Quanex has released its second-quarter results for FY12, and expects consolidation of its IG spacer manufacturing facility to take place in August this year.
Quanex Building Products Corporation, a leading manufacturer of engineered materials, components and systems serving domestic and international window and door OEMs through its Engineered Products and Aluminum Sheet Products Groups, has released fiscal 2012 second quarter results for the period ending 30 April 2012.
Second quarter 2012 consolidated net sales were USD 194.4 million, compared to USD 203.1 million a year ago. Second quarter 2012 operating loss was USD 0.34 per diluted share compared to an operating loss of USD 0.04 per diluted share a year ago.
Engineered Products Group (EPG) is focused on providing window and door OEMs with fenestration components, products, and systems. Key end markets are residential repair & remodel (R&R) and new home construction.
EPG’s second quarter 2012 net sales were USD 108.8 million compared to USD 82.5 million a year ago. The improvement in sales was predominantly related to higher vinyl extrusion sales at Mikron, and the benefit of a full quarter’s results from Edgetech compared to its one-month’s results in the year ago quarter.
EPG’s second quarter 2012 operating income was USD 0.1 million compared to USD 1.9 million a year ago. Expenses related to its insulating glass (IG) facility consolidation were USD 3.7 million in the quarter. There were no related consolidation expenses in the year ago quarter.
EPG sales for the 12 months ended 30 April 2012, excluding Edgetech’s sales, were up 3% from the previous 12 months, compared to US window shipments as reported by Ducker Worldwide down 7% over the same period. With the spring building season underway, EPG is expected to report operating income of about USD 30 million in the second half of 2012, which excludes USD 3 million of IG spacer consolidation programme expenses.
On 7 November 2011, Quanex announced a consolidation programme for its IG spacer manufacturing facility in Barbourville, KY into its IG spacer manufacturing facility in Cambridge, OH. At the completion of the consolidation, which is expected to be around August 2012, the Barbourville facility will be permanently closed. The consolidation remains on budget and is ahead of schedule. Cash costs associated with the plan have been estimated at about USD 16 million (excludes a pre-tax, non-cash impairment charge of USD 1.6 million taken in the fourth quarter 2011). The company expects a payback period on its investment of about 2.6 years, based on annual pre-tax cash savings of USD 9 million, once the consolidation is concluded.
Aluminum Sheet Products Group is a leading provider of aluminium sheet through its Nichols Aluminum operation. Key end markets are residential repair & remodel (R&R) and new home construction.
On 20 January 2012, Nichols Aluminum experienced a strike by about 240 bargaining unit employees at its two facilities located in Davenport, Iowa. During the second quarter, Nichols offered permanent positions to the approximately 100 temporary employees it hired since the strike began. The majority of those employees accepted a full time position. Shortly after that action, the union ended its strike and Nichols was operating with the necessary crew levels at quarter close.
Nichols’ second quarter 2012 shipments, net sales and operating loss were 61 million pounds, USD 88.3 million and USD 7.5 million, respectively. Shipments were down from the year ago quarter due primarily to reduced production related to the strike. Customer demand improved from the first quarter as seasonal construction activity increased, but Nichols was unable to meet all that demand.
The operating loss of USD 7.5 million reflected: reduced volume; higher costs associated with purchasing semi-finished aluminium coils from third parties; higher conversion costs associated with the processing of semi-finished coils into finished sheet; and the impact of a lower spread (sales less material costs) associated with purchasing semi-finished coils as well as a general reduction in London Metal Exchange (LME) aluminium prices. For the quarter, estimated direct expenses associated with the strike were about USD 5 million and the volume related impact was estimated at about USD 4 million.
Nichols Aluminum shipments for the 12 months ended 30 April 2012, were down 19% from the previous 12 months, versus industry shipments as reported by the Aluminum Association that were up 5% over the same period. Nichols’ underperformance is primarily attributed to the impact of the strike and relatively weaker residential demand, where it has a large presence, compared to relatively stronger distribution and transportation demand, where it has a smaller presence.
With the strike concluded, non-routine costs are expected to fall while productivity and shipped pounds are expected to rise in the second half of 2012 compared to the first half. For the second half of the year, Nichols is expected to ship roughly 160 million pounds (up 10% from second half 2011) at an estimated spread of USD 0.43 per pound (down USD 0.07 from second half of 2011 due primarily to lower LME prices and a tight scrap market), and generate operating income of about USD 10 million (in line with second half 2011), excluding an estimated USD 2 million of strike-related, carryover expenses associated with Nichols’ purchase of semi-finished coils.
Corporate expenses in the quarter were USD 8.6 million, including ERP expenses of USD 1.6 million.
At quarter end, Quanex had a cash balance of USD 54.1 million and total debt outstanding of USD 1.5 million. Cash provided by (used for) operating activities for the six months ended was (USD 11.8) million. The company had no borrowings under its USD 270 million revolving credit facility at quarter end, however, due to the facility’s EBITDA covenant requirements, the available capacity was approximately USD 166.0 million at the end of the quarter. Future uses of cash could be to fund organic growth activities, fund cash dividends on the company’s common stock, make acquisitions, and repurchase outstanding shares. During the second quarter, the company did not purchase any outstanding common stock.
Macro-economic factors, such as weak residential construction and high unemployment, will continue to create difficult end market conditions for Quanex. The company currently expects calendar year 2012 US window shipments to be about 39 million units, below Ducker’s 2012 forecasted shipments of 40.5 million. However, the company remains positive on the long-term prospects of its residential and commercial markets and will continue to invest in its future.
As previously announced on 31 May 2012, the Board of Directors declared a quarterly cash dividend of USD 0.04 per share on the company’s common stock, payable June 29, 2012, to shareholders of record on 15 June 2012.
Book value per common share: USD 11.29; Total debt to capitalization: 0.4%; Return on invested capital: -0.8%; Actual number of common shares outstanding: 36,832,788.