CHICAGO With a
new chief executive at the helm, Quanex Building Products Corp.
is changing tactics as it looks to push into the growing
lower-end window market.
company is also exploring possible expansions, relocations,
mergers and acquisitions, Quanex chairman, president and chief
executive officer William C. Griffiths said Sept. 4.
Quanex had invested
heavily in an enterprise resource planning (ERP) system
designed to allow cross-selling of its products to more than
1,000 smaller regional companies, Griffiths said. But that
system has proven more complex and expensive than expected at
the same time that smaller firms are benefitting less from the
U.S. housing recovery than larger national firms, he said.
"Its clear that
while centralizing sales and marketing and some of the back
office functions was absolutely the right thing to do,
implementing a single corporate-wide manufacturing system has
turned out to be ... no longer as necessary as originally
contemplated," Griffiths said.
Thats in part
because Quanex has decided to focus its efforts on
cross-selling its products or partnering with about 50 top
national customers, which account for 85 percent of windows
shipped in North America and are collectively growing at a
faster rate than smaller firms as the housing recovery takes
hold, he said. "A big part of that is co-locating facilities or
at least putting manufacturing capability closer to our major
customers sites," he said.
Quanex sees room for
growth with such firms because, in almost every case, each one
buys large quantities of one item from Quanex but very few of
its other products, Griffiths said. And as credit is tight for
custom builders, who tend to buy higher-end, energy-efficient
windowsQuanexs "sweet spot"the window market
is now dominated by lower-end windows used by tract housing
builders, who are better able to access capital and acquire
land for new projects, he said.
In addition, the
repair and remodelling marketalso a bastion of high-end
windowsis recovering much more slowly than the new
construction market, Griffiths said. "We see perhaps a
different housing recovery than might have originally been
envisioned," he said. "Construction costs are tight, lower
price points, and definitely lower-priced-point windows. And
were seeing significant growth from the major window
suppliers, the top 50, hence the shift in focus."
With capital freed up
from the abandoned ERP project, Quanex should be able to invest
in new tooling, new blending techniques and geographic
expansions, including locating its manufacturing operations
closer to its customers, Griffiths said. That could entail
moving machinery for making lower-end windows from existing
facilities elsewhere, he said.
Such a tactic might
cost money in the short term but will offer long-term savings
if, for example, Quanex can spend less on freight, Griffiths
said. Quanex should be able to fund such organic growth from
cash generated from its own operations, but the company
wont discount the possibility of taking on debt if it
sees attractive acquisition opportunities, he said.
Still, Griffiths cautioned that Quanex was in no hurry to
take on too much debt or make any rash acquisitions. "Unless an
opportunity arises that we cannot say no to, we will not be
focusing on adjacencies," he said. "But (we will) be prepared
to have a change in view if there is not enough opportunity in
our direct core competencies."
more than tripled in its fiscal third quarter as increased
sales helped offset losses at its Nichols Aluminum LLC
subsidiary and red ink related to the ERP system (
amm.com, Sept. 4).