Quanex Corp. reported record income from continuing operations of $45.0 million on record net sales of $98.8 million for the fiscal third quarter. Diluted earnings per share from continuing operations were $1.71, a third quarter record and more than double year ago quarterly results of $0.82.

Quanex’s Vehicular Products segment is focused on providing customers with value-added, engineered steel bar and extrusion products. Key market drivers are light vehicle builds (approximately 65% of segment sales) and heavy duty truck builds (approximately 15% of segment sales). This segment reported a $48.1 million operating income on net sales of $240.0 million for the fiscal third quarter.

"While our average selling price was up in the quarter, demand was off versus a year ago due to inventory adjustments and significant production cutbacks by two of our major end users — General Motors and Ford. Consequently, our engineered steel bar shipments were down from year ago levels," said Raymond A. Jean, Chairman and CEO. "We now expect the OEMs to build vehicle stocks to more normalized levels in the back half of the calendar year, and we are therefore looking for improved bar shipments in our fourth quarter over the third, although down from the frenzied pace of our fourth quarter 2004. Margins remained excellent in the segment and operating income nearly doubled compared to the year ago quarter, the benefit of higher selling prices and falling scrap costs," continued Jean.

Quanex’s 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 sheet. Key market drivers are housing starts (approximately 50% of segment sales) and remodeling activity (approximately 50% of segment sales). The Building Products segment reported operating income of $42.8 million on net sales of $258.9 million for the fiscal third quarter.

"The overall housing outlook remained positive during our third quarter, with annualized housing starts hovering around the 2 million mark. Some of our window and door customers were adversely impacted early in the quarter by severe weather, primarily in their Northeast markets," Jean said. "Offsetting this impact were excellent operating results at our aluminum sheet business, which had a very strong quarter. Our painted sheet sales remained very strong and accounted for nearly 45% of all sheet sales in the quarter, thanks, in part, to excellent operating performance at our Alabama facility. Also, we're pleased with what we see at Mikron. They are on a sharp growth curve given their new programs and the strong performance of their customer base," said Jean.

"Cash provided by operating activities remains extremely strong, and for the nine months ended July, we generated $160.7 million compared to $73.5 million in the year ago period. In December 2004, we borrowed $200 million from our revolving credit line to finance the acquisition of Mikron. Through July, the outstanding balance was reduced by $170 million, or 85%, with $80 million of that paid down in the third quarter alone. Once again, Quanex finds itself in an enviable financial position with a low debt to capitalization ratio that provides us with excellent financial flexibility. Today we increased our quarterly cash dividend from $0.135 to $0.155 per share, which equates to a $0.62 per share dividend on an annualized basis. This action is consistent with both our excellent financial results and our prospects for the future," continued Jean.

Outlook—Consistent with a strong housing market and the acquisition of Mikron, Quanex expects an excellent fourth quarter from its window and door components businesses.

At its engineered steel bar business, Quanex entered the fourth quarter with a lower backlog compared to the year-ago period. However, the vehicular supply chain inventory correction is coming to an end and production schedules are expected to increase to replenish low dealer stocks with 2006 models. While the precise timing remains an issue, the company does expect demand at its engineered steel bar business to regain momentum through calendar 2005.

At the aluminum sheet business, demand is off modestly from year ago levels as customers rebalance inventories. However, with robust end markets, combined with strong margins and a healthy mix of value-added products, the business is expected to have an excellent quarter.

Consolidating expected segment results, Quanex looks to report record fiscal 2005 diluted earnings per share from continuing operations in a range of $6.10 to $6.20, up from fiscal 2004's $2.30, and higher than the company's previous guidance of $5.75 to $6.00 issued on May 26, 2005. The company cautions that its combination of short cycle businesses and volatile raw material costs, particularly for steel scrap, makes forecasting problematic.

Quanex notes that it continues to incur substantial costs related to its Sarbanes-Oxley activities and estimated that external costs were approximately $3.7 million ($0.09 per diluted share) in the quarter.

Quanex Corp., with expected 2005 sales of $2 billion, is an industry-leading manufacturer of value-added, engineered materials and components serving the vehicular products and building products markets.