Quanex (NX) Beats On Q2 Earnings, Stock Up On Raised View

Quanex Building Products Corporation (NYSE:NX) reported second-quarter fiscal 2016 (ended Apr 30, 2016) adjusted earnings per share of 10 cents, a 67% improvement from 7 cents in the yearago quarter. Earnings surpassed the Zacks Consensus Estimate of 9 cents. Quanex shares went up 2.47% on the earnings announcement and upbeat guidance.

Including one-time items, the company reported earnings per share of 11 cents per share in the quarter compared with 7 cents per share in the year-ago quarter.

Operational Update

Quanex Building reported revenues of $229.5 million, which increased 62% year over year. Revenues, however, lagged the Zacks Consensus Estimate of $231 million. Contributions from the acquisitions of HL Plastics and Woodcraft Industries in 2015 coupled with continued volume growth in all other product lines led to the year-over-year improvement, partially offset by an adverse foreign exchange impact.

Cost of sales during the quarter went up 59% to $176 million from $111 million in the prior-year quarter. Gross profit grew 70% year over year to $53 million while gross margin expanded 120 basis points to 23%.
Selling, general and administrative expenses increased 47% year over year to $28.8 million. Quanex Building reported adjusted operating profit of $24.2 million which jumped 109% from $11.6 million in the year-ago quarter.

Adjusted EBITDA improved to $24.3 million for the quarter from $11.6 million in the prior year quarter as margin expansion was driven by the successful implementation of several ongoing operational initiatives, which were designed to reduce costs while improving productivity.

Financial Update

As of Apr 29, 2016, Quanex Building had cash and cash equivalents of $29 million compared with $23 million as of Oct 31, 2015. The company generated $24.6 million in cash from operating activities in the six-month period ending Apr 30, 2016 versus $3.3 million in the prior-year comparable period. Long-term debt was $304 million as of Apr 29, 2016, compared with $55 million as of Oct 31, 2015.

Outlook

Reflecting year-to-date results and management’s current expectations for balance of fiscal 2016, Quanex updated net sales guidance to $965 – $975 million in fiscal 2016, indicating 5% to 6% pro forma growth year over year. Quanex increased Adjusted EBITDA guidance to $117 to $121 million from the previous guidance of $112 - $120 million. The company expects earnings to lie between 78 to 87 cents for the fiscal.

Houston, TX-based Quanex Building Products is a leading manufacturer of engineered materials, components and systems, serving domestic and international window and door original equipment manufacturers, through its Engineered Products and Aluminum Sheet Products Groups.

Some favorably ranked stocks in the same sector include Installed Building Products, Inc. (NYSE:IBP) , Simpson Manufacturing Co., Inc. (NYSE:SSD) and TopBuild Corp. (NYSE:BLD) . All of these stocks sport a Zacks Rank #1 (Strong Buy).

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