Aug. 25, 2006 — Quanex Corp. reported $44.9 million income from continuing operations on net sales of $553.0 million for the fiscal third quarter ending July 31, 2006.

Third Quarter Results—The $44.9 million income from continuing operations was equal to the $44.9 million reported in the year-ago quarter. Net sales of $553.0 million compare to net sales of $492.6 million a year ago. Diluted earnings per share from continuing operations were $1.14 compared to $1.14 in the third quarter last year.

The company's mid-quarter guidance was $1.05 - $1.09 diluted earnings per share from continuing operations. The latest 12 months return on invested capital was 19.0% compared to 19.7% a year ago. Diluted earnings per share were $1.14 versus $1.13 in the year ago quarter.

Vehicular Products Segment Results—The Vehicular Products segment is focused on providing customers with engineered steel bar products and value added services. Key market drivers are light vehicle builds (approximately 65% of segment sales) and heavy-duty truck builds (approximately 15% of segment sales).

“Segment demand improved markedly in the third quarter and, consequently, total steel bar tons shipped were 12% ahead of year ago shipments," said Raymond A. Jean, Chairman and CEO. "North American light vehicle production during our third quarter was up about 3% compared to the third quarter 2005. However, based on the strength of new powertrain related programs with both the 'Big 3' and the transplant automotive companies, our light vehicle steel bar tons shipped were up 10%, demonstrating our ability to outperform the market. Our three steel bar mills had a combined capacity utilization rate over 95% in the quarter,” said Jean.

“Vehicular Products operating income was down from 2005's third quarter because of unusually high raw material surcharges in effect early in the quarter, but margins this quarter were still very strong at 15.5%. Our third quarter backlog increased 8% over the second quarter, indicating lower inventory levels in the supply chain, the ramp-up of new programs, and continued strength in our secondary markets,” continued Jean.

Building Products Segment Results—The Building Products segment is focused on providing window and door OEM customers with engineered products and components, and is also a leading provider of common alloy aluminum rolled products. Key market drivers are housing starts (approximately 50% of segment sales) and remodeling activity (approximately 50% of segment sales).

“Building Products posted a 13% increase in third quarter net sales compared to the year-ago quarter, while housing starts for the same period were off 10%,” continued Jean. “Our window and door components experienced flat sales versus the year ago quarter and operating income was down due to lower operating rates and relatively high labor costs. Net sales at aluminum rolled products were 29% higher than the $124.8 million a year ago and operating income was up. Pounds shipped in the quarter were best-ever, up 5% compared to the year ago quarter, while spread per pound improved 11% over the same period, the result of higher selling prices and relatively low scrap costs.”

Cash Flow—“Quanex continued to generate significant cash flow,” said Jean. “Cash and equivalents were $61 million at quarter end, inline with cash balances at the end of the second quarter, after having spent some $40 million buying back our common stock, having made a $15 million contribution to the pension fund, and having spent $18 million on capital expenditures. We expect continued strong cash flow in the fourth quarter based on strong earnings and lower capital expenditures. Year-to-date, cash provided by operating activities was a very healthy $129 million.”

Outlook—Quanex expects its sales for the fourth quarter of 2006 to be up some 10% over the fourth quarter of 2005, supported in part by new program opportunities at the operating segments. The 10% fourth quarter growth compares favorably to a light vehicle market where builds are expected to be down 7% from the fourth quarter 2005, and housing starts projected to be down over 15%.

More specifically, in the Vehicular Products segment, Quanex expects business activity to generate favorable comparisons as fourth quarter steel bar ton shipments are estimated to be some 5% higher than the fourth quarter 2005 and about 3% better than the third quarter 2006. The company says new programs with both the 'Big 3' and the Japanese transplant automotive companies should enable the segment to outperform the market in the fourth quarter. The segment is in the process of securing significant new automotive business this calendar year.

Quanex estimates Building Products segment net sales to be up 5% compared to the fourth quarter 2005, and down about 5% compared to the third quarter 2006 as the company anticipates that its window and door components net sales will experience a slowing of demand due to declining OEM production levels, partially offset by new business with existing and new customers.

The company expects aluminum rolled products demand to remain at healthy levels, with fourth quarter volume (pounds) expected to be some 10% higher than the fourth quarter of 2005. With London Metal Exchange aluminum ingot prices at high levels and aluminum scrap cost increases expected to remain relatively more modest, strong material spreads are anticipated to continue in the fourth quarter.

Taken together, the sales and earnings outlook for the balance of 2006 remains favorable. Accordingly, Quanex expects to report diluted earnings per share from continuing operations for the year within a range of $4.00 - $4.10, which includes an estimated non-cash LIFO charge of some $0.13 - $0.16 per share. Previous guidance had been a range of $4.00 - $4.20, which did not include a provision for LIFO.

Quanex Corp. is an industry-leading manufacturer of value-added, engineered materials and components serving the vehicular products and building products markets.