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Quanex slips further into red on Nichols loss

Keywords: Tags  Quanex Building Products, David Petratis, Brent Korb, earnings report, Nichols Aluminum, Michael Cowden

CHICAGO - Quanex Building Products Corp.’s net loss widened in its fiscal first quarter due to the effects of lower aluminum prices on its Nichols Aluminum LLC subsidiary and costs incurred by its enterprise resource planning (ERP) system.

Still, Quanex is “cautiously optimistic” going forward, especially given “clear signs of recovery” in the construction market in the United Sates, chairman and chief executive officer David Petratis said during a March 7 conference call following the release of quarterly figures. Canadian markets, however, are “just now experiencing the downturn,” he cautioned.

The Houston-based company posted a net loss of nearly $8.12 million for the three months ended Jan. 31, up 20.3 percent from a $6.7-million loss in the same period a year earlier despite a 14.9-percent increase in sales to $185.71 million.

The loss resulted in part from the continued implementation of an ERP system, which the company said boosted expenses by $1.3 million in the quarter. The ERP rollout, launched in 2011, has cost the company $31.3 million to date. A key phase of the ERP rollout “went live” this week, and ERP-related expenses should be lower in future, chief financial officer Brent Korb said.

Nichols Aluminum’s operating loss fell 23.6 percent to $4.2 million in its fiscal first quarter from a $5.5-million loss a year earlier as sales increased 28.8 percent to $84.6 million from $65.7 million on shipments that jumped 34.1 percent to 59 million pounds from 44 million pounds. But spreads declined 8.8 percent to 44 cents per pound from 48 cents in the same comparison as aluminum prices fell more quickly than scrap tags, the company said, translating roughly to a $3 million hit to earnings.

Quanex expects to spend about $40 million in 2013, including between $10 million and $13 million at Nichols Aluminum. The company has shifted its strategy from conducting repairs when equipment breaks to doing more preventative maintenance, company executives said. That meant spending $6.8 million in repairs and maintenance in the fiscal first quarter as Quanex readied for the peak construction season, although the figure should drop to $4 million in each of the next three quarters, Petratis said.

Despite losing 27 days of production in its fiscal first quarter due to maintenance downtime, Nichols boosted production thanks to more-efficient operations as the company regained market share after a strike in fiscal 2012 (, Oct. 1), Petratis said.

While an uptick in construction activity will be good for aluminum, the “spread is going to drive the dayÑif we get some increases in aluminum prices, it’s going to help us,” Petratis said.

Nichols plans to take a three-week maintenance outage in May-June to replace the oven at its facility in Alabama, Korb said. The company will build inventories ahead of the downtime to continue to meet customer requirements.

Quanex executives said they would continue to look to grow internally and in a disciplined fashion through acquisitions. “We’ve walked away from many a deal over just the last 24 months because the valuations just were not right,” Korb said. But the company is now seeing “agreeable valuations” on some potential acquisitions, which could present opportunities in the near term.

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