XXX a million following expense tax depreciation $XX $X approximately $XXX rate million, of it to the XX%. $XX modeling amortization is for million assumptions For of make million, and

to than in expect in standpoint, XXXX, organically. intend $XX an a as to we in which million we in certain is From projects about expenditure grow specific XXXX, spend approximately effort $XX more capital to million invest

to flow and free is million million fiscal $XX XXXX. cash in target between Our generate $XX

I the will to George for now prepared turn call over his remarks.

George Wilson

Scott. Thanks,

consecutive with XXXX, year the our As times. easily us is in year, highlighted for X.X cash X.X I million exit $XX over performance a our ratio reflect of times, second to which it on flow surpassed free allowing of the of leverage goal by

our Europe very We and performance America. in strong in fenestration also segments North saw

the Europe, approximately performance and the In in fourth the for price quarter quarter the XXX adjusted EBITDA approximately basis fourth the for and year. the XXX improved year. increases growth for basis full by margins Volume drivers points full in were and points improved

quarter above-market in realized of during sales X.X% and exchange full segment. X.X% we this fourth the impact, the foreign for Excluding year growth

performance all margins in XXX savings improvements. by approximately XXX the our the North SG&A segment, the quarter fourth expanded for were Fenestration basis and operational adjusted full and year. price approximately growth, reasons Volume points EBITDA for improved points basis In American increases,

Ducker’s fourth X.X% ended the full X.X% window year, and XXXX, Fenestration the grew compares the XX, latest which favorably in estimate during American North XX X.X% at our of September to quarter for XX, three X% September negative and shipment ended for segment the negative months months XXXX. Sales for

XXX in the full segment, semi-custom by revenue basis particularly resulting the Cabinet North Components in shrinking of face for to in with American X.X% headwinds Our points contraction year. margin segment continue XXXX, a

going this Our in to capacity performance, continue focus working and to will operational be improve segment capital. optimize right-size our footprint forward

the great yet to a of is macro there uncertainty is at XXXX, to deal Brexit look we be resolved. level. As

have in our and tariffs, an trade election here the in U.S. to uncertainty continued Cabinet with the industry mostly and which wars there We case. is relates

result, we We albeit lower prudent it expectations. a slightly can market As on outlook. segments, the in continue outperform take to view Fenestration we feel believe growth with XXXX a overall our conservative to two our

things semi-custom segment we XXXX continue demonstrated being that another million so Unfortunately, our within expect control, our in shrink even in XXXX, further that, range. $XXX resulting adjusted the of we execute can expansion year with million revenues to the we believe year-over-year. we Notwithstanding consolidated in in could margin $XXX down EBITDA directly on to

additional vinyl capacity in XXXX, XXXX to Europe. extrusion $XX compared fund million and in deployment upgrade is As of CapEx initiatives, technology including growth our the to facility, for capital expansion screen U.S. a the new in

Scott more will on sheet, As balance generating stock. buying while a opportunistically focus we continue mentioned, maintaining back to also cash and strong

Quanex the I’d am like CEO Directors Bill this executive for I very the thank the excited working to all with to finally, next to to be Quanex. the of a moment take giving humbled employees. team and opportunity by of And the opportunity, and yet me be Board of

safety, on incremental options remain explore all cash our shareholder to will and excellence value. of while to internal initiatives flow focused create We operational continuing generation,

closing the turn for now will call over to Bill comments. his I

Bill Griffiths

George. you, Thank

Quanex expressing transforming me Board significant unending to six made Let and support It’s good our into have by industry-leading building close manufacturer. employees over our we past my in been progress for pure-play Directors thanks products and a of the their years. ride an

it value next time George strategy, While change to and and and team the I in for path is the George assisting so we operational there of his remain will cash of the as to ultimately to down the execution and further our no active shareholders. strategy to reins hand flow, that enhance level. can over team in will excellence profitability be take his that continue increase

Thank now you. questions. will we Operator, take

Operator

first Securities. ahead. [Operator Daniel CJS Please from with question Moore And our you. Thank go comes Instructions]

Daniel Moore

Good morning.

Scott Zuehlke

Good morning.

Bill Griffiths

Good morning.

Daniel Moore

and the in just there have stock to or or exit in the we the seen quickly two. doing perspective, lines in helpful? from larger of is Bill, regard American that start away North if just declines competitive, certainly there transition will -- with customers? be in and great not time, but, you last Are a only detail from are Quanex there, leaving shape the overall of color plan more any what and acceleration but you you. stability Thank of detail strategy very lot I there more among George, Topline a extension financial XXXX, not double-digit math, kind an congrats simple quarter accelerating, for that shifts on liquidity take that to guide mentioned the to some congrats would on Any is semi-custom, Cabinet, implies but promotion. customers just that

Scott Zuehlke

terms the customer, we of shift semi-custom of the for with of strategic has sales, from been have and that to what we from big that and to stock, one In long change projects noted, a the which working we period continued been major time have in who terms to addition cabinet with in for in product direction is past. so lines from guidance change changed had strategic their the and year-over-year expedited one is the during that are the it’s and what why deciding seeing year given exit we their of a --

Daniel Moore

the presume that versus larger perspective, in cadence second year decisions first within given a from of the made several And the would declines Helpful. that half I months? last the

Scott Zuehlke

be I are what think it we is seeing. even will

Daniel Moore

Okay.

Bill Griffiths

decline going Dan, are we be To clear, expecting basis quarterly forward. a on those

Daniel Moore

further after. Okay. in I a dig can little

improvement? improvement On little the provide the of look detail that maybe at the can bit of margin and more Thanks. basis what midpoint, side, between just the around expectations like your drivers for points the segments, XX looking you a

Bill Griffiths

a can I and Sure. color there. add little detail

North said Fenestration so growth X% you should in low American X% the there. single-digit, segment, expect, we to So

in gain the continue We business. share Screens to

Spacer in gained growth profile business some business some in We we also there and share well. expect the the as back vinyl

single-digit Europe low on number. as you again know. expect say, X% growth, lot’s we range. in Europe, a Hopefully, In X% a going conservative to But that’s I’d

We line spacer are to facility adding our a there. in Germany

down a our continuing double-digit the U.K. little in for in share and as to share shift really picking in that also are most mid from it’s vinyl lose one semi-custom shift cabinets shift business specifically And just we part. We the the stock. to the the profile explained, then continues we to really business competitor -- gain up are

Daniel Moore

of kind margin I Yeah. That’s bit relates more of to back to of more maybe a order expansion, it expansion, expansion great margin just would ask among -- it with for as for Thanks. with one hand described. the little of topline. topline detail in the looking the and or margin you rank on bps will goes and I will color XX kind review, But be where greatest jump the sort you that could opportunity segments the queue? drivers you that if hand what see the

Scott Zuehlke

Sure.

On the of does revenue. lines it the margin go expansion along kind side, same of

North the already In better The that for most in there segment Europe, healthy. Fenestration. opportunity expect We is margins expansion American are margin in margin expansion. very

the And with maintaining opportunity is is So in improving slightly. lower those the expand even revenue, then margin there or cabinet, plan. to some

George Wilson

We been the results putting are seeing the in across programs have the of we that excellence still operational board.

there at in be calls, those that a segments margin improvement some now. the albeit on slower So activities of past seeing as and we rate of have all we in are business said based continued would

Daniel Moore

jump back Thanks. any I with Understood. queue will follow-ups. good. Very in

Bill Griffiths

Thank you.

Operator

you. Thank

Ramsey question next Research. Please from ahead. go with Thompson Our comes Steven

Brian Biros

I Thank guidance that Steven. growth drivers questions. provide other from morning. Fenestration mentioned. price then with is Brian for Good you segments, on much on is Hey. single-digit versus year? guys you full growth and taking the to low the how cadence strictly some any the versus my This just maybe the you Can actually quarter-to-quarter color for wanted of Biros start

Scott Zuehlke

a without higher into be we was that can detail, cabinet. in and it that’s than across mean, for volume say, the I will board of XXXX much price driver too except in in growth I XXXX, drive XXXX, will think, comfortably going less revenue the and

Brian Biros

be more kind seeing one even would that versus jump or quarters others? out of Is substantial it. and quarter you are across Got maybe

George Wilson

all get price. additional quarters, this the across to consistent at time that’s I think I ability --

quarters. I -- competitively will we see the think very we of and are in the no priced major market movements what any across

Brian Biros

Got what the digits throughout the down mentioned to from one or I and the it. anything is Helpful. there surprise double to to on previously have Is on then than side, would have guidance? cabinet the kind change change that guidance me, guess, upside of And guess the for I significantly do year probably better last year. significantly the would

George Wilson

would drive force look was there we change them is tariffs in if I of pricing would think the higher the that look thing that any at back. would to that significant something

we we start remodel the shift that, and the consumer lend end to as a which that, cabinets, see upside people business. kitchens, on focus addition and trend a start stock to back on seeing higher from to back would upgrading may In semi-custom if to their shift to our

Brian Biros

you. Thank Understood.

Operator

Thank you.

Ken comes from ahead. next question with Zener Please Our KeyBanc. go

Ken Zener

gentlemen. morning, Good

Bill Griffiths

morning. Good

Scott Zuehlke

Good morning.

Ken Zener

Hello.

Bill Griffiths

Can Yeah. hear you us?

Ken Zener

I can hear…

Operator

hear you, can ken. We

Ken Zener

met, I as as Okay. everybody, well about for nice a we big George, it’s Scott. since yeah, that. Well, [indiscernible] apologize for Bill, quarter congratulations. you, obviously,

just there. be I you would wouldn’t think, So how did go the basically outlining are of thought back are this in well to in up margins XXXX. have that because are where America want just nicely, want ‘XX. so segments margins and North middle over I you doing your in of take, I I you all two you to understand Europe chaos, the three some to delivering basics, were they

some possibility in that within was know that are relates obviously, to and nature OEM So those are stuff. in have terms involved businesses. core unclear time going going it what’s sustained is in really tariffs. is, an cabinets who time. cabinets, so Bill, the cabinets, knew But the will deployed that a to well as for more have case did are executing and to away knowing business with European cabinets, But Bill, make to the with there secular been it’s And going about of how obviously you you you capital to Board? you strong you does cabinet happen is of break what George, a view, businesses margins and in your make George, you in I could you ahead sense a in determining other with of growth. go simpler your that categories are what cabinets headwind and But

George Wilson

really So make to be, would I answer your to it’s I of in that the change strategic think, wholesale business. a think, question, first that part early too

happen wasn’t shift As so stock rapidly predicted the know you from the down semi-custom by anyone. and

that early So but evaluating direction. obviously, we it, change it, on our I strategic to we think it’s eyes are are too

are have we making on do think improvements I runway a still However, of significant operationally, a lot basis. we continuous and

so, are to think, both play And let I sides we going out.

plants and better, what eye We work to Board we we well are rapidly and in market will even then, making the going on that with do continue our on the direction. to for the focus and keep changing strategic

Ken Zener

into there, really of Can that last, are -- Okay. little empathize it And terms the a dynamic had I the that is do the guys with extrusion, quarters the it to Thank lot of the you challenges that go you fenestration from know lines. if of I to category Because share and like opportunity? that the have shutdown quarters some gaining of you last please? -- you. point two like you quarters, I Kentucky know seems six you face a in lines what it two been affording can share. you dynamics or seems you gaining don’t in actually Is shutdown the its bit talk

George Wilson

Sure. the over What and is do. focused North what America in we space last we few Vinyl really the on specifically controlling in improving years

our focusing time So deliver structure, cost on ability and customers. servicing on to our

back have continue price and focus us that we of we things have doing the price that and we the to see some are out and of well, walked as capitalize -- our that much seen, on to starting per we delivery, purchase inclusive trying some is we left And we for price more that. ability have and as do quality, those the customers where are to us the away, things have figure pound as total their just on coming cost customers than

to we on continue we will So in and And service working like operations, the on. share will way. after continue go to customer are on good we stay feel we improve that delivering we will that very focused at

Ken Zener

Related edge has you invested some warm recently the window sold, hear that big possibility. share that in M&A, are of that still or well company warm gains seeing growth -- and/or enable window they the some Very that edge you a that Can I of talk spacers that. of to we was so nice CapEx produce, large -- as the the believe gains guys to company as proponent category? spacer, had are to machinery greater that been to you about the does on rates getting look how share in window side side market enable in

Scott Zuehlke

Sure.

gaining the still So Spacer are we to in regards share. business,

growth the those open months and to times is six makers that dictated that being new provide We of rate so base customer to ability few that to by year. calls out equipment machine that have high-speed been globally that is of very equipment past very and in lead get the equipment, really there a the lines on are

speed the are automated The -- equipment is Customers of still to equipment the is eliminate the ability because and by the looking of into really our and for still labor country the their automate outsource, across labor, to new is limited. So get demand market. ways dictated growth for availability there.

rates, -- think dictated equipment it’s makers by are see we I right So still now. just the we growth

Ken Zener

could North the Fenestration Bill, you my George realizing now you, like a And if perennial Would try question in dispersion for is business margin Excellent. to America? the I give in seat. for

Bill Griffiths

I never talking Ken, to you shall miss disappoint, you.

Ken Zener

Is non-answer though? that

Bill Griffiths

that’s this am all point. Chairman, allowed I is at give role new to My

Ken Zener

of upon the George, would Chairman’s you like Excellent. terms expand in reticence the…

George Wilson

taught of and disclose a we level to prepared not that’s well have this Bill, at me detail are think, that I point.

Ken Zener

new on all opportunities. gentlemen, you. Thank Congratulations, your

George Wilson

you. Thank

Bill Griffiths

Ken. Thanks,

Operator

Romero Julio from with is question next go our Sidoti. And ahead. you. Thank Please

Julio Romero

everyone. morning, Good Hey.

George Wilson

morning. Good

Bill Griffiths

morning. Good

Julio Romero

Hey.

years, in to as transformation a First your the a certainly, over and transforming new off, George large congratulations Quanex well success, role? scale few on last Bill, congrats

George Wilson

you. Thank

Bill Griffiths

Thanks.

Julio Romero

you improvement. success about talk three so at just I your shapes or experience years have vision background strategy and the over Quanex how know So, at had Can next George, maybe and so? operational you your or

George Wilson

Sure.

a me, markets. focused products operational background level. with I are efficient company to think, fenestration will manufacturing starts energy the and to all an that cabinet that. quality an that for focuses and And delivering quality we continue on And service, stay product, on of we operational

in businesses going be we put in regards. to always whatever are So, are that

drive excellence my of has lends an I operational operations, strategy because always very So that think, terms well, in performance. been background letting itself and our our

Julio Romero

Got you left a But runway Fenestration in cabinets. two-year you already operationally, to it. how of timeframe? mentioned, on about the how you And do very obviously, to see two for but improve margins over they segments in the strong, headroom do have segments, three-year lot point, are that runway the Fenestration margins much

George Wilson

all we said rate I think, we that some we calls, -- years, still have of as there near left, in we in but facility in previous in our that is not product every runway the have believe captured lines. previous

projects they completion we on. and have I have We mean, that’s are we margin and contribute believe to what a set will expansion. that path focused goals, and objectives all that to

will rate the not that in the at past you segments. have seen So be there but just some those in

Julio Romero

Understood. taking XXXX. Thanks best the and questions of luck in for

George Wilson

much. Thank you so

Operator

our Moore question Thank with Please ahead. CJS next Securities. Daniel And you. go from is

Daniel Moore

we that customer you to terms, a in the of annualized to In rough you called Thank dollar past, about shift amounts one thinking dollars be you rough other business terms the in and in another as should is a segments the as follow-up. out cabinets last have perhaps terms you again. from sort that there supplier, in customer the had far the lost when quantify -- gone

George Wilson

expecting we the at would $XX we Based today, $XX to be million run range. million are Sure. rates between on where are that

Daniel Moore

but alluded it Very to anyway. ask it. Got Bill, And answer no, will being the I helpful.

emphasis focus terms or any as in you over In capital beyond? or just in towards allocation subtle tweaks may have XXXX reins and you take of shifts the

George Wilson

No.

the we of terms $XX very on in improvements facility, expense capacity is opportunistically cash will assets flow year additional some major And our As said buy new that American then stock focus really outside this we is then that, the stay and normal to we in expansion. vinyl, million on will platform screen and commentary, our areas operational and of a the three identifying we then capital new as dictates vinyl will North path. and continue in our it consistent

Daniel Moore

color. the Appreciate good. Thanks again. Very

George Wilson

Thank you.

Operator

Q&A you. remarks. his I And final session. like concludes the to call our Thank turn would George for to back this Wilson

George Wilson

like our you to look providing you on March. next for you. call earnings we thank I’d an and Thank joining to all in forward update

Operator

Thank disconnect. and Thank you. now and gentlemen, participating Ladies call. you this you conference concludes today’s may for

Quanex Building Products (NX) 12 Dec 192019 Q4 Earnings call transcript