Quanex Building Products' Q4 2025 Earnings Call: Contradictions Emerge on Synergy Timelines, Monterrey Facility Impact, SG&A Run Rate, and More

Date of Call: Not explicitly provided in transcript; based on context (Q4 2025), assume 'December 2025' (specific date not given).

Financials Results

• Revenue: Q4: $489.8M, down 0.5% YOY. Full Year: $1.84B, up 43.8% YOY (driven by Tyman acquisition).
• EPS: Q4 GAAP: $0.43 per diluted share vs. net loss of $0.30 per diluted share prior year. Q4 Adjusted: $0.83 per diluted share vs. $0.82 per diluted share prior year. Full Year GAAP: net loss of $5.43 per diluted share vs. net income of $0.90 per diluted share prior year. Full Year Adjusted: $2.30 per diluted share vs. $2.66 per diluted share prior year.

Guidance:

• Fiscal 2026 revenue and adjusted EBITDA could be flat compared to fiscal 2025, with the first half more challenged and the second half somewhat improved.
• Q1 2026 revenue expected to be down 16% to 18% sequentially vs. Q4 2025.
• Q1 2026 adjusted EBITDA margin expected to be down 800 to 825 basis points sequentially.
• Q1 2026 includes an estimated $3M negative impact from the Monterrey operational issue.
• Modeling assumptions for Q1 2026: SG&A ~$73M, D&A ~$26M, adjusted D&A (ex-intangibles) ~$16M, interest expense ~$12.75M, tax rate 23.5%.
• No formal annual guidance; will revisit with Q1 2026 earnings.

Business Commentary:

• Revenue and Segment Performance:
• Quanex Building Products reported net sales of $489.8 million in Q4 2025, a 0.5% decrease compared to Q4 2024, while full-year sales were $1.84 billion, a 43.8% increase from 2024.

• Full-year growth was primarily driven by the contribution from the Tyman acquisition, despite a challenging macroeconomic environment impacting recent results.

• EBITDA and Segment Trends:

• Adjusted EBITDA for Q4 2025 decreased by 12.6% to $70.9 million, but for the full year, it increased by 33.2% to $242.9 million.

• The quarterly decline was due to lower volumes and operational challenges, while the full-year increase was attributed to the Tyman acquisition and realized cost synergies.

• Cash Flow and Debt Reduction:

• Cash provided by operating activities increased significantly to $88.3 million in Q4 2025, compared to $5.5 million in Q4 2024, and free cash flow for the full year rose by 98% to $102.3 million.

• This improvement enabled the company to repay $75 million of debt in 2025, focusing on working capital optimization and strengthening the balance sheet.

• Operational Challenges and Impact:

• The company faced operational issues at its Monterrey, Mexico facility, resulting in an $8 million negative impact on adjusted EBITDA in Q4 2025, with an expected $3 million drag in Q1 2026.

• The issue was addressed with a comprehensive remediation plan, and the company expects to return to normal operations early in 2026.

• Market Outlook and Strategic Focus:

• The company expects a generally flattish demand environment for 2026, with potential regional imbalances.
• Despite near-term challenges, long-term fundamentals of the residential housing market remain positive, and the strategic initiatives are progressing as planned.

Sentiment Analysis:

Overall Tone: Cautiously Optimistic

• Management acknowledges a 'challenging macroeconomic environment' and 'demand headwinds,' expecting 'flattish demand' in 2026. However, they express confidence in 'long-term underlying fundamentals,' state they are 'slightly ahead' on remediation in Monterrey, and are 'extremely pleased' with cash flow progress and debt reduction. Tone balances near-term caution with long-term optimism.

Q&A:

• Question from Julio Romero (Sidoti): Scott, did I hear you correctly that the negative EBITDA impact in the fourth quarter from the Monterrey challenges was $8 million? And if so, your EBITDA margins for the Hardware Solutions segment would have been in the 16% range in the quarter.
  Response: Confirmed the Q4 impact was $8M (vs. initial $5M estimate) due to 24/7 operation costs. Expect ~$3M impact in Q1 2026, then returning to normal.

• Question from Julio Romero (Sidoti): Understood. And the $3 million drag expected in the first quarter, does that -- does your current kind of informal outlook assume that goes to 0 beyond the first quarter?
  Response: Yes, the $3M impact is expected only in Q1 2026.

• Question from Julio Romero (Sidoti): Well, it sounds prudent that you're able to get your arms around it for sure. Maybe thinking about the the informal outlook, does your current informal outlook assume -- what does that assume from a market volume perspective in terms of the volume you'll get in the first half and the amount of procurement synergies you'll be able to realize as a result.
  Response: Assumes flattish to down volumes with flat to up pricing for FY 2026. Positives: less Mexico cost and additional synergies; offsets: higher SG&A due to inflation, benefits, and bonus accrual.

• Question from Julio Romero (Sidoti): Understood. Last one for me is you were able to pay down debt pretty aggressively here in the fiscal year. You also repurchased roughly $3 million of stock here in the fourth quarter. But the shares have been pretty depressed here. Can you just talk about if you were limited by the open repurchase window timing at all during the fourth quarter? And then also if you could comment on whether you've been active on the buyback kind of post quarter end.
  Response: Focused on debt paydown in 2H to address investor concerns on leverage. Will be opportunistic with buybacks but have limited trading windows. Q1 and Q2 are typically low cash flow periods, balancing buybacks with debt repayment.

• Question from Steven Ramsey (Thompson Research Group): I wanted to think about for 2026 with the persistently challenging demand backdrop, more recently and looking forward, are you seeing any irrational competitive response in certain geographies or certain product categories?
  Response: No significant irrational pricing observed. Supply chain risk is a priority for customers, balancing price decisions. Potential future pricing pressure if commodity costs stabilize or decline.

• Question from Steven Ramsey (Thompson Research Group): Okay. That's great to hear. And then also looking at 2026 and the various product components within each segment, are there any certain products that you expect to be better than the flattish level for the year?
  Response: Potential upside in wood components (Custom Solutions) if higher tariffs persist, driving in-sourcing to the U.S. Other areas remain 'wait and see'.

• Question from Steven Ramsey (Thompson Research Group): Okay. And then on the benefits of the resegmentation, this was a talking point from the Investor Day, you mentioned it again, are there any early positive takeaways and results with the resegmentation so far, is there any benefit embedded in the 2026 EBITDA outlook. And then maybe any of the nuances by segment on the sales or margin side with this resegmentation?
  Response: Early operational improvements from sharing best practices (e.g., in Extruded Solutions). Still early, but exceeding expectations on process improvements and innovation. Not yet quantified in 2026 EBITDA outlook.

• Question from Reuben Garner (Benchmark): So the Mexico issue seems to be on track, cleared up faster than you expected, which is great to hear. George, just curious, it's been a few months since that came about. Can you go into a little detail about the efforts you guys have made internally to make sure that there weren't risk of similar or other issues at different facilities from Timon?
  Response: Conducted a thorough review across all facilities post-acquisition. Confident controls are in place to prevent similar issues elsewhere. Remediation in Monterrey is progressing well.

• Question from Reuben Garner (Benchmark): Great. And then a clarification on the comments for Q1. Scott, did you say SG&A of $73 million? And if so, maybe I've got it wrong in my model, but that's a big change from where it was a year ago. I think $20 million, almost higher on a similar revenue number and also higher than what you just did in the third and fourth quarter. So can you just talk about what's going on there? Is there anything onetime? Is that a good run rate for the full year on a quarterly basis?
  Response: $73M is a decent full-year run rate. Increase driven by accruing bonuses at target (vs. below target last year), inflation, merit increases. Offsets sought via operational efficiency.

• Question from Reuben Garner (Benchmark): Great. And then I'm going to sneak one more in. You talked about potentially a little bit of price. I assume some of that is carryover from actions throughout this year maybe related to tariffs and that sort of thing. What are you seeing on the cost side in terms of cost of goods? Is that pretty stable? What is -- I guess, ultimately, what does price cost look like in your outlook for '26.
  Response: Costs have generally stabilized, though some oil-based materials may see inflationary pressure. Tariff impacts have softened. Price increases have been tied to documented cost inflation, supporting ability to hold price.

• Question from Kevin Gainey (Thompson, Davis & Company): Congrats on another quarter. Maybe we could talk about the synergies to start first and how you guys are thinking how quickly you might be able to achieve the $15 million to get to the ultimate $45 million? And then maybe if you could break down how you're approaching the synergies from like a cost procurement footprint perspective?
  Response: Expect an additional $5M-$10M in synergies in FY 2026, dependent on volume levels (procurement-driven). Further synergies possible in 2027, with some SG&A-related timing in 2026.

• Question from Kevin Gainey (Thompson, Davis & Company): Sounds good. And then as you guys think about the pricing gains that you got in 2025. How much of that was really inflation linked versus kind of structurally? And do you think you have any concerns around givebacks in '26?
  Response: Pricing increases have been strictly inflation-linked, not structural. Philosophy is to pass through costs and improve margins via operations, not predatory pricing. Ability to hold price is strong due to documentation.

• Question from Kevin Gainey (Thompson, Davis & Company): Might be a long answer, but I think it was a great answer. Maybe if you guys could talk about demand as well from kind of parse between new residential versus repair and remodel and whether one feels stronger than the other and how you're thinking about it for '26.
  Response: Both new construction and R&R are similarly impacted currently. R&R likely leads any recovery; new construction depends on interest rates, Fed moves, and housing affordability/mix.

• Question from Kevin Gainey (Thompson, Davis & Company): Appreciate the color. And then one final one just on cash flow. You guys typically burn cash in the January quarter. Is there any reason to expect you wouldn't have slightly negative free cash flow in Q1?
  Response: Possible, depends on volume and CapEx timing. Lower incentive payouts in Q1 2026 (under target) should help cash flow compared to typical years.

Contradiction Point 1

Synergy Progress and Timeline

This is a substantial contradiction concerning a major acquisition's financial realization timeline. It directly impacts earnings forecasts and investor confidence in management's ability to execute integration plans.

First, how are you approaching the synergies and how quickly you can reach the $15 million target on the path to $45 million? How are you breaking down synergies from a cost procurement footprint perspective? - Kevin Gainey (Thompson, Davis & Company)

20251212-2025 Q4: The company has already realized the full $30 million synergy target. For 2026, an additional $5–$10 million in synergies is expected... - Scott Zuehlke(CFO)

Is there a new timeline for the initial $30M in synergies? - Julio Romero (Sidoti & Company, LLC)

2025Q3: The timeline for realizing the first tranche of synergies remains early 2026... - Scott Zuehlke(CFO) & George Wilson(CEO)

Contradiction Point 2

Monterrey (Mexico) Facility Impact and Resolution

This is a substantial contradiction regarding a significant operational issue's financial impact and resolution timeline. It affects segment earnings forecasts and investor perception of operational execution and risk.

Did Scott confirm the Monterrey challenges caused an $8M EBITDA drag in Q4, implying a 16% EBITDA margin for the Hardware Solutions segment? And does the current informal outlook assume the $3M Q1 drag resolves to $0 beyond Q1? - Julio Romero (Sidoti)

20251212-2025 Q4: The Q4 negative EBITDA impact from Monterrey was $8 million, up from an estimated $5 million... A $3 million negative impact is expected in Q1 2026, after which it is expected to go to zero. - Scott Zuehlke(CFO) & George Wilson(CEO)

Tyman Mexico: Will the $5M EBITDA negative impact persist in Q4, and when is it expected to turn positive in fiscal 2026? - Steven Ramsey (Thompson Research Group, LLC)

2025Q3: A similar headwind is expected in Q4, with progress anticipated by year-end and tangible benefits expected early in fiscal 2026. - Scott Zuehlke(CFO) & George Wilson(CEO)

Contradiction Point 3

SG&A Expense Run Rate

This is a substantial contradiction involving a change in the communicated financial baseline (run rate) for a key expense line item. It directly impacts the interpretation of future profitability and financial performance consistency.

Can you confirm the SG&A expenses were $73 million and explain the expenses? Is that a sustainable run rate for the full year on a quarterly basis? - Reuben Garner (Benchmark)

20251212-2025 Q4: The $73 million SG&A run rate for Q1 is reasonable for the full year. The increase year-over-year is due to accruing bonuses at target... inflation, benefits, and merit increases. - Scott Zuehlke(CFO)

Is the $6.5 million in intangible asset amortization from Q2 a sustainable quarterly run rate for D&A guidance, and what are your expectations for full-year D&A on both a GAAP and adjusted basis? - Justin (Sidoti & Company, on for Julio Romero)

2025Q2: The second-quarter intangible amortization is a good run rate. The full-year adjusted D&A guidance, excluding intangible amortization, remains around $60 million. - Scott Zuehlke(CFO)

Contradiction Point 4

Capital Allocation Priority (Share Repurchase vs. Debt Repayment)

This is a substantial contradiction reflecting a significant shift in corporate financial strategy and capital allocation priority. It directly impacts shareholder returns and the company's leverage profile.

Were you limited by the open repurchase window timing during Q4? Have you been active in buybacks post-quarter end? - Julio Romero (Sidoti)

20251212-2025 Q4: The company prioritized debt repayment in H2 2025 to address investor concerns about leverage, despite a 'cheap' share price. - Scott Zuehlke(CFO)

How do you balance debt paydown and stock repurchases when allocating capital in FY25? - Steven Ramsey (Thompson Research Group)

2025Q1: At the company's current stock price, repurchasing shares is prioritized over debt repayment. The decision is evaluated weekly. - Scott Zuehlke(CFO)

Contradiction Point 5

Market Demand Outlook and Guidance Drivers

This is a substantial contradiction concerning the fundamental basis for the company's financial guidance. It shifts the expected driver from stable, internal factors (seasonality) to an external, uncertain demand environment, changing the risk profile for the outlook.

Does your current informal outlook assume specific market volume levels in the first half and procurement synergies realization? - Julio Romero (Sidoti)

20251212-2025 Q4: The informal outlook for 2026 assumes **revenue and volumes flattish to down, with flat to up pricing**. - Scott Zuehlke(CFO)

Does the second half improvement drive the full-year guidance? Are specific segments key to achieving the full-year target? Why is your full-year outlook more optimistic compared to window and cabinet producers? - Steven Ramsey (Thompson Research Group)

2025Q1: The forecast for improvement in H2 is based on typical, normalized seasonality for the business. There is nothing different expected this year." / "The company's initial guidance was more conservative than some others. The H2 improvement is largely driven by seasonality... - George Wilson(CEO) & Scott Zuehlke(CFO)