CHICAGO Quanex Building Products Corp.s sale of its Nichols Aluminum LLC subsidiary to Aleris International Inc. will give it the proceeds to chase acquisitions in the fenestration industry, company executives said.
The divestiture will also result in a "new-look Quanex" focused primarily on supplying components for windows and doors, company chairman, president and chief executive officer William C. Griffiths said in an earnings call with analysts March 6.
Houston-based Quanex plans to sells its aluminum products subsidiary to Cleveland-based Aleris. The deal is expected to close March 31.
The sale should give Quanex the "financial capacity for acquisitions of scale. ... We will spend a considerable amount of our time and energy working on the current acquisition pipeline," Griffiths said, pointing to Quanexs acquisition late last year of Atrium Windows & Doors Inc.s Greenville, Texas, vinyl extrusion facility. "Its now well entrenched within the rest of the vinyl profile business, and we have two new extrusion lines on order to increase the capacity there."
Nichols shipped 60 million pounds of aluminum products in its fiscal first quarter, up 1.7 percent from 59 million pounds a year earlier, Quanex chief financial officer Brent Korb said. Once the sale to Aleris closes March 31, Nichols will be treated as a discontinued operation for financial reporting purposes, he added.
Analysts peppered Korb and Griffiths with questions on how capital expenditures, corporate expenses and other factors would be modeled after the deal closes.
Korb said capital expenditures would be roughly in line with guidance from the fourth quarter, albeit with a reduction in spending at Nichols and increased investment elsewhere in the company.
It is too early to provide much detail on a post-Nichols Quanex, given that the deal only recently received government approval, Korb and Griffiths said. The company will provide updated guidance by the end of the second quarter, they added.
In the meantime, Quanex is bullish, given growing demand from the building and construction markets in the South and West, Griffiths said. "We are obviously pleased with such a strong start to 2014 and continue to be encouraged by the optimism surrounding the construction market in general."
The "big unknown" is the impact of a "horrible winter" that is dragging on longer than expected in other parts of the country, he said. "It remains to be seen what happens in the North and Midwest. ... Does (a long winter) just create pent-up demand? ... Im not sure."
Quanex is also wary of further involvement in European markets, Griffiths said. "The events in Eastern Europe over the last couple of weeks ... bring further caution to doing something aggressive in Europe," he said. "I think, in the short term, you will see us more focused on North America."