Quanex Building Products announced its results for the three months that ended on Jan. 31, 2023.
What Quanex president says
“Our results for the first quarter of 2023 were generally as expected with the only caveat being an elevated level of customer inventory re-balancing initiatives in our fenestration segments. We believe we are seeing a return to what is normal seasonality in our business,” says George Wilson, president and CEO. “In addition to lower market demand year-over-year, results for the quarter were impacted by higher stock-based compensation expense from the increase in our stock price, one-time transaction and advisory fees, increased interest expense related to rising rates on the debt we incurred to fund the acquisition of LMI Custom Mixing LLC, and foreign exchange translation. While results in our legacy North American Fenestration segment were impacted by market volume declines and customer inventory rebalancing initiatives, the LMI business performed well and controllable operational performance in the legacy business continues to be strong.”
“Results in our North American Cabinet Components segment were impacted by index-related price decreases and soft market demand; however, margins were consistent compared to the same period of last year. Our European Fenestration business performed well despite additional macroeconomic headwinds, including the war in Ukraine and increased energy costs. In fact, after adjusting for the foreign exchange translation impact, we generated revenue growth in Europe and margins held up nicely. As we look ahead, it is important to note that while pricing for raw materials and related surcharges are declining, inflationary pressures still exist in many areas. We are focused on making sure our product pricing takes all factors into account.”
“Notwithstanding some near-term macroeconomic challenges, our balance sheet remains strong even after accounting for the debt we borrowed to fund the acquisition of LMI. The integration of LMI is going well, and we have already started realizing synergies. Despite the overall softness compared to the same period of 2022, we were still able to pay down some debt towards the end of the first quarter and our leverage remains low.”
Q1 2023 Results Summary
Quanex reported net sales of $261.9 million during the three months that ended on Jan. 31, which represents a decrease of 1.9 percent compared to $267 million for the same period of 2022. The decrease was mostly attributable to softer demand, customer inventory rebalancing initiatives, and foreign exchange translation impact. Quanex realized net sales growth of 4.3 percent for the first quarter of 2023 in its North American Fenestration segment, which was driven by the contribution from LMI. Excluding LMI, net sales in the North American Fenestration segment would have declined by approximately 7 percent year-over-year. The company reported a decline in net sales of 12.3 percent in its North American Cabinet Components segment and an increase of 3.9 percent in net sales in its European Fenestration segment, excluding foreign exchange impact.
The decrease in earnings for the three months that ended on Jan. 31 was largely due to lower volumes, one-time transaction and advisory fees, foreign exchange translation, higher interest expense, and increased stock-based compensation expense, mostly due to stock price appreciation.
