Earnings call transcript Q3 2023

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Operator

Good day and thank you for standing by. Welcome to the Q3 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 and conference Treasurer. like Zuehlke; to now CFO SVP, would hand over the Scott I Please ahead. go

Scott Zuehlke

Thanks for joining the call this morning.

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

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

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

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

George Wilson

morning Thanks, the everyone to Scott, joining and call. good

Let how me proud segments record a results this when they our all of last quarter delivered our challenged because of from of our to am our margin an quarter team in I year. a I'm as strong came were especially earnings margin and somewhat expansion. results execution and compared quarter first as top-line a these proud perspective, realized say operating

during quarter, been softer third costs volume started market year-over-year come material have was Looking material demand, operating back, segments decline and Year-to-date XXXX, as as index down. by results impacted America. in a pricing a top-line and in pricing pricing across year XXXX the and driven have North raw our record increased surcharge to by mostly reminder, elevated all America in North our

our that seasonality are this quarter. volumes quarterly was versus And a two our were earnings during versus year year. the That up continued returning previous to as we as has of our calls, two this through normal trend However, shipments shipment in first what years. last third the experienced result, more half our cadence we indicated stated

for the generated half a in of negatively to our and EBITDA order return the lower destocking first which and the to uncertain spacer products Despite more customer we QX net pattern conditions, of for were impacted year. normal across board the income environment in execute macroeconomic the and record we continue by addition, quarter. saw an revenue In throughout initiatives

This flow meaningfully performance debt. free also than into enabled to last that repay same cash $XX was year translated quarter higher generation us of million the and

So overall, year. pleased we our extremely quarter execution are the of in with third this

indicating continue the pull some next the cost macroeconomic during and to construction that the provide nine insight energy now will be believe for are forward recently, of a rates, two lingering new we facing. consumer for economists I demand our view that to conditions More may From seem we pressured winter interest months our challenges months to years than fundamentals be demand for the global macro higher products perspective, due recover may the to into effects markets. faster COVID. R&R following in from the six

decreases seeing input major has for and seeing certain that eased even of an we cost materials raw perspective, we're are some cost From items. signs inflation

However, chemical relatively pricing engineered highly remained components feedstock strong. and

only the across to as Labor trying manage remain and when situation last despite some continue, this resort the globe cost are companies We volume tight. labor available think high most markets will will margins. a labor also softness, as reduce

One and reduction fuel relief costs Logistics been freight. a are expenses and of high ocean carrier in on area domestic container as fees. has somewhat remain expenses mixed significant freight

as might nearly as high costs elevated, we anticipated year although not a have remain ago. Finally, energy

as we improving year. back ability are in all we very execute this outperform being fiscal half improves. to confident the market the With our expect but said, next a of are to backdrop, an market this we XXXX, with and start to Even choppy we well anticipate positioned in

to focus what but the pressures present team can Our macro challenges and continues pricing Near-term control. index-related Quanex for revenue on remains perform. controlling we headwinds

our our for As shareholders. into to quarter the and we create are we on strategy execute head our of continue feel final value to well-positioned year, we

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

Scott Zuehlke

and Thanks, George. basis, $XXX third compared of reported America. decrease we net in the mostly to during decrease On sales quarter lower a attributable during third was a of The XXXX, which North X.X% market the XXXX. $XXX.X quarter of softer of consolidated to million represents demand pricing million

increased per for share per ended to for the million income $X.XX compared million July months diluted the XXXX, or share months to for XXst, Net diluted $X.XX $XX.X XXst, three $XX.X adjusting per $X.XX three or ended quarter net July or year. compared increased the to diluted one-time share million After per to the period $X.XX million for share income diluted $XX.X for same items, $XX.X XXXX. last or

increase income to On largely increased million during last The XXst, quarter adjusted an EBITDA the basis, July, in to in control tax efficiency the ended months the for a $XX.X XXXX gains, expense. of earnings and $XX.X for three year. operational compared same period was decrease attributable to million cost

were and of on margin operating basis. consolidated As to our realize such, a segments we able expansion each in

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

declined beginning this our year-over-year, down from contribution we purchased estimate the of QX volumes decrease in business decline the XX% at due remainder about this with been have of revenue would versus price. year-over-year approximately LMI year, XXXX XX% We of a the revenue to in segment. the the in fiscal segment Excluding that

the $XX.X and million of also this This a to to the margins. continue basis job XXXX, result in points and and to expansion for that lower giving year-over-year. despite do margin inflation Adjusted volumes. group of benefits continues are to compared period good ability slightly initiatives expand to Operational SG&A increased divisional to outpacing the million our equates which EBITDA us $XX.X segment sourcing of controlling same XX

to mixing Our Custom formerly Quanex expectations. business LMI above perform continues

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

QX lag XXXX. XXXX. million this of this to pricing also compared that for to quarter this hurting EBITDA million third The job in hardwood index of in related controlling QX helped our us after a quarter $X.X did time year. Adjusted we with front $X.X costs of the segment mechanism the on And good quarter was of in us in profitability

to These the basis in margin of expansion compared factors XXX quarter adjusted led third XXXX of together points EBITDA to this segment.

represents of the of million to the European quarter, $XX.X increase segment which in million slight a Fenestration $XX.X compared XXXX. Our revenue quarter third generated in third

Adjusted for declined foreign $XX.X up X% in pricing compared about We approximately came was in to translation the quarter year-over-year positive exchange while $XX.X at this of as in million segment, X% at EBITDA impact by well. and X% approximately XXXX. million estimate that in third came volumes quarter

margin an and to perform well points basis of EBITDA operational the standpoint, during nicely continue up held to which led adjusted we from XXX expansion quarter Pricing year-over-year.

an offset to was rebalancing extrusion as to normalized as come gains from end. appear have Spacer in by customers business our inventory softness our vinyl share Market projects well UK European buying as

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

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

and cash of for we another represents was QX compared year. $XX $XX.X to million an which the generated quarter, Free increase last XX.X% record flow of was in million

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

Excluding considered real under US leases we finance debt-free. are leases that net estate GAAP, are essentially

to million debt $XX we repay during of George As were able QX. mentioned,

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

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

As goal is always, shareholder create to value. the

XXXX XX% of $X.XXX to with demand for and customers on billion, million our subject follows. guidance indicated previously than our updating $XXX rate a results, Based EBITDA preferential are million, in is portion as being trends, our we UK. year-to-date $XXX fiscal sales to lower of Net conversations adjusted recent the of a larger tax income of which XX%, treatment due tax mainly to

In flow which working our higher XX% and free $XX prior guidance record driven fiscal $XX capital be addition, million management. by improved for XXXX, to is would about now for Quanex is results for than million and cash a guidance, solid

quarter quarter a year, XX% revenue year X% for Fenestration of this we fourth consolidated up our By North expect in year on quarter X% we of From segment. to Cabinet to Fenestration down segment be American cadence expect European in down our X% segment the versus perspective compared the last quarter be of fourth a to the to to the X% XX% basis. year, up of X% in last and fourth fourth revenue for this American North to Components segment, our X% to

year. quarter EBITDA be the the basis, of in XXX points to points adjusted is On last fourth XXX year consolidated to to quarter of this compared a basis basis margin expected fourth up

Operator, we're now take ready to questions.

Operator

And will Research be coming of Instructions] Thompson Group. [Operator from Steven Certainly. Ramsey the first our question

is open. line Your

Steven Ramsey

on will rebalancing plans factors Hi. think on Kind going being the headwind intend to light Have Maybe not Good govern forward, restocking time? you a and their do anymore. with the in start of they customer Fenestration inventory inventory morning. customers for that future? discussed run the a to

George Wilson

Yeah. Good morning, Steven.

our that think now inventory chain In terms all of noticeably customer supply across improved customers, the the rebalancing, Board. the has I of

I lower and comfortable running do levels think that they at inventory. feel will of

think point I at but So they're that already.

is levels. aggressive companies point of I at now. that balancing not have been working us, to that good they'll level unlike thing think continue a most think at stable that very we these we're capital, that their and with run at The are I

as see And in see we I future what basis. pattern the near and right on don't So now we'll think impact. a go-forward normal ordering any a

Steven Ramsey

Okay. on and the start you do America that lapping the more much this sourcing operational benefits journey in that have how Got and benefits you Got the do North that when quarter, And on helped you. completed forward you. then going P&L? of

George Wilson

and we'll time-based trigger the a XX, depending are So when customers the on time on The is. flattens they usually look our whatever that. we XX-day at out, start mechanism curve lag that's the indexes, when because and point see XX where bottom to the of or either pricing index cost in

long At reconciliation or with the So it. to as upwards an equilibrium continue as be as see it timing always point in back relates and or it down, to we'll of when pricing to a tick flattens purchases of raw kind starts trend I you'll again, that materials. ahead raw a materials that's the think, time of

Steven Ramsey

me, guidance? quarter how mix fourth Okay. quick for impact And is much Helpful. to how third the last much mix quarter was in one embedded And results? then

George Wilson

fourth not where quarter, would mix quarter an third really additional And see what I and but at I and all. on prior as much part, a into a what much It's consistent, impact Home, we I meaningful. probably mix -- our we saw we think been versus suspect consistent perspective pretty is where at guided. that not with it's little of think spacer that well. we the quarter, planned from sales, of a won't impact did pretty plays an third we're going have

Steven Ramsey

Thank That's helpful. you.

Scott Zuehlke

Thanks.

George Wilson

Thanks.

Operator

of our & next One will our And Company. Romero Julio from moment Sidoti question. come for next question

line open. Your is

Julio Romero

of in Can those been forward drivers your and the about and that everybody. was of history. in impressive to price you performance European morning, the and is? margin vinyl share confidence there the on segment performance order might talk Maybe margin good couple gains company talk sustainable in extrusion, that margin about the best can Hey, maybe how rank have efficiencies margin segment, European drivers a go operational you start Thanks. really

Scott Zuehlke

Julio. morning, Good

good pricing In quarter margins, terms of of European very the our do it to a lot with was year. it timing. during were previous We a behind and the has in

we timing we think, the be now we some increases we to will margin. cease And starting so, pressure. put basis, do the as we're I I that forward price is through. see On move that impact to hold go-forward able will what of see a

that go bit drop in think I be will So pressure position discussions materials margin as we forward, a will as percentage little retreat on and pricing be we think that raw I a expect and may a and with customers go-forward basis. margins

Julio Romero

it. is LMI fourth then of could from progress expected talk maybe integration, synergies the revenue potential revenue how Okay, And the got any LMI the just much on much in update -- quarter how -- about and to you there?

George Wilson

take backward. let So me that

So, on the previously $XXX,XXX synergy disclosed year the had exceeded target. synergies, that had we a we

think that as about I to dig continue business. and we learn more

probably synergies between than more realized and have that We $XXX,XXX million. $X

very perform do to to I business and think some some still there, do that but to work continues there's well. digging

we it product probably be but business from revenue similar XQ. know, lumped don't to as that's would far line in into just break you NAF XQ, by as out it As that

Julio Romero

then costs are million there there synergies or really And are that's as synergies all And in revenue they Okay. $XXX the helpful. well? related achieved,

Scott Zuehlke

No. new opportunities a terms longer, little all expect would little probably At to materials, this those basis. go-forward midyear. probably a impacting although about a point, time, benefits of we're We revenue-generating on those synergies. start we qualify going cost-related revenue have a from to But take and initiatives to it in to perspective, that takes going they're customers new The take year's excited next longer. it's they're

Julio Romero

one expectations and the to you is year. from Got then for just off flow it. Really cash last your helpful just me

You've some debt. down paid

forward Just how go kind improved deployment? think financial of does help about the cash profile me

Scott Zuehlke

I think the strategy to we that we'll on continue stay have.

little I to at, in I the smart costs debt where side we'll pay continue a invest we're think opportunities. R&D that is opportunities some invested inorganic things because absolutely growth. continue think look for also for We've doing we'll at interest growth. for with organic they're revenue-generating in continue a to pretty, heavily us. that move new and on We'll to more pretty down some But

we'll continue I if targets as we've that looking our the past, again to we be make hit Although, sure metrics And and strategy talked will then on the probably at cash along cash in it we'll the anything stock that debt objectives. in the meet in what flow fourth the policy, dividend open times. continue the into back those buying to generation rank finally, we about with our to do we're pursue quarter, the Board cash, same but market that have clicking discussions if would as opportunistically

have plan. any reminder, don't a buyback As sort of we structured

to So obviously growth. market we have the opportunistic in the be and then

would I ranking right now. that in prioritize them So

Julio Romero

Thanks I'll pass helpful. Really on. very much. it

George Wilson

Thanks.

Scott Zuehlke

you. Thank

Operator

conference I And George now for remarks. to to like the turn would closing

George Wilson

you. to everyone again update for call we joining the today an next our on providing I'd thank call forward December. look earnings in Thank like and to

Operator

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

You disconnect. may now

Quanex Building Products (NX) 1 Sep 232023 Q3 Earnings call transcript