Earnings call transcript Q2 2023

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Operator

Good day, and thank you for standing by. Welcome to the Q2 2023 Quanex Building Products Corporation 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.

to Zuehlke, conference and Senior like speaker to Treasurer. now Scott today, Vice would hand over the your I President, CFO Please go ahead.

Scott Zuehlke

the joining this for Thanks call morning.

and is call statements forward-looking discussion Wilson, me the measures. some conference today non-GAAP On our will with and President CEO. of contain This call George

no materially this and and current or results expectations. on in to from statements earnings guidance, call obligation differ and such statements undertakes revise information Forward-looking statement discussed release or our Quanex Actual reflect events and to guidance or any are on update may based events. forward-looking new

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

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

George Wilson

good Thanks, to of QX pleased things second for the considered, comp call. last the with joining with year, All everyone to a we year. are tough results of Scott, and and our this morning quarter

As believe further see we the during our quarter mentioned for of seasonality belief. normal that this were call, our QX in results we earnings return to to year a second starting and our reinforce last on business

index-related the was second Solid rebalancing operational performance during and somewhat pricing masked continued our segments. quarter by Fenestration pressure in inventory customer

basis. realize we Although, expansion volumes were down versus a across the prior EBITDA margin did consolidated year all record levels, versus year segments prior on

stock repurchase debt repay in of also million operational $XX strong cash which common the us resulted performance free and quarter. in $X.X Our flow, enabled of our improved to million

markets, American down lower market pricing costs inventory and driven prior related rebalancing on mechanisms. our reporting and pricing products of were year due segments. index pressures Coast softness general softer for raw customer some provide Fenestration comments versus will I to lower each on by weather-related West earnings material our In revenues North spacer in segment, conditions, to volumes, our now

and completed acquisition, announced am segment to growth This controlling lower business November, goal. well job to very in we LMI of did the are a strong our And costs announce have remained we evaluating this we I despite in and opportunities. perform realized synergy the performance Operational volumes. at we good that continues pleased looking

our to index segment. was pressures. able lower primarily revenues on were North of solid American Moving decrease pricing. rollback market segment in We index hardwood-related Components margin result The and Cabinet despite pricing a the to and year-over-year volume in demand this expansion realize of

lower minimize on combined focus of volume Continued purchases hardwood on timing controls, impacts. helped cost the cost with capitalizing

by more Fenestration In results inventory offset were foreign vinyl our extrusion exchange and in European spacer than impact, impacted segment, rebalancing in gains which our U.K. share market our product line. the softness, customer business

to carryover, contributed realizing Continued and with expansion operational sourcing this initiatives combined in pricing all segment. improvements margin in metrics,

said challenges go-forward Having in related to ongoing costs, this transportation regarding expectations. market higher customers general to are work we higher with that, our energy inflation costs and continue pricing and

and index-related meet to and we guidance year. are headwinds in pressures the challenges for net but remain we control. In strategic pricing summary, to the execute confident Quanex operational sales our adjusted our we we Near-term to on revenue, controlling perform this team EBITDA and present and ability for what can continues initiatives and inflationary continue ranges

generation, strategy. and capital billion $X top our road align growth which remain improved return with will working priorities on well and for initiatives support capital invested flow Optimizing our cash to

execute very for well-positioned strategy entire to Although, Products on feel value macro shareholders. our Building we headwinds we still exist for and are create the our segment,

our detail. results financial call who I to will now more turn Scott, the discuss over in will

Scott Zuehlke

George. Thanks,

reiterate to year. second record in of last quarter get Before we results I reported want started, I that the

did comp. tough we have a So

this of year. this improve did the business quarter quarter of second versus first However, in year the

customer the generated On million which to of the due and our rebalancing, to a million XQ sales quarter XX.X% inventory foreign was are consolidated second during The lower in in part demand impact. softer largely $XXX.X basis, compared quarter that enforce Overall, America seeing a decrease $XXX.X return translation net North of XXXX, to we pricing exchange in represents results second during of belief business. our a our normal caused XXXX. seasonality of decrease by we further

compared income to $X.XX per for one-time share couple three to advisory the per facilities for with $X.XX damage share the $X.XX ended weather, manufacturing to to months or quarter or diluted decreased income for $X.XX losses XX, April to ended our million million share $XX.X months diluted of fees, for $XX.X After coupled of XX, Net on $XX.X or the decreased inclement three a same $XX.X adjusting diluted to million April XXXX. per share compared last period the diluted and due net or one-time year. for XXXX, transaction per million

quarter for was attributable during $XX.X interest rollbacks million raw material million index last currency for XXXX surcharge the EBITDA in compared same mostly of to $XX.X an in period The the lower America, expense. pricing, and foreign decrease and volumes, decreased second to year. basis, to higher due of On translation quarter pricing decreased to earnings mechanisms North adjusted the mainly

sales by We the of compared inventory demand, in American to rebalancing driven XX.X% pricing. second a $XXX in results due Fenestration generated XXXX, in business million segment. to quarter for XXXX, a North market second quarter and of of softer decrease million decline spacer customer Now volumes of the segment our by $XXX.X for operating our net lower in

to by declined in volumes decline with price. of QX revenue due in that the a We year-over-year, estimate of versus segment decrease remainder the XXXX approximately X% this

this this would XX% segment. LMI, been down XX.X% year. was million revenue Adjusted about in prior contribution year-over-year the have than Excluding lower or from in EBITDA $XX.X segment

and and by net index the revenue $XX.X North during was was by of pricing in generated volumes segment lower estimate prior Components decline for hardwood. volumes year-over-year of QX sales remainder a decrease versus to the was due decrease in declined We our this quarter, lower XXXX We than the price. approximately in XX% which XX.X% Cabinet of This the segment American million lower year. driven

Adjusted EBITDA to job quarter this this realized good compared was the of of we EBITDA compared quarter controlling million expansion a QX of segment $X.X million year XXXX. for and second margin costs in basis of to in adjusted the of We in second XXXX. quarter the did points XXX $X

XX.X% by with $XX.X volumes inventory volumes Our the generated to by European of We exchange business represents rebalancing foreign X% of quarter, second spacer translation. lower in declined Fenestration in pricing XX% revenue of due driven decrease negative in a approximately customer segment impact foreign part approximately our which X%. in year-over-year, and exchange up that estimate about year-over-year translation by this and million segment,

$XX.X and EBITDA the quarter in second of basis we million $XX.X quarter at adjusted EBITDA Adjusted continues the XXX came to compared XXXX. realized year-over-year. From of perform segment million this for to margin standpoint, well, an in points operational expansion

operating to material the during million compared working value working very Moving quarter on good million to due cash We which of easing second of flow inflationary the an for provided represents increase XXXX, had quarter on and activities raw the quarter pressures, inventory capital. impact capital, $XX.X the and managing to positive Cash the a which second a improved did XX% balance for of our $XX.X to decreased job by sheet. of XXXX.

for $XX.X than million we Free the quarter, year. was more last generated million the of second flow $XX.X which double cash was in quarter

as Our continues April was balance debt XX, EBITDA our and be strong, liquidity adjusted net our of sheet months ratio improving times X.X to to XX of keeps XXXX. leverage last

net Excluding to real leases adjusted debt leases ratio, under EBITDA last finance leverage XX months estate was times. are X.X GAAP, that our considered U.S.

As the million second free our George debt and cash quarter of stock position. in able were million mentioned, $XX because to of we repurchased common flow we $X.X of repay our

stock. We will and on focused opportunistically our repurchasing down paying generating debt remain cash,

the growth as create company focus We our they organic, continuing healthy to arise, The will always sheet. through maintain also value. goal and inorganic our is preserve shareholder innovative opportunities on to while balance growing

believe is EBITDA for end for for comfortable of we and adjusted $X.XX now $X.XX with to billion although guidance to comfortable we the XXXX, market residential range, with billion, cautiously range. earnings million trends, this with follows: which our upper As Based more stated to fiscal our are we million, our of we fundamentals and underlying continue as now long-term of $XXX are recent mid- net second remain although demand half be more sales of this conversations to the fiscal the are $XXX lower results, year-to-date in year end we the our of release, optimistic reaffirming on and positive. the housing customers

working fact range capital, cash We for job million year-to-date fiscal are previously free have our million of done increasing results, managing good $XX $XX million to cash $XX to a guided XXXX. But flow on based of million. a to guidance the flow that we to and free we $XX

X% quarter XX% consolidated for Fenestration of third of basis XX% year, be to margin again, XXXX, our on be expected year X% quarter of European third to XX quarter to down From this to down the third compared American basis, the versus to down of and in revenue segment. a a EBITDA up third American On our XX% down X% perspective, year we of to quarter in adjusted North basis. the last Components year, third to the quarter a in segment, this be to consolidated segment, quarter segment we Fenestration last XX% year. X% North to expect for in By third points compared our to is Cabinet of cadence flat the the expect last revenue

to questions. Operator, take we ready are now

Operator

question Garner Thank of the Benchmark from first you. Company, line [Operator The Instructions] Our from Reuben comes LLC.

Reuben Garner

everybody. quarter. Congrats on strong Good morning, the Thanks.

George Wilson

Thank Thank you, you. Reuben.

Reuben Garner

the seasonality, of starting I about top guess a questions So with couple line. the

Is risk the that would a quarters, sequentially end is think the little I -- guess, any market, general what to be think better levels it kind next pickup further or still would a the the just low inventory to I seasonally I the imply of that? what's guess, there it? Is over which reductions or normal. two is range implied I of in get market ask to risks probably to declines? those way I mean to

George Wilson

I'll Reuben. be were of consolidated I low concerns, From would it there the level, If would this. very hitting take that start guidance. range driven. I'll a here, macro we're confident in say,

order The some and chain to with base. be our customers. patterns think clarity stabilized from the and pretty we have customer supply across seem I our levels inventory now good

conditions. miss either, mainly it's think So macro I driven by be going if there to a were upside or

Reuben Garner

latter to Okay. know the QX And And lower in were you going that that implying QX. it I quite in where -- vein margins sequentially are from be a you're bit the the same you on be looks a like year. that in impressive bump I see pretty half the you with the historically, the was sequential of see would quarter. what decline? reason the up But would think revenue

Scott Zuehlke

misheard Maybe I think -- me. you

what points we're be is XQ XX basis up quarter-over-quarter. So saying should margins flat to

Reuben Garner

the a So that wouldn't that get in year then full would the imply big not to to quarter fourth guidance? [Multiple -- Speakers] reduction

Scott Zuehlke

No, EBITDA, if better but the revenue the we're to end lower of profitability. that's upper actually end of guiding

Reuben Garner

give offline Okay. one. maybe you and on last for okay. so I be me. it my -- I'm in then sneak will will that that one question, work one that The exactly best going

gross getting that those second performance just price/cost segments completely the Is be -- in kind color issues any of finally was quarter there strong, you in quite two Europe particular If cabinet great. had both the one-time would the on and in there? or anything past was you've margin this

George Wilson

down some you give it two. between Yeah. color, and the we'll break I'll

going In terms paying it's to profitability talked as quarter, able we're XX very it about And down. faster cabinet Well, year, -- lag. driven. almost pricing really along. were was complete than we Last of day we it's of pass up, we're happens as we're as index the every expected, because the of -- the was inverse it going kind much chasing as the performance,

than So what able are anticipated hardwood coming we as down. index the at to lower pricing it's prices buy hardwood the We're exactly faster triggers.

kind and in So past alluded to we on margins should that calls. harvesting the we've of way down, be

of terms I really what's itself driving pricing. very defined is that's the that. market So in mean,

it's related. index So

combination. some things pricing still inflation. both to in good There performance panned carryover teams operational realize and very, to and Europe, the sourcing relates inflation of doing the some the it are of Operational strong, the then we're in In as has other starting certain areas it kind is as levels have a it's very been team from pressures piece out. and we're Europe that

ahead freight to levels continued our America. of and inflation of So because there's are be customers in at this going what North higher the at the levels European costs some with some of just and of logistics point least energy conversations seeing because cost we're

in happens an So over and we think price see will still we'll factor there. what Europe, be important

Reuben Garner

Great. luck forward. going Thanks, congrats good Okay. and

George Wilson

Yeah.

Operator

our next One you. moment Thank for question.

question from Our from comes the Thompson of Ramsey Steven Group. next the Research line

Brian Biros

you is Brian to call what kind the Any and of This declines in can some the my And morning. largely magnitude the givebacks well? for indexing. increases there's start, as for the Biros you on Good out mentioned call any to and just the actually from for guess, To Hey. on attributable of guidance maybe maybe the you're there -- pricing year I kind of if here? Steven. embedded out taking question. rest pricing, of Thank materials specific you to looking

George Wilson

are reminder, a as -- So the indexes in America. North primarily

our PVC or North products, Fenestration, for our in aluminum -- our So commodities we'll then butyl index steel and start based oil-based an vinyl American index are main the screen and in that on typically resins, spacers. with

have downward those board. the obviously across pressures had So

Now pricing they're lot see But year, are to showing those I as commodities maybe volatile, to of ticking cases and signs know. some pretty a back you that a up. as think stabilize starting out, starting even on in couple the of progress we're through we of the flatten

indexes So to such it customers. we that are that us our margins fair it's and our protect will the believe and both

Cherry, even those it's over up year, hard but custom a Quanex much couple soft the see we're maple, there flattening prior thing is And and and significantly of that then species the other seeing components hardwood now ones. -- pretty but of same the Red well the up couple big starting is that what to little minor at very we're those maple, In price to species, the are group, decreases in a cabinet is bit. Oak, a maybe to as dropped starting have of species rate bumping hardwoods, the level

index price as of it So we rate relates think start givebacks slow the to to will down.

price. on back and with price give all Reuben negotiated pressures, inflationary discussions In there's And well it's to to based mentioned I we Europe, very areas. when to much a of have in as we customers it is continue as the as still commodities, our other just -- as lot do

and So a tends specific Europe be a to with complicated more little little customers. more the negotiations

Brian Biros

customers? hearing sentiment improving sequentially, to Okay, helpful. today than can the guys you. is, you beginning end We've markets the I demand Thank follow-up know seasonality. expand better And you from you is mentioned back the are normal second on hearing expected better year. is than and what at been orders -- was expected of

of just final kind are just are out inventory getting or you. I this on getting things So perspective? the things from actually is customer better rebalancing Thank over of parse the ground because better and seasonality

George Wilson

of seeing and environment. we're becomes by what think a affordability of macro The definitely what been more issue. we've housing an I impacted is

comes new less of affordability starts, play. piece openings into imagine So the has in building the looking if windows. important also, people at are homes, which But either metric. or we're smaller size smaller can businesses, you and that's buying our homes, fenestration as an Then

of purely customer I think have over been an demand. more those impact

So market in piece the becomes affordability issue. the an

what and in cabinets for it's the Europe, then piece. seeing really then discretionary income And we're

So I a cabinets your your little and those you tend mean, more whether replacing kitchen to discretionary a door. versus or window be redo bathroom

little why we're So that's think volume a more. seeing hit I

is we'll it normal couple for market where that some quarters. be, exactly I we've would talked of think and about the In of seasonality. overall I last expectations, see terms think we And anticipated the

exactly way at point. different nature to but it is will pretty impact, we've Fed for it the be have and panning forecasted what will out this things been that does dependent the at that us, saw we the -- come conditions, least of year pleased out, upon and Again, macro more

Brian Biros

Got it. Thank you.

Operator

Thank next One you. question. moment for our

& next question Company, line the Julio comes from of Sidoti Our from LLC. Romero

Julio Romero

Hey. Scott. Thanks. and morning, George Good

George Wilson

Good morning.

Julio Romero

anything an Good maintain surcharge price index and little more maybe Hey. three ago? three on segments, can less a continue or months to challenging across or from speak than price the to morning. about for price anything on to aside gotten that Maybe any efforts the Maybe related? has talk bit, you

George Wilson

Yeah.

very our work we think to I of all be fair to customers. a supplier hard

and And to those discussions so open and customers. transparent continue have we're the with

non-indexed, in be go the to and then after packaging biggest to freight are the continue we're the tend in in we can, that market. fact of things think most to areas customers I impacts, And support that that we cases our price trying where supplies, of cognizant nature. also

I'd or step Globally, holding more prices America, repealing in there's there's either flat. much So -- been pressure North least price now I right at back. on think,

pushing the increases. begin price seeing I start really on in to think market we're customers further back the

So much work both think us no doubt. for six efforts I challenge successful a and of months to today be continue sides. more ago. to customers it's to transparent absolutely than make was our has answer it with your question, to But There's our all worked

Julio Romero

Got it. turning then That's just to And the cost side. helpful. maybe

You other be of you you those guys the a year? in talked quarter? happened you able index back the the to to would some Were levers side hadn't quarter. the that the pull the the levers job controlling And while obviously were about in of some things you yet. purchases side half were there the on benefit And within costs able good did helped on cost figures cost favorable

George Wilson

cabinets, said I structure do be not or such so ability Yeah, absolutely. we discussions. Great think most. highlights I would the the easy we've to And they're is than more all tell probably for there you, that that in have we we cost when along And down, a are I other up ahead game, of triggers that that think example, go the yes, built in it answer pulled. And our to question. way is, what

team we labor supply it our starts their things was controlled the all levels. controlled divisions. ahead volume and those And cost, really place in in focus when dropping, have kind on managing of the cost and of But inventory our

have all different this, the groups we test models, what And So pull. and triggers reacted We prepared they to do. you our that do here's very if volume we were well. were

So managing. really board it's we're cost the across that structure

Julio Romero

Got would that's maybe sounds about LMI target? Maybe to talk going of the potential could then It well. beyond the you turning a like and synergies it. maybe that, integration. there additional be if just And

George Wilson

acquisition The of happy to together. in a very Yeah. us and the well it are working teams No, we've well. It's from One, opened been extremely that business. culture very, fit markets. with additional new perspective, up

servicing not that vertical we're the So we're cable. but nature. supplying now automotive little business, We and bit things only dog fenestration supply integration materials of it's through wire the actually -- they markets, like toys into into supplying us, a

So it's view get to we've been a of very into things. performance to different their allowed and a lot us thrilled continue very, And with be.

think I answer of terms is yes. the in synergies, growth In more

opportunity that think I other there's to currently we an materials make. that use

our and example, maybe spacer their and them provider EPDM, and rubbers not For is in butyl allowing do. offerings be expanding of of compound them types which in service full a giving business, silicone only to what team they sales currently

believe improve that utilization do investing able new will of We'll I to which without any sales help there's as the us So current of well do potentially some assets. as synergies CapEx. in cost more both opportunities, be

So lie excited within this about business. we're opportunities pretty the that

Julio Romero

much of on year. half good the very Got luck and taking thanks back the the for questions it. Well,

George Wilson

Thanks, Julio

Operator

George back Thank you. Wilson for remarks. to closing over to like the conference I turn would now

George Wilson

great providing call like forward next to Have all thank an a update earnings to joining and We'd September. on our day. we you in for look you

Operator

for This concludes Thank you today's participating. call. conference

disconnect. now may You

Quanex Building Products (NX) 2 Jun 232023 Q2 Earnings call transcript