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.
The Houston-based 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."
Quanexs earnings 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).