| Return to Steel News Headlines| Print This Page |

Quanex Announces 1st Quarter Results

Feb, 27, 2004 — Quanex Corp. announced net income of $6.4 million on net sales of $281.2 million for the fiscal first quarter ending January 31, 2004.

Net income of $6.4 million was down 6% compared to last year's record first quarter net income of $6.8 million. Diluted earnings per share were $.39, the Company's second-best first quarter. Monroe and TruSeal contributed about $.05 (after interest expense) to the diluted earnings per share figure in January and the first quarter.

Net sales of $281.2 million are 23% higher than net sales of $229.5 million a year ago. Net sales included one month's results from the company's acquisitions of MacSteel Monroe and TruSeal Technologies of $27.4 million. The company commented that first-quarter demand at its Vehicular Products and Building Products segments was very strong and that backlogs for the second quarter remained at high levels.

Comments—Raymond A. Jean, Chairman and CEO stated, "We delivered near-record first quarter results, driven by very strong customer demand across most product lines. During the quarter, we continued to be challenged by runaway steel scrap costs and the severe impact those costs had on the otherwise solid operating results at MacSteel. North American light vehicle builds were about flat compared to a year ago. Heavy duty truck builds continue to post gains, with builds up some 25% during the quarter versus a year ago. Housing activity remained brisk through calendar year-end, which allowed Engineered Products, excluding TruSeal, to post record first quarter operating income," Jean said.

"We have made excellent progress to date integrating Monroe and TruSeal into Quanex. We are very impressed by the quality of the management teams and are excited by the long term earnings potential of both businesses. We are comfortable with our previous guidance that the two acquisitions will contribute $.40 to $.50 to our fiscal 2004 diluted earnings per share."

The Vehicular Products segment includes MacSteel, along with the newly acquired North Star Steel Monroe facility, Piper Impact and Temroc Metals. The segment's main drivers are North American light vehicle builds and heavy duty truck builds.

"North American light vehicle builds remained at healthy levels during the quarter, and MacSteel benefited from improving heavy duty truck production. Excluding Monroe, MacSteel shipments were up about 10% for the quarter, while operating income was down some 20%. Skyrocketing steel scrap costs were an issue during the quarter as MacSteel’s scrap costs were up some $65 per ton over a year ago. Offsetting part of this cost increase was MacSteel’s higher scrap surcharge effective January 1, 2004, productivity gains from lean initiatives and higher value added product sales. Further bolstering demand has been a strengthening of the secondary markets from the oil patch to defense. We see real strength in MacSteel’s business going forward with our backlog some 50% higher than a year ago," Jean said.

"Piper Impact continues to struggle with the reduction of their base business. They narrowed the loss during the quarter versus the year ago period, and we are getting closer to finalizing a review of our strategic options," said Jean.

The company’s Building Products segment includes Engineered Products, including the recent acquisition of TruSeal Technologies, and Nichols Aluminum. The main drivers of the segment are residential housing starts and remodeling expenditures.

"Engineered Products, excluding TruSeal's excellent first month results, reported record income in our first quarter even though January's inclement winter did begin to slow the business," continued Jean. "Housing starts and remodeling activity ended the calendar year at very high levels and the momentum has clearly carried over into 2004. This level of activity is an excellent indicator of the underlying strength in this business segment."

"Nichols Aluminum had a good sales quarter and operating income was slightly improved from a year ago. Shipments remained strong to our traditional building and construction markets and our higher margin coated sheet was sold out in the quarter. The Golden facility, which supplies food packaging and container products, also reported good customer activity. As with Engineered Products, Nichols' first quarter is seasonally their slowest sales period. Currently, we have a good backlog of business and customer activity in the secondary markets is improving," said Jean.

Outlook—Demand in the company's two target markets, vehicular products and building products, continues to be bolstered by a rebounding economy and favorable interest rates. Business conditions and the economy are expected to continue to gain strength throughout 2004.

In Quanex's Vehicular Products segment, business activity looks very promising going forward; however, the unprecedented sharp spikes in scrap prices remain an ongoing concern at MacSteel. The January and February cost increases have been particularly painful because of their sheer magnitude, and are well in excess of our current scrap surcharge. This situation will result in a temporary, yet significant reduction in margins at MacSteel in the second quarter.

In the Building Products segment, order activity remains strong, and while weather sensitive, the Company expects better second quarter results, excluding TruSeal, compared to a year ago. At Nichols Aluminum, both rising London Metal Exchange (LME) ingot prices and scrap prices remain an issue, however, sales prices have also increased, mitigating part of an expected second quarter margin squeeze. Housing starts for 2004 are expected to moderate only slightly from last year's record 1.85 million units. Building Products' other driver, remodeling expenditures, is also expected to remain at healthy levels.

Taken together, the sales outlook remains positive. However, uncertainties surrounding the cost of steel and aluminum scrap in the second quarter and their eventual recovery complicates the company's ability to accurately forecast its earnings for both the second quarter and the year. At this time, Quanex expects its fiscal second quarter 2004 diluted earnings per share to be down significantly from the year ago period. The company will publish second quarter diluted earnings per share guidance when it releases its second quarter update in April. Guidance for the year will be provided once the company has a better sense of its annualized cost of steel scrap.

Quanex is a $1.3 billion industry-leading manufacturer of value-added engineered materials and components serving the Vehicular Products and Building Products markets.

Close Window