Quanex Corp.: A New Year Brings A New Addition

Acquisition expected to help grow automotive products unit after mixed fourth-quarter results.

Despite a fourth-quarter decline in earnings from continuing operations, there are some encouraging signs ahead in 2007 for Quanex Corp. -- one of IndustryWeek's IW 50 Best Manufacturers for 2006. The Houston-based maker of engineered materials and components for the automotive and building products markets looks to bolster its Macsteel vehicular products division with the acquisition of Atmosphere Annealing Inc. (AAI), a wholly owned subsidiary of Maxco Inc.

Atmosphere Annealing is a $46.6 million metal heat treating company with four plants in the Midwest. The addition should provide a boost to Macsteel, which reported flat growth for steel bar shipments in 2006. The deal is expected to close in February.

"AAI is an excellent example of the type of acquisition we seek to continue to grow Macsteel," said Raymond Jean, Quanex chairman and CEO, in a Dec. 13, 2006, statement. "AAI will allow us to offer additional value-added services for our Tier 1 and Tier 2 automotive customers. Today, about 50% of AAI's new business is in the fast-growing automotive transplant market, where Macsteel also continues to achieve market penetration. Like Macsteel, AAI's sales approach is differentiated through the application of metallurgical solutions."

Overall, the company reached record revenues of $527.7 million for the quarter and $2.03 billion for the year. Profit rose 25.5% over the year-earlier period to $39.2 million, or $1.03 per share. Income from continuing operations fell during the fourth quarter to $39.1 million compared with $46.7 million reported in fourth-quarter 2005.

Quanex Corp.
At A Glance


Quanex Corp.
Houston, Texas
Primary Industry: Primary metals
Number of employees: 4,530
2005 In Review
Revenue: $1.96 billion
Profit Margin: 7.88%
Sales Turnover: 1.79
Inventory Turnover: 12.18
Revenue Growth: 34.84%
Return On Assets: 16.69%
Return On Equity: 30.99%

Other highlights during the quarter include:

  • the completion of a $38 million value-added capital improvement project for Macsteel's special bar quality and engineered steel bars facility in Monroe, Mich., plant;
  • fourth-quarter record sales and operating income for the vehicular and aluminum sheet products divisions;
  • a new, five-year unsecured revolving credit facility of $350 million.

In addition, new initiatives undertaken by automakers have helped boost operating income for the vehicular products business unit.

"Vehicular products operating income was up 10% from last year's fourth quarter due to higher shipments and material spreads," said Jean in the Dec. 13 statement. "We are realizing the benefits of both additional value-added capacity and new programs with the Big Three and transplant automotive companies."

The engineered products division, which provides window and door manufacturing customers with products and components, posted a 12% decrease in fourth-quarter revenue, primarily from a housing construction slowdown, according to Jean.

Net sales and operating income for the aluminum sheet products division increased 25% in the fourth quarter over the year-ago period. Shipments were down 4% for the year.

For first-quarter 2007, the company expects earnings from continuing operations to be between 35 cents and 45 cents per share. Analysts expect earnings of 70 cents per share, according to Reuters news service.


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