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Quanex hurt by tight metal spreads

Keywords: Tags  Quanex Building Products, Nichols Aluminum, scrap, ERP, engineered products, windows, R&R, construction earnings report

CHICAGO — Quanex Building Products Corp. continued to spill red ink as a tight scrap market and low aluminum prices hammered its Nichols Aluminum LLC subsidiary and sluggish demand for high-end windows for the repair and remodeling (R&R) sector hurt its engineered products group.

New housing starts have increased thanks to growing demand for multifamily units, but the R&R window market has "remained challenging," the Houston-based company said. While Quanex said it expects window shipments to gain in 2013, it predicts that most of the increase will be for low-end windows for the new-construction sector instead of high-end windows for R&R, where Quanex has a stronger presence.

Higher costs related to the implementation of an enterprise resource planning (ERP) system also hurt results, the company said.

Quanex posted a net loss of $7.35 million for its fiscal second quarter, down 40.2 percent from a $12.29-million loss in the same period last year, on sales that increased 19.6 percent to $232.46 million. For the six months ended April 30, the company posted a net loss of $15.47 million, down 18.7 percent from a $19.03-million loss a year earlier, on sales that rose 17.5 percent to $418.17 million. Losses narrowed in part because a 2012 strike at Nichols Aluminum (, Jan. 23, 2012) cost the company $9 million, it said.

Nichols Aluminum posted an operating loss of $500,000 in its fiscal second quarter, down sharply from a $7.5-million loss in the same period last year, on sales that jumped 24.2 percent to $109.7 million from $88.3 million. Nichols recorded an operating loss of $4.7 million for the six months ended April 30 vs. a $13.1-million loss a year earlier on sales that climbed 26.2 percent to $194.3 million from $154 million.

Nichols shipped 78 million pounds of aluminum at a spread of 42 cents per pound in its fiscal second quarter compared with 61 million pounds at a spread of 37 cents per pound a year earlier, Quanex said. But the year-ago quarter included 6 cents per pound in strike-related costs. Nichols shipped 137 million pounds of aluminum in the six months ended April 30 and expects to ship an additional 160 million pounds at an estimated spread of 41 cents per pound in its fiscal second half.

In addition to tight spreads, Nichols’ profitability was hurt by increased demand for mill finished product, which fetches a lower premium than painted aluminum sheet, Quanex said.

On the painted sheet front, Nichols in May completed the $9-million installation of a new paint oven at its Decatur, Ala., facility, which should improve quality and delivery times, the company said.

In part because of "proactive" maintenance programs, Nichols expects capital expenditures to range from $10 million to $13 million in coming years, Quanex said.

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