Quanex Building Products Corporation (NX) posted adjusted earnings of 23 cents per share in the third quarter of fiscal 2014 (ended Jul 31, 2014), which increased 15% from 20 cents earned in the year ago quarter, reversing the losses reported in the last two quarters of the current fiscal. Results also outperformed the Zacks Consensus Estimate of 21 cents. The year-over-year growth was mainly driven by improved North American fenestration sales.
Adjusted loss in the year-ago quarter excludes ERP expenses of 6 cents per share: however, the reported quarter had no such adjustments. On a reported basis, earnings was 23 cents per share in the quarter versus 14 cents in the year-ago quarter.
Operational Update
Quanex Building reported revenues of $170 million, an 8.4% improvement year over year driven by overall growth across all divisions. Revenues also surpassed the Zacks Consensus Estimate of $162 million.
Cost of sales during the quarter increased 12.7% to $130.7 million from $116 million in the prior-year quarter. However, gross profit declined 3.6% year over year to $39.3 million. Consequently, gross margin contracted 300 basis points to 23%.
Selling, general and administrative expenses decreased 21.3% year over year to $18.1 million. Quanex Building reported an operating income of $12.7 million, a 72% increase from $7.4 million (including one time items) in the year-ago quarter. Excluding one time items, the company posted an operating income of $12.7 million versus $10.6 million in the prior-year quarter.
Financial Update
Cash and cash equivalents were $134 million as of Jul 31, 2014, compared with $49.7 million as of Oct 31, 2013. Long-term debt decreased to $0.6 million as of Jul 31, 2014 compared with $0.7 million as of Oct 31, 2013. Cash flow from operating activities was $9.8 million for the nine-month period ended Jul 31, 2014, compared with $6.6 million for the nine-month period ended Jul 31, 2013.
On Sep 5, 2014, the company declared a quarterly cash dividend of 4 cents per share, payable on Sep 30, 2014, to shareholders of record on Sep 16, 2014. On Sep 5, 2014, Quanex Building also authorized a $75 million share repurchase program.
Guidance
For fiscal 2014, Quanex Building reiterated its revenue growth guidance of approximately 8% to 9% over 2013 levels. The company trimmed its earnings before interest, taxes, depreciation and amortization (EBITDA) guidance to the range of $53—$55 million from the previous band of $55—$60 million.
Quanex Building also remains optimistic about a strong construction season and a recovery in the R&R (repair and remodel) market. It is also expected that housing starts for 2014 will be up 9%.
Houston, TX-based Quanex Building Products Corporation is a leading manufacturer of engineered materials, components and systems, serving domestic and international window and door original equipment manufacturers (OEMs), through its Engineered Products and Aluminum Sheet Products Groups.
Quanex Building currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Gibraltar Industries, Inc. (ROCK), PGT, Inc. (PGTI) and UCP, Inc. (UCP). All these stocks carry a Zacks Rank #2 (Buy).
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