Quanex (NX) To Report Q3 Earnings: What's In The Cards?

Quanex Building Products Corporation (NYSE:NX) is slated to report third-quarter fiscal 2019 results on Sep 5, after the closing bell.

In the last reported quarter, although revenues of Quanex — an industry-leading supplier of window and cabinet components to original equipment manufacturers — fell shy of analysts’ expectations, earnings topped the Zacks Consensus Estimate by 46.2% and increased 35.7% year over year. Notably, the company’s earnings surpassed analysts’ expectations in six of the trailing seven quarters.

Importantly, free cash flow in the quarter was solid and more than doubled year over year to $13.6 million. This enabled it to repay $5 million in bank debt during the quarter and repurchase approximately $2.7 million of shares.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate has remained unchanged over the past 60 days at 36 cents per share. This indicates a 9.1% increase from the year-ago reported earnings of 33 cents per share. Revenues are expected to be $246 million, suggesting a 2.6% year-over-year increase.

Factors at Play

Quanex’s markets in North America or NA, European Fenestration and NA Cabinets segments have been performing exceptionally well. The momentum is expected to continue in the fiscal third quarter as well. However, the company is expected to register lower volumes in the NA Cabinet Components segment as comps have been getting more difficult owing to the market shift to stock cabinets from semi-custom. Quanex expects these headwinds to negatively impact the NA Cabinet Components segment in the second half of the year.

Nonetheless, its NA Fenestration segment is expected to see a stronger second half and European Fenestration segment is likely to witness strong growth (mostly organic). Precisely, in the fiscal third quarter, Quanex is likely to register strong revenue improvement in the EU Fenestration segment, courtesy of market growth and price increases related to raw material inflation recovery.

It has been investing in organic growth initiatives, boosting product offerings, providing new complementary technology, enhancing leadership position within the markets served and expanding into new markets or service lines. These factors are likely to support its results in the to-be-reported quarter.

Meanwhile, Quanex, which shares space with Aegion Corporation (NASDAQ:AEGN) , Construction Partners, Inc. (NASDAQ:ROAD) and Gibraltar Industries, Inc. (NASDAQ:ROCK) in the Zacks Building Products – Miscellaneous industry, has been benefiting from pricing actions that were implemented early this year in order to combat raw material inflationary pressure, particularly with respect to logistics, benefits and healthcare costs. The company has been experiencing higher margins in its three reportable segments, reflecting pricing actions and lower SG&A. Again, the NA Cabinet Components segment — which is usually challenged by market shift — has been witnessing higher operating margin on operational improvements and price. These positives will be reflected in fiscal third-quarter results.

What the Zacks Model Unveils

Quanex does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The company has an Earnings ESP of 0.00%.

Zacks Rank: Quanex currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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