Quanex ‘Cautiously Optimistic’ About the Second Half of 2023June 7th, 2023 by Travis Rains
Quanex Building Products Corp. is among the first door and window related companies to file financial results for the second quarter of 2023, reporting improved demand across all product lines. Based on those results, president and CEO George Wilson says the company remains confident that a return to normal seasonality is in store for the months ahead.
While the company reports improved demand compared to the first quarter of 2023, figures are down on a year-over-year basis. Net sales totaled $273.5 million during the three months ending April 30, 2023, marking a 15.3% decrease from the second quarter of 2022.
“The decrease was mostly attributable to softer demand, caused in part by customer inventory rebalancing initiatives, lower pricing in North America, and foreign exchange translation impact,” the company reports.
Net sales in the North American fenestration segment also experienced an 11.8% decline, and, excluding the recent acquisition of LMI Custom Mixing, sales would have declined by nearly 22% year-over-year. The North American cabinet components segment declined by 26.6% and the European fenestration segment by 7.1%.
“The decrease in earnings for the three months ended April 30, 2023, was mostly attributable to lower volumes, decreased pricing mainly due to surcharge rollbacks and raw material index pricing mechanisms in North America, foreign exchange translation and higher interest expense,” the company reports.
The company’s gross margin is also down year over year, to $67.2 million from $73.2 million in the second quarter of 2022. Quanex reported an adjusted net income of $21.7 million, down from $26.5 million for the same period a year prior. Diluted earnings per share was $0.66 in Q2 2023 compared to $0.80 for the same quarter last year, and adjusted EBITDA $39.9 million versus $45.2 million in 2022.
According to Wilson, “meaningful” impacts from customer inventory rebalancing initiatives in the fenestration segments are not expected for the remainder of 2023. Additionally, the second quarter saw Quanex buy back $5.6 million of its stock, while paying down its bank debt by $20 million.
“When compared to the second quarter of 2022, which was a record quarter, revenue declined in the second quarter of 2023 across all operating segments as ongoing macroeconomic challenges spurred continued market volume declines and some pricing pressure, mostly due to surcharge rollbacks and index pricing mechanism triggers in North America as raw material costs decline,” Wilson says. “Despite the pressure on revenue, we converted well operationally and realized margin expansion in our North American cabinet components and European fenestration segments. We controlled the things we can control, and we will continue to focus on operational efficiency and flexing our cost structure accordingly.”
Looking to the remainder of 2023, Wilson says the company is “cautiously optimistic.”
“Based on conversations with our customers and recent demand trends, we are reaffirming prior guidance for fiscal 2023,” Wilson says. “On a consolidated basis, we continue to estimate that we will generate net sales of $1.12 billion to $1.16 billion, which we expect will yield approximately $130 million to $142 million in adjusted EBITDA in fiscal 2023.”