• Net Sales: $400 million in Q1 2025, up 67% from $239.2 million in Q1 2024.
• Net Loss: $14.9 million or $0.32 per diluted share in Q1 2025, compared to net income of $6.2 million or $0.19 per diluted share in Q1 2024.
• Adjusted Net Income: $9 million or $0.19 per diluted share in Q1 2025, compared to $8.4 million or $0.25 per diluted share in Q1 2024.
• Adjusted EBITDA: $38.5 million in Q1 2025, up from $19.3 million in Q1 2024.
• Adjusted EBITDA Margin: Expanded by approximately 150 basis points year-over-year.
• North American Fenestration Segment Sales: $134.3 million in Q1 2025, down 9.2% from $148 million in Q1 2024.
• European Fenestration Segment Revenue: $48.5 million in Q1 2025, down 2% from $49.4 million in Q1 2024.
• North American Cabinet Components Segment Sales: $43.8 million in Q1 2025, up 1.6% from prior year.
• Tyman Business Sales: $175.7 million in Q1 2025.
• Cash Used for Operating Activities: $12.5 million in Q1 2025, compared to cash provided of $3.8 million in Q1 2024.
• Debt Repayment: $65 million repaid since acquiring Tyman in August 2024.
• Leverage Ratio: 2.2x as of January 31, 2025.
• Full Year Guidance: Net sales of $1.84 billion to $1.86 billion and adjusted EBITDA of $270 million to $280 million for fiscal 2025.

• Warning! GuruFocus has detected 4 Warning Signs with NX.

Release Date: March 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Quanex Building Products Corp (NYSE:NX) reported a significant increase in net sales, up approximately 67% year-over-year, primarily driven by the Tyman acquisition.
• The company is on track to achieve its target of $30 million in run rate synergies from the Tyman acquisition by the end of year two.
• Quanex has successfully integrated Tyman, establishing a scalable platform for future growth with a new organizational structure.
• The company achieved record safety performance in the first quarter, along with improvements in service and quality metrics.
• Quanex reaffirmed its full-year earnings guidance, demonstrating confidence in its operational execution and synergy realization.

Negative Points

• Quanex reported a net loss of $14.9 million for the first quarter of 2025, compared to a net income of $6.2 million in the same period of 2024.
• Excluding the Tyman contribution, net sales would have declined by 6.2% due to lower volume.
• The North American Fenestration segment saw a 9.2% decrease in net sales year-over-year, with volumes declining by approximately 8%.
• The European Fenestration segment experienced a slight decline in adjusted EBITDA, with a negative foreign exchange translation impact of about 2%.
• Free cash flow was negative for the quarter, impacted by the seasonality of the business and one-time integration costs.

Q & A Highlights

Q: Can you discuss the expected progression of margins for the rest of the year, particularly on the gross line? A: George Wilson, Chairman, President, and CEO, explained that the expected increase in gross margins is due to the PPA step-up related to the acquisition, which impacted Q4 and Q1. The rest of the year should see a meaningful jump in gross margins, improving each quarter.

Q: What factors contributed to the divergence in growth rates between the cabinets and fenestration businesses in North America? A: Scott Zuehlke, CFO, noted that harsh winter weather significantly impacted the window and door market, affecting demand in Q1. The cabinet segment, which tends to lead in both declines and improvements, performed better due to its earlier hit and recovery cycle.

Q: How confident are you in your full-year outlook, and what market improvements are necessary to achieve it? A: Scott Zuehlke expressed confidence in the full-year guidance, attributing it to realistic and conservative projections made in December. The expected improvement in the second half is based on normal seasonality, and the company feels comfortable with both revenue and earnings guidance.

Q: Regarding the second half improvement needed for full-year guidance, which segments are expected to drive this growth? A: George Wilson stated that typical seasonality is expected to drive the second-half improvement, with more seasonality seen in the window and door segments compared to cabinets. The company anticipates an uptick in the second half due to this seasonality.

Q: How are you prioritizing capital allocation between debt repayment and share repurchases? A: Scott Zuehlke mentioned that given the current trading levels, the company prioritizes share repurchases over debt repayment. The decision is evaluated weekly, and the focus is on repurchasing stock opportunistically.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.