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Quanex hit by weak window demand

Keywords: Tags  Quanex, earnings report, William C. Griffiths, Nichols Aluminum, London Metal Exchange, LME, windows, doors aluminum sheet

CHICAGO — Quanex Building Products Corp. bled red ink in its fiscal year ended Oct. 31 as improved construction activity failed to translate into better demand for the company’s aluminum window and door components.

The Houston-based company declined to provide specific earnings before interest, taxes, depreciation and amortization (Ebitda) guidance for its Nichols Aluminum LLC subsidiary, which makes aluminum sheet, citing uncertainty surrounding new London Metal Exchange warehouse regulations (, Nov. 7).

Quanex posted a fiscal-year loss of $11.7 million, down 29.2 percent from a $16.53-million loss the previous year, on net sales that rose 14.9 percent to $952.64 million. The company’s fiscal fourth quarter net loss of $1.21 million was in sharp contrast to net income of $968,000 in the same period last year despite a 17.1-percent increase in sales to $275.3 million.

"The key indicators that impact our markets are encouraging," said Quanex chairman, president and chief executive officer William C. Griffiths. "New housing starts have improved, home prices are increasing and consumers are beginning to invest in (remodeling and restoration)." But most of that investment is in paint, cabinets and appliances rather than premium windows, he said, because low energy prices mean customers don’t see high-quality windows as a priority and because of the difficulties consumers face when trying to get loans for big-ticket items like new windows.

"Prime window demand for the (remodeling and restoration) market, which has been flat for the past several years, will remain challenging—and we believe a measurable recovery is likely 12 to 18 months away," Griffiths said.

Also hurting results was $15 million in accelerated depreciation related to an enterprise resource planning (ERP) system, once touted as an asset (, Sept. 4), that was scrapped in the fourth quarter.

Operating losses at Nichols Aluminum slimmed to nearly $1 million in the year ended Oct. 31 from a $17.1-million loss the previous year as net sales rose 13.3 percent to $410.4 million. Nichols swung to an operating profit of nearly $4.2 million in its fiscal fourth quarter from an $885,000 operating loss a year earlier on sales that jumped 9.5 percent to $110.9 million.

The improvements resulted from an increase in shipments thanks largely to improved equipment reliability and to Nichols regaining market share after a strike in 2012 (, Oct. 1, 2012), Quanex said, but results were curbed by increased demand for mill-finished product, which commands a lower price than painted sheet.

Spreads at Nichols improved to 42 cents per pound in the fiscal fourth quarter from 41 cents a year ago, Quanex said, but spreads remain "challenging" because aluminum prices have fallen further than aluminum scrap tags due to a tight scrap market.

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