Quanex Announces Fiscal Third Quarter 2003 Results
Reports $.84 Diluted EPS, Which Includes a $.13 Executive Life Insurance Benefit; Engineered Products Reports Best-Ever Net Sales & Operating Income
HOUSTON, Aug. 27 /PRNewswire-FirstCall/ -- Quanex Corporation (NYSE: NX) announced fiscal third quarter results for the period ending July 31, 2003. Net sales were $260.3 million, down from $266.9 million reported a year ago. Operating income was $18.1 million compared to $25.0 million last year. Quanex commented that Engineered Products posted best-ever operating income for the quarter. Operating income at the Company's two large process businesses -- MACSTEEL and Nichols Aluminum -- was down primarily due to lower volumes. Net income was $13.6 million for the quarter versus $24.3 million a year ago. Diluted earnings per share for the quarter were $.84 versus $1.42 for the same period last year.
Net income for the third quarter and the quarter a year ago each included an executive life insurance benefit. The benefit to third quarter's net income of $13.6 million was $2.2 million, or $.13 per diluted share. The benefit to last year's third quarter net income of $24.3 million was $9.0 million, or $.54 per diluted share. Excluding these life insurance benefits, diluted earnings per share for the current quarter and the prior year's quarter were $.71 and $.88, respectively.
Highlights
Regarding the Company's results, Raymond A. Jean, chairman and chief
executive officer stated, "We're very pleased with the excellent results
reported at our Engineered Products business, particularly after experiencing
rather slow market conditions just a quarter ago. At MACSTEEL, where we are
linked to 'Big 3' automotive performance, our new programs have been
overshadowed by a drop in production schedules, while higher scrap costs have
also taken a toll. Nichols Aluminum results were negatively impacted by lower
volumes and higher conversion costs. Conversion costs are up, in part due to
higher maintenance and energy costs. As to the balance sheet, cash provided
by operating activities showed a marked improvement over both last quarter and
year ago figures. Significant progress in managing our inventories and
receivables was the key to this improvement."
Quarterly Financials ($ in millions, except per share data) 3rd qtr 2003 3rd qtr 2002 Net Sales $ 260.3 $ 266.9 Operating Income 18.1 25.0 Net Income 13.6 24.3 EPS: Basic $.85 $1.56 EPS: Diluted $.84 $1.42 Segment Commentary VEHICULAR PRODUCTS ($ in millions) 3rd qtr 2003 3rd qtr 2002 Net Sales $ 111.2 $ 117.4 Operating Income 9.5 14.7
The Vehicular Products segment includes MACSTEEL, Piper Impact and Temroc Metals. The segment's two main drivers are North American light vehicle builds and heavy truck builds.
"North American light vehicle sales remained at a relatively healthy pace during the quarter and vehicle inventories receded as overall light vehicle builds were down 7% for the quarter versus a year ago. MACSTEEL's largest market base is with the 'Big 3' automakers, and builds there were off about 10%. MACSTEEL's volume was off about 7% from last year and operating income was down. While we were successful in obtaining price relief in 2003, higher scrap prices largely offset those gains, even with the benefit of our scrap surcharges. MACSTEEL continues to work with the automotive transplants (NAM's) on domestic part sourcing. We've recently qualified on additional components and our share continues to grow. Qualification efforts are long term initiatives with the NAM's," Jean said.
"As has been the story with Piper Impact all year, the erosion in demand
for its aluminum and steel airbag components continues. We suffered a setback
in the quarter on what looked to be a very promising, high volume automotive
drive train component which, as it turns out, was not selected for use by the
automotive OEM. For the quarter, Piper had a sizeable loss, versus breaking
even a year ago. Because of dimming prospects to develop major new programs
targeting the automotive market in a reasonable timeframe, we are revisiting
our strategic options for the business," continued Jean.
BUILDING PRODUCTS ($ in millions) 3rd qtr 2003 3rd qtr 2002 Net Sales $ 149.1 $ 149.5 Operating Income 12.3 14.3
The Building Products segment includes Engineered Products and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures.
"Engineered Products' results for the quarter were record-setting and surpassed our expectations. Many of our larger door and window customers who suffered through a difficult late winter season came back stronger than expected during the third quarter and we saw very strong order entry at all of their businesses," said Jean.
"Nichols Aluminum results for the quarter benefited from higher selling prices and a slightly improved spread versus a year ago, the result of a better mix of painted sheet sales versus mill finished sheet. Building and construction customer activity remained at healthy levels during the quarter. However, slow business conditions in the other markets we serve reduced volumes, and along with higher conversion costs, caused results to trail last year," continued Jean.
Outlook
The Company's two target markets are vehicular products and building products. Overall North American light vehicle builds year-to-date are below comparable year-ago levels by 4%. More important to the Company's results are the "Big 3" light vehicle builds, which are down 7% for the year, and are expected to be down 10% for the third calendar quarter versus last year. As a result, Quanex expects MACSTEEL to report modestly lower results in its fiscal fourth quarter compared to a year ago. Share gains and higher prices will be a plus for MACSTEEL in the quarter but will be offset by lower volumes and high scrap prices. Piper Impact is expecting another difficult quarter, and at this time the Company expects the business to report a fourth quarter loss.
Within the Building Products segment, the Company expects Nichols Aluminum to post lower volumes and earnings for the fourth quarter versus a year ago. Business activity at Engineered Products remains robust and Quanex expects the division to exceed quarterly results from last year. Housing starts and remodeling expenditures for 2003 are now expected to be flat to up slightly over last year's excellent performance. Based on the factors discussed above, the Company expects its fourth quarter diluted earnings per share to be in the range of $.70 to $.85.
Other
The Company continues to account for stock options using the current transition provisions of SFAS No. 123. Accordingly, Quanex does not reflect the option expense in its income statement or diluted earnings per share. However, the Company does disclose the impact on net income and diluted earnings per share in the footnotes to its financial statements. Expensing stock options would have reduced net income by about $397,000 and $326,000 for the third quarter of 2003 and 2002 respectively, and would have reduced diluted earnings per share by $.02 and $.02 respectively.
Dividend Declared
The Board of Directors declared a quarterly cash dividend of $.17 per share on the Company's common stock, payable September 30, 2003 to shareholders of record on September 15, 2003.
Corporate Profile
Quanex is an industry-leading manufacturer of engineered materials and components for the vehicular products and building products markets.
Financial Statistics as of 07/31/03
Book value per common share: $26.93; Total debt to capitalization: 13.89%; Return on invested capital: 10.00%; Return on common equity: 10.67%; Actual number of common shares outstanding: 16,079,973
Definitions
Book value per common share -- calculated as total stockholders' equity as of balance sheet date divided by actual number of common shares outstanding;
Total debt to capitalization -- calculated as the sum of both the current and long term portion of debt, as of balance sheet date, divided by the sum of both the current and long term portion of debt plus total stockholders' equity as of balance sheet date;
Return on invested capital -- calculated as the total of the prior 12 months net income plus prior 12 months after-tax interest expense and capitalized interest, the sum of which is divided by the trailing five quarters average total debt (current and long term) and total stockholders' equity;
Return on common equity -- calculated as the prior 12 months net income, divided by the trailing five quarters average common stockholders' equity.
Statements that use the words "expect," "should," "will," "might," or similar words reflecting future expectations or beliefs are forward-looking statements. The statements found above are based on current expectations. Actual results or events may differ materially from this release. Factors that could impact future results may include, without limitation, the effect of both domestic and global economic conditions, the impact of competitive products and pricing, and the availability and cost of raw materials. For a more complete discussion of factors that may affect the Company's future performance, please refer to the Company's most recent 10-K filing (December 20, 2002) under the Securities Exchange Act of 1934, in particular the sections titled, "Private Securities Litigation Reform Act" contained therein.
For further information visit the Company website at www.quanex.com . QUANEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three months ended Nine months ended July 31, July 31, 2003 2002 2003 2002 $260,277 $266,891 Net sales $744,396 $720,634 217,838 216,469 Cost of sales 625,331 591,882 Selling, general and 12,643 14,099 administrative expense 40,238 39,960 11,728 11,292 Depreciation and amortization 35,769 33,884 18,068 25,031 Operating income 43,058 54,908 (542) (1,070) Interest expense (2,113) (9,179) --- 346 Capitalized interest --- 1,879 2,152 9,020 Retired executive life insurance benefit 2,152 9,020 399 (375) Other, net 2,211 1,469 20,077 32,952 Income before income taxes 45,308 58,097 (6,454) (8,615) Income tax expense (15,537) (17,668) $13,623 $24,337 Net income $29,771 $40,429 Weighted average common shares outstanding: 16,055 15,560 Basic 16,176 14,303 16,267 16,557 Diluted 16,401 16,093 Earnings per common share: $0.85 $1.56 Basic $1.84 $2.83 $0.84 $1.42 Diluted $1.82 $2.55 $0.17 $0.16 Cash dividends per share $0.51 $0.48 QUANEX CORPORATION INDUSTRY SEGMENT INFORMATION (In thousands) (Unaudited) Three months ended Nine months ended July 31, July 31, 2003 2002 2003 2002 Vehicular Products: $ 111,153 $ 117,416 Net sales $ 338,103 $ 337,489 $9,459 $ 14,709 Operating income $ 33,682 $ 41,807 Building Products: $ 149,124 $ 149,475 Net sales $ 406,293 $ 383,145 $ 12,298 $ 14,330 Operating income $ 20,683 $ 24,347 Corporate and Other: Intercompany sales $ --- $ --- elimination $ --- $ --- $ (3,689) $ (4,008) Corporate charges $ (11,307) $ (11,246) Total: $ 260,277 $ 266,891 Net sales $ 744,396 $ 720,634 $ 18,068 $ 25,031 Operating income $ 43,058 $ 54,908 QUANEX CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) July 31, October 31, 2003 2002 2002 2001 Assets $ 10,831 $ 1,340 Cash and equivalents $ 18,283 $ 29,573 Accounts and notes 117,071 110,684 receivable, net 116,122 109,706 6,421 26,041 Other receivables --- --- 100,344 93,229 Inventories 90,756 83,109 9,033 15,244 Other current assets 10,640 14,490 243,700 246,538 Total current assets 235,801 236,878 340,226 356,754 Property, plant and equipment, net 353,132 357,635 66,436 66,436 Goodwill, net 66,436 59,226 30,920 30,869 Other assets 33,771 43,892 $ 681,282 $ 700,597 Total assets $ 689,140 $ 697,631 Liabilities and stockholders' equity $ 76,072 $ 81,123 Accounts payable $ 76,588 $ 76,831 37,886 51,931 Accrued liabilities 48,973 50,659 1,602 3,544 Income taxes payable 4,839 1,087 --- 4,945 Other current liabilities 3,970 5,593 Current portion of 425 81,434 long-term debt 434 420 115,985 222,977 Total current liabilities 134,804 134,590 69,394 10,203 Long-term debt 75,131 219,608 6,019 6,281 Deferred pension credits 4,960 7,962 Deferred postretirement 8,035 7,848 welfare benefits 7,928 7,777 34,941 32,595 Deferred income taxes 29,210 29,282 13,910 15,820 Other liabilities 15,712 18,435 248,284 295,724 Total liabilities 267,745 417,654 432,998 404,873 Total stockholders' equity 421,395 279,977 Total liabilities and $ 681,282 $ 700,597 stockholders' equity $ 689,140 $ 697,631 QUANEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands) (Unaudited) Three months ended Nine months ended July 31, July 31, 2003 2002 2003 2002 Operating activities: $ 13,623 $ 24,337 Net income $ 29,771 $ 40,429 Adjustments to reconcile net income: Gain on sale of Piper --- --- Utah property (405) --- Loss on early --- 922 extinguishment of debt --- 922 Retired executive life (2,152) (9,020) insurance benefit (2,152) (9,020) Depreciation and 11,811 11,342 amortization 36,032 34,107 3,908 (43) Deferred income taxes 7,763 2,437 Deferred pension and (1,176) (116) postretirement benefits 1,166 (1,610) 26,014 27,422 72,175 67,265 Changes in assets and liabilities, net of effects from acquisitions and dispositions: Decrease (Increase) in accounts and notes 8,846 2,008 receivable (949) 293 Decrease (Increase) 5,647 (5,835) in inventory (9,588) (7,722) Increase (Decrease) (7,691) (5,878) in accounts payable (516) 3,678 Increase (Decrease) (914) 1,225 in accrued liabilities (11,087) (697) Increase (Decrease) 291 858 in income taxes payable (3,237) 2,457 (70) 685 Other, net (4,861) 261 Cash provided by operating 32,123 20,485 activities 41,937 65,535 Investment activities: Acquisition of Colonial --- 82 Craft, net of cash acquired --- (17,283) Proceeds from sale of --- --- Piper Utah property 2,832 --- Capital expenditures, (7,940) (7,991) net of retirements (22,752) (28,100) (379) (497) Other, net (3,383) (1,143) Cash used by investment (8,319) (8,406) activities (23,303) (46,526) Financing activities: Bank revolver and (11,700) (19,000) note repayments, net (5,000) (66,029) Redemption and purchase --- (1,314) of subordinated debentures --- (1,314) Purchases of Quanex common --- --- stock (13,515) --- (2,741) (2,600) Common dividends paid (8,120) (7,012) Issuance of common 1,235 10,263 stock, net 2,809 30,716 (573) (1,986) Other, net (2,260) (3,603) Cash used by financing (13,779) (14,637) activities (26,086) (47,242) Increase (Decrease) 10,025 (2,558) in cash (7,452) (28,233) Beginning of period cash 806 3,898 and equivalents 18,283 29,573 End of period cash $ 10,831 $ 1,340 and equivalents $ 10,831 $ 1,340 Financial Contact: Jeff Galow, 713/877-5327 Media Contact: Valerie Calvert, 713/877-5305
SOURCE Quanex Corporation