- Net Sales: $266.2 million, a decrease of 2.7% compared to $273.5 million in Q2 2023.
- Net Income: $15.4 million, or $0.46 per diluted share, compared to $21.5 million, or $0.65 per diluted share in Q2 2023.
- Adjusted Net Income: $21.8 million, or $0.66 per diluted share, compared to $21.7 million, or $0.66 per diluted share in Q2 2023.
- Adjusted EBITDA: $40 million, a slight increase from $39.9 million in Q2 2023.
- North American Fenestration Segment Sales: $159.8 million, an increase of 1.8% compared to $157 million in Q2 2023.
- North American Fenestration Segment Adjusted EBITDA: $23.8 million, up 16.7% from $20.4 million in Q2 2023.
- European Fenestration Segment Sales: $56.6 million, a decrease of 10.4% compared to Q2 2023.
- European Fenestration Segment Adjusted EBITDA: $13 million, down from $14.9 million in Q2 2023.
- North American Cabinet Components Segment Sales: $51.1 million, a decrease of 4.6% compared to Q2 2023.
- North American Cabinet Components Segment Adjusted EBITDA: $5 million, up 24% from $4 million in Q2 2023.
- Cash Provided by Operating Activities: $36.9 million, compared to $38.5 million in Q2 2023.
- Free Cash Flow: Decreased slightly due to higher CapEx spend.
- Leverage Ratio: Net debt to last 12 months adjusted EBITDA was zero times as of April 30, 2024.
- Debt Repayment: $10 million repaid during Q2, with no outstanding draws on the revolver.
- Full Year Guidance: Reaffirmed net sales guidance of approximately $1.1 billion and adjusted EBITDA guidance of $145 million to $150 million for fiscal 2024.
Release Date: June 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Quanex Building Products Corp (NX, Financial) demonstrated resilience in both peak and soft demand environments, achieving profitable growth despite lower volume and pricing pressures.
- The company is investing in expanding its customer base and product portfolio, highlighted by the acquisition of Tyman.
- North American fenestration segment saw a 1.8% increase in net sales and a 16.7% increase in adjusted EBITDA.
- Operational flexibility and scale have enabled Quanex to maintain a robust margin profile and deliver quality products.
- The company remains net debt-free, with a strong balance sheet and improving liquidity.
Negative Points
- Net sales decreased by 2.7% year-over-year, primarily due to softer market demand in European fenestration and North American cabinet components segments.
- Net income decreased to $15.4 million from $21.5 million year-over-year.
- European markets have experienced significant softness due to geopolitical conflicts, energy costs, and governmental elections.
- Free cash flow decreased slightly due to higher CapEx spend compared to the previous year.
- The European fenestration segment saw a 10.4% decrease in revenue and a decline in adjusted EBITDA.
Q & A Highlights
Q: US non-fenestration sales showed solid growth. Do you expect this trend to continue in FY24 as it did in FY23? What is driving this strength, and do you see it continuing long-term?
A: We've been very pleased with the growth in our non-fenestration segment, driven by our solar sealant products, vinyl fencing business, flashing tapes, and our mixing business. We are optimistic about continued growth and have invested significant resources in this area as part of our long-term strategy. (George Wilson, CEO)
Q: Can you talk about the plant closure and its strategic and financial impact over the next 12 months?
A: The plant closure pertains to our vinyl extrusion business, not the cabinet segment. It was a capacity rightsizing move. Our cabinet segment has shown strong margins due to continuous improvement efforts and effective sourcing strategies. We expect these positive trends to continue. (George Wilson, CEO)
Q: Your outlook remains unchanged. Can you share what your customers are telling you, especially given the broader housing market sentiment?
A: Feedback from customers is mixed but generally optimistic. Larger national customers remain aligned with our positive outlook. While the broader housing market may have downshifted, our customers expect improvements towards the end of this year and into next year, driven by macroeconomic indicators and potential Federal Reserve actions. (George Wilson, CEO)
Q: What are the key factors driving the softness in the European market, and how long do you expect this to last?
A: European market softness is driven by lower consumer confidence, higher energy costs, and economic uncertainties due to geopolitical issues and elections. We expect this softness to persist until early to mid-2025. However, there are early signs of optimism in the UK market, which could potentially improve sooner. (George Wilson, CEO)
Q: Can you provide more details on the expected European margins for the third quarter relative to the second quarter?
A: Based on seasonality, we expect European margins to hold up nicely or even improve quarter-over-quarter. (Scott Zuehlke, CFO)
Q: Is the free cash flow outlook for the year still unchanged?
A: The free cash flow outlook remains largely unchanged, though transaction and advisory fees related to the Tyman acquisition will impact it slightly. We are still comfortable with our previous guidance. (Scott Zuehlke, CFO)
Q: How should we model transaction fees going forward, and what is the outlook for SG&A expenses?
A: Transaction fees will be adjusted out in our reporting. We previously guided SG&A expenses to be between $128 million and $130 million, and this remains unchanged. (Scott Zuehlke, CFO)
Q: Can you elaborate on the optimism for both R&R and new construction markets?
A: We are more bullish on new construction but also see potential in the R&R market, especially with expected interest rate drops. New construction will likely lead, but R&R will follow as consumer confidence improves and existing homes start to churn. (George Wilson, CEO)
Q: Are there any new R&D initiatives or product developments that could drive margin improvement?
A: We are actively working on several R&D initiatives, including new compounds for our spacer business and a new security screen product. These initiatives are starting to show results, and we are excited about their potential impact on margins. (George Wilson, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
