Quanex Building Products NYSE: NX reported a modest increase in fiscal second-quarter revenue but sharply lower earnings, as inflation in raw materials, freight and logistics weighed on margins and led the company to withhold reaffirmation of its prior full-year outlook.
On the company’s earnings call, Chairman, President and CEO George Wilson said demand for Quanex products was “largely as expected” despite continued pressure in housing markets. He said housing demand in North America and Europe is showing “early signs of stabilization,” but cautioned that any recovery is likely to be gradual because of weak consumer confidence, affordability challenges, geopolitical uncertainty and elevated mortgage rates in the U.S.
“Given these ongoing challenges, we don’t expect housing markets to rebound sharply in the near term,” Wilson said. He added that a stronger recovery would depend on improved affordability, lower or more stable interest rates and better consumer confidence supported by geopolitical stability.
Revenue rises as earnings decline
Senior Vice President, CFO and Treasurer Scott Zuehlke said Quanex generated net sales of $462.4 million in the second quarter of fiscal 2026, up 2.2% from $452.5 million in the same period last year. He said the increase was mainly driven by pricing, tariff-related pass-throughs and favorable foreign exchange translation, which more than offset lower volumes.
Quanex estimated that consolidated volumes declined about 3% in the quarter. Pricing contributed approximately 1.5%, tariff pass-throughs added about 1% and foreign exchange translation provided a benefit of about 2.5%.
Net income fell to $3.4 million, or $0.07 per diluted share, from $20.5 million, or $0.44 per diluted share, a year earlier. Adjusted net income declined to $11.3 million, or $0.25 per diluted share, compared with $29.1 million, or $0.63 per diluted share, in the prior-year quarter.
Adjusted EBITDA was $44.2 million, down from $63.1 million in the second quarter of fiscal 2025. Zuehlke said the decline reflected reduced operating leverage from lower volumes, macroeconomic uncertainty, weak consumer confidence, tariff-related costs and inflationary pressures.
Inflation pressures margins across the business
Wilson said gross margin declined 350 basis points year over year, primarily because of sharp increases in raw materials and logistics costs. He said the Hardware Solutions segment was the most affected during the quarter because of the legacy make-to-stock model for the window and door hardware product line and higher inventory levels in that segment.
Quanex said raw material cost pressures were broad-based. In Hardware Solutions, the company cited higher costs for aluminum, zinc, stainless steel and plastic resins. In Extruded Solutions, pressures included butyl rubber, silicone compounds, carbon black, desiccants and PVC resins. Custom Solutions was affected by higher costs for EPDM, carbon black, oils, aluminum, plastic resins and certain hardwoods.
Wilson also said rising packaging, freight and logistics costs affected margins across all segments and product lines. To address those pressures, the company is implementing targeted price increases ranging from mid-single-digit to low-teens percentages, phased in through the third quarter and tailored by product line.
In response to an analyst question, Wilson said index-based pricing mechanisms in North America typically reset quarterly, which can leave Quanex exposed to cost increases until the next adjustment. He said the company’s outlook assumes current pricing remains relatively stable and does not assume additional inflation.
Segment results show mixed trends
Hardware Solutions generated second-quarter net sales of $203 million, essentially flat with $202.9 million a year earlier. Zuehlke said segment volumes were down approximately 5%, while pricing was up about 0.5%, tariff pass-throughs added roughly 2.5% and foreign exchange translation contributed about 2%. Adjusted EBITDA in the segment fell to $5.2 million from $27 million.
Extruded Solutions revenue was $165 million, up slightly from $164 million in the prior-year quarter. Volumes were down about 4%, pricing was up approximately 1% and foreign exchange translation added about 3.5%. Adjusted EBITDA declined slightly to $30.4 million from $30.7 million.
Custom Solutions reported net sales of $103.9 million, up 6.6% from the prior year. Zuehlke said volumes increased about 1%, pricing rose approximately 4.5%, and foreign exchange translation combined with tariff pass-throughs added about 1%. Adjusted EBITDA declined to $11 million from $13 million, primarily because of inflationary pressures.
Guidance limited to third quarter
Quanex did not reaffirm its previously issued fiscal 2026 guidance. Zuehlke said inflationary pressures have increased since the company’s March earnings call, while broader uncertainty related to geopolitical developments, consumer confidence, interest rates and tariffs has reduced visibility for the balance of the year.
For the third quarter of fiscal 2026, Quanex expects consolidated revenue to be flat to up 1% compared with the third quarter of fiscal 2025. The company expects adjusted EBITDA margin to be flat to up 25 basis points and said an estimated tax rate of about 24% is reasonable for the quarter.
Wilson said the company expects normal seasonal demand patterns to continue into the third quarter, which would imply sequential volume growth. He noted that volumes softened after Memorial Day last year, but said Quanex has not observed similar trends so far this year.
Cash flow and debt reduction remain priorities
Cash provided by operating activities was $18.9 million in the second quarter, compared with $28.5 million a year earlier. Free cash flow was $7.9 million, down from $13.6 million in the prior-year quarter.
Zuehlke said Quanex expected to be a net borrower during the quarter because of the longer cash conversion cycle of the legacy Tyman business, but working capital management allowed the company to avoid borrowing on a net basis. Liquidity was $328.6 million as of April 30, 2026, including $63.7 million in cash and availability under its revolving credit facility, net of letters of credit. Net debt to last-12-month adjusted EBITDA was 3.1 times.
Management said near-term priorities include closing the price-cost gap, accelerating the shift from make-to-stock to make-to-order in window and door hardware, executing an 80/20 initiative in the North American hardware business, improving working capital and generating free cash flow.
Asked about capital allocation, Wilson said debt reduction is the company’s first priority, though Quanex will continue to evaluate opportunistic stock repurchases.
About Quanex Building Products NYSE: NX
Quanex Building Products Corporation engages in the design, manufacture and distribution of components for the window, door and building products industries in North America. The company operates through two primary segments: Window Products and Door & Building Products. Its Window Products segment supplies vinyl window profiles and related accessories, while its Door & Building Products segment offers engineered door skins, panels, siding products, specialty moldings and other exterior building components.
Within its Window Products segment, Quanex produces extrusion profiles used by window fabricators to assemble vinyl casement, double-hung, slider and picture windows.
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