Quanex Building Products Corporation (NYSE:NX) Q2 2018 Earnings Conference Call - Final Transcript

Jun 05, 2018 • 11:00 am ET

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Quanex Building Products Corporation (NYSE:NX) Q2 2018 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen and welcome to the Quanex Building Products Corporation Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded.

I would now like to turn the conference over to Scott Zuehlke, Vice President, Investor Relations and Treasurer. Please begin.

Executive
Scott Zuehlke

Thanks for joining the call this morning. On the call with me today is Bill Griffiths, our Chairman, President, and Chief Executive Officer; Brent Korb, our Chief Financial Officer; and George Wilson, our Chief Operating Officer.

This conference call will contain forward-looking statements and some discussion of non-GAAP measures. Forward-looking statements and guidance discussed on this call and in our earnings release are based on current expectations. Actual results or events may differ materially from such statements and guidance and Quanex undertakes no obligation to update or revise any forward-looking statements to reflect new information or events. For a more detailed description of our forward-looking statement disclaimer and a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, please see our earnings release issued yesterday and posted to our website.

I will now turn the call over to Bill for his prepared remarks.

Executive
Bill Griffiths

Thanks, Scott, and good morning, everyone. Like everyone else in the industry, the second quarter was characterized by continuation of inflationary cost pressures. While we did not see any further cost increases in Q2, we did see the full impact of those imposed at the beginning of our fiscal year. By mid-quarter, we were in a position to predict with some level of comfort, the full year inflationary impact on each of our product lines and prepare an appropriate pricing strategy. Based on our level of visibility, we implemented selective price increases on most of our product lines with effective dates of May 1, June 1, and July 1. After extensive engagement with our customers, most of the price increases have been accepted. Although, due to timing, there was minimal benefit in the second quarter, we do expect to fully recognize the favorable impact of price increases in the second half of our fiscal year.

Margin contraction did narrow during the quarter, primarily due to raw material pass-through provisions that went into effect after the contractual time lag. This was particularly evident in our North American cabinet components segment. We believe the price increases will allow us to fully recover inflationary costs in the third quarter with the expectation that aggregated segment margins will be similar to last year. In addition, we expect to return to margin expansion on an aggregated basis in the fourth quarter of this year. We also saw continued strength in our North American engineered components segment which after excluding eliminated products achieved sales growth of 8.7% for the second quarter and 6.6% for the first half of 2018.

Underlying sales growth was mostly volume driven, but