Quanex Building Products Corp (NX) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Quanex fiscal fourth-quarter and annual earnings conference call. At this time, all participants are in listen-only mode. Later in the call we will conduct a question-and-answer session, and instructions will be given at that time.

During today's conference call, Company management may make forward-looking statements about the future prospects of Quanex. Participants should refer to the Company's 2011 Form 10-K filed with the SEC for more complete forward-looking statement disclosures available at the Company's website at www.Quanex.com. Lastly, participants are reminded that today's conference call is being recorded. I will now turn the conference call over to Mr. Dave Petratis, Chairman, President, and CEO of Quanex for opening comments. Please go ahead, sir.

Happy holidays, and thank you for joining us for our fourth-quarter and year-end conference call. On the call with me today is Brent Korb, our Chief Financial Officer, and Marty Ketelaar, our Vice President of Investor Relations and Corporate Communications. Today's call will include a brief recap of fourth-quarter results and our annual results, a final update of the consolidated results of our insulating gas spacer facility, and a progress report on Nichols Aluminum. We will give a general outlook for demand in fiscal 2013, and a recap of what we believe our earnings prospects will be, once our end markets return to more normal levels, including our definition of normal market conditions. We will also provide you with some additional clarity on some of our recent initiatives and how we expect them to impact our financial results.

Before I begin, let me give you a brief update on the Alumina acquisition we announced Monday evening. We are very pleased to welcome Aluminite into the Quanex family. Aluminite is a strategic acquisition that expands our window screen product offerings into the vinyl market, in addition to increasing our geographical footprint, from which we can better serve window and door OEMs. The window and door screen market in total is estimated to be a $450 million market, dominated by vertically-integrated OEMs who make their own screens. With the addition of Aluminite, the range of screen products and price points position us better to serve these OEMs. The transaction is expected to close by December 31, 2012, and would be funded from cash on hand.

Turning to our quarterly results. Engineered Products finished the year strongly with fourth-quarter net sales up 5.2%, but operating income was down $1.3 million over the year-ago quarter. Our operating margin was 9.9% compared to 11.5% in the fourth quarter of 2011, driven largely by continued investments in our sales and marketing efforts, that will position the Company for future growth. For fiscal 2012, comparable sales at EPG increased 6%, primarily driven by higher vinyl extrusion sales to one of our large OEM customers. Operating income and margins for the year were burdened by the consolidation cost at our IG operations. The good news is that the consolidation was successfully completed on time and on schedule, and we have begun to see the financial and operational benefits of that consolidation in our first quarter. The total cost of the consolidation was $16 million, $9 million of expense and $7 million of capitalized items. We expect to achieve an estimated annual savings of $8 million, so EPG results will clearly benefit from this consolidation.

According to Ducker Worldwide, the market intelligent firm we use to benchmark EPG's performance against the industry, total estimated US window shipments increased approximately 1.5% for the 12-month period ended September 2012, with increases in new construction more than offsetting the 6.6% decline in the repair and remodel window market. 2012 sales at EPG increased nearly 14% on an absolute basis, or 6% on a comparable basis, when adjusted for Edgetech and we are very pleased with these results. EPG's combined sales and marketing team continues to show modest and steady progress. You will recall that the objective of this project was to provide a resource for customers, as well as to partner with and be the provider of choice to the window and door OEMs. We are a couple of years into this initiative, and we are seeing some tangible results.

As our customers look to develop new, more energy-efficient systems with the features and benefits that their customers seek, we believe we have the products and level of service to meet those needs. Our belief was confirmed based on the responses and attendance at our booth at the 2012 GlassBuild Show in Las Vegas this last September. Quanex had a significant presence at this year's event, and it was clearly a success as we won Best In Show and our ScreenItAgain.com website won the Crystal Achievement Award for the best industry website. More importantly, we invested quality time with many wide-ranging customers to gain valuable feedback on what we can do to help them succeed. We also generated numerous leads that our sales team is actively working into turning into new business.

Now, let me turn to Nichols Aluminum. 2012 was one of the most difficult years in Nichols' history. We started off the year poorly with quality issues at our Alabama paint facility, and weak demand as our customers operated in a destocking mode. The second quarter brought us a 12-week strike that directly cost us slightly more than $11 million in higher costs and lost volume, not to mention the inefficiencies that continued after the strike ended. Additionally, we changed the management team, including the President, Vice President of Operations, and the General Manager of the casting facility. That's a lot of change.

Our new management team, led by Russ Brown, who came on board in July, has already made a significant improvement. Russ is not from the aluminum industry, and that is intentional. Russ has a great deal of experience with operations, particularly in Lean Six Sigma and standard work processes, and we are already beginning to see visible results as the programs gain momentum. In late September, the union at Davenport, Iowa casting and finishing facilities ratified a new five-year contract. This contract has provisions for two-tier wage systems, more equitable sharing of healthcare costs, and allows us to have a more flexible set of work rules.

Part of the quality problems experienced at Nichols is due to aging equipment. The new operating philosophy at Nichols will focus on preventative maintenance, improving quality and on-time delivery. As I stated last quarter, this will require some additional investment in Nichols. During the fourth quarter, we spent $1.5 million to complete the installation of a new annealing furnace that will help improve the throughput at our Lincolnshire finishing facility, and in April, we expect to replay the paint oven at our Decatur, Alabama facility. The ability to produce and ship consistent, high-quality painted aluminum sheet will make a positive impact on Nichols' profitability.

Over the last five years, Nichols' average capital expenditure has been approximately $7 million. We expect Nichols' capital expenditures to increase to the range of $10 million to $13 million over the next few years. We believe these investments will make a significant improvement in quality, on time delivery, reliability, and, therefore, profitability. During the fourth quarter, Nichols shipped 73 million pounds, 11% better than the 66 million pounds shipped in the year-ago fourth quarter, but it did not meet our expectations. Operational issues at the casting facility included an inductor issue and a melter going down, causing us to miss our target of 80 million pounds. Many of these operational issues will be addressed through the preventative maintenance programs we now have in place, and as I mentioned.

We are encouraged by the positive results we are seeing at Nichols. The Aluminum Association, which tracks industry shipment of sheet products, reported industry volumes for the 12 months ended October 31, 2012, up 8.6%, while Nichols' shipments declined by 8.9%. Our performance can be attributed to the impact of the strike, the operational issues I just mentioned, and weaker repair and remodeling demand. Nichols' fourth-quarter operating income was also disappointing, coming in at a loss of nearly $1 million compared to operating income of $3.1 million a year ago. Although demand remains strong in the quarter, spreads declined by 18% or 9% per pound to $0.41 per pound. The result, a larger decline in aluminum prices compared to scrap material. Let me now turn the call over to Brent, who will take you through some additional financial highlights.

Thank you, Dave, and thank you to all of you joining us for today's call. Quanex reported earnings from continuing operations of $0.03 per share in the fourth quarter, compared to $0.17 per share in the year-ago quarter. Earnings in the fourth quarter of 2012 included a LIFO benefit of $0.03 per share, $0.04 per share in ERP costs, an asset impairment charge of $0.02 per share and facility consolidation of $0.01 per share. The year-ago earnings per share of $0.17 included LIFO income of $0.03 per share, ERP costs of $0.01 per share, a $0.01 per share warranty benefit, and $0.03 per share of other expense items. Our cash balance grew during the quarter to $71 million, and during the year we purchased 94,337 shares of our common stock at an average cost of $13.61 per share.

Our $270 million credit facility remains unused, and due to the EBITDA covenants associated with the agreement, our available borrowings balance is approximately $103 million at year end. We have been in negotiations with our banking group to put a new revolver in place, and expect to have those discussions wrapped up by the end of the first fiscal quarter. Our preferred use for cash continues to be funding internal growth initiatives, or making acquisitions that add to or complement our fenestration footprint. Other uses of cash include funding our common stock dividend or buying back stock. For 2013, we expect capital expenditures of approximately $40 million, and depreciation and amortization expense of $43 million and a corporate tax rate of approximately 38%. I'll now turn the call back to Dave.

Thanks, Brent. Moving to our 2013 business outlook, I would characterize it as cautiously optimistic. We are certainly encouraged by the significant improvement in new housing starts. According to a recent report by the US Census Bureau, housing construction increased to a post-2008 seasonally-adjusted level of nearly 900,000 starts. New home inventories of 147,000 remain at a very low level, and the month supply of new homes was at 4.8 months, well below the industry standard of six months.

All that is good news, but our caution remains on the repair and remodel side. With unemployment levels high, consumer confidence is improving but still skeptical, and home window replacement remaining a big-ticket item, we have yet to see the signs of improvement on the R&R side like we are seeing on the new construction side. The lowering of US window shipments by Ducker Worldwide on the R&R side during the year is additional evidence that the R&R recovery will be slow. Ducker's rolling 12-month estimate for 2013 is approximately 42 million units, up from approximately 39 units on a comparable basis in 2012, driven almost entirely by new construction. While the R&R market and pricing will likely represent challenges in 2013, we expect our earnings results to significantly improve this year.

At Nichols, the losses stemming from the strike will not repeat. We also see benefit from the new union contract and our emphasis on preventative maintenance will result in more reliable operations, which should lead to more shipped pounds. Last, we expect to see some modest improvement in spreads during the year at Nichols.

At EPG, we'll immediately begin seeing the benefit on margins from the $8 million of annualized savings from the IG facility consolidation, and won't incur any additional IG consolidation cost. Additionally, EPG should continue to benefit from the improvement in the housing market, and we will continue to see growth internationally as energy efficiency standards are raised in the UK. While we can't predict when our end markets will return to normalized levels, we can estimate our financial performance when they do. Normalized markets according to Quanex will occur when new window shipments, as reported by Ducker Worldwide, reach 60 million units. Additionally, if aluminum spreads improve to more normalized levels, we believe our EBITDA can reach $205 million before factoring in corporate expenses. That is the split between EPG at $135 million, and $70 million at Nichols.

We have continued to work hard over the years to ensure Quanex is well-positioned to add its market-leading positions through organic growth and acquisitions. We have a very strong balance sheet and a strong talented team ready to serve our customers, and we remain very bullish on our long-term prospects. With that, we are ready to take your questions.

(Operator Instructions)

Our first question is from Daniel Moore of CJS Securities. Your line is open.

In Nichols, what type of LME aluminum prices would we need to see in order to get the spread up to the point where you'd be able to achieve the long-term $70 million EBITDA target?

We haven't said what that LME price is, but it really, if you go back to -- maybe let me say it this way. When you go back to kind of the 2007, 2006 time period, when Nichols generated $92 million of EBITDA versus where we're standing today, I would tell you that the spreads that are assumed in that $70 million are somewhere halfway in between those two time periods, probably be the best guidance I could give you on that. What I'm trying to get across is we're not saying that it has to get all the way back to the peak spread, nor do we expect it to really.

And shifting gears, one follow-up. In terms of SG&A, if I adjust out the ERP implementation expense and the asset impairment, I'm still coming up with somewhere around $27 million or a little higher. Can you give us a sense, what drove the increase in SG&A in the quarter, and what a good run rate quarterly as we look out to 2013 might look like?

Yes, there's a few things flowing through there. We do end up having one of the variables that hits corporate is, we have some deferred compensation costs that are driven, impacted by a stock price and the appreciation that we saw during the fourth quarter in the stock price did add some noticeable cost in the fourth quarter. I don't have the number right off the top of my head. What do we expect run rate going forward on that comparable basis? I would tell you that in the neighborhood of -- it's north of 25, probably south of 30 here today. Now, the one caveat I'm going to put on this is, as we go through the roll-out of SAP, what's classified as Quanex corporate versus what's in the divisions as we consolidate some transaction-related stuff, that might create a little muddy waters, if you will.

But still north of 25 adjusting for the ERP implementation and other one-time items.

I would say that's correct.

Thank you. I'll jump back in queue.

Our next question is from Richard Paget of Imperial Capital. Your line is open.

I know for the R&R market you are cautiously optimistic, but some of the projections out there are calling for next year to have some double-digit increases in that market. I realize windows are a bigger-ticket item. Are you just being conservative here, or is the window portion of the R&R market just a separate, maybe it lags the overall market by a bit? Just trying to get a sense of this cycle versus previous ones.

Windows from my perspective are late cycle, because of the high ticket nature of it. As R&R increases, we will certainly see an improvement, but you've got numbers out there, I think we -- American Plywood Association would be one step adjacent. I think they've got like a 12% increase. I can't even come close to that when I think about windows. As existing home sales continue to pick up, consumer confidence, cold winters like they're having today in Chicago, creates more demand around windows. But I think we're going to go -- we're going to have very modest growth in the R&R window replacement over the next 24 months, and then it moves from a like-to-have to a must-have, because -- and why we're cautious is that R&R windows, which is two-thirds of the market right now, declined from 2011 to 2012, so I think our caution is well-grounded.

Okay. And then just a quick follow-up with the plant consolidation. I think you're saying you're expecting $8 million in savings going forward. Did you revise that number from previous expectations?

Yes, I would say if you went all the way back to when we announced it, we thought we would have $9 million in savings. We pulled it down to $8 million because to be fair a couple years ago or 18 months ago, when we developed the models, the assumption was that market would have improved more than it has, thus far. So we really pulled it down just based on a lower market number.

The lack of recovery in the R&R, which typically pulls through higher performance windows, affects our IG segment.

Thanks. I'll get back in queue.

Thank you. Our next question is from Keith Hughes of SunTrust. Your line is open.

In the window business, have you seen the last couple months any kind of inflection up or down of demand with all this talk of fiscal cliff, other kind of nonsense out there?

I believe we went through a normal wind-down as we moved into the winter months. The multifamily, new construction, are overall up 14% at EPG plus 6% on same-store, I think reflects what's happening and it doesn't seem to be affected by the fiscal cliff.

To the aluminum segment you're talking about dramatically improved results for fiscal 2013. Is there any other kind of metrics you can put on that? I assume panels are going to be up. Is that implicit in that assumption, I guess?

Pounds, clearly. I think as a measure of health or measure of the change that's going on at Nichols, in the fourth quarter of 2011, which was pre-strike, we produced 66 million pounds. And this fourth quarter we produced 73. That would be with 100 new employees that weren't there, 70 to 100, I don't know exactly what the number is. I track the caster output, which to me is the heart of the business. In October and November, we were at the 1.2 million-pounds level, which is above our 2011 output. So our backlogs are coming into current, in terms of what's due.

The output's there and we are taking some hard shutdowns. We are down five days at Thanksgiving. We will be shut down at Nichols December 16th through January 6th. We are rebuilding the melter. We're rebuilding the [delack], which should have been done a year ago.

The final improvements on the induction system. The induction system will have a redundant system. That induction system in 2012 cost us seven days of output. All we have to do is flip a switch, if the primary inductor goes down, we can go to the backup. I think we're making some fundamental improvements in pounds. The challenge will be the spread, and as our on-time delivery improves, we're going to get more aggressive on the rolling charge.

Do you think you'll be able to get that into the black here in the first quarter with that kind of shutdown schedule?

Historically, no. The shutdown schedule limits our pounds. We need to be good when the market's good. That's why I pushed extremely hard on the discipline on these preventative maintenance efforts.

Okay. Thank you.

Thank you. Our next question is from Peter Lisnic of Robert W. Baird. Your line is open.

I guess first question, you mentioned the throughput on Nichols that may be running 1.2 million pounds a day. As you progress past the first quarter, how much improvement do you think you can get off of that number, with some of the new equipment in place, the new employees, that sort of thing?

I think there's positive upside. Before I commit to that number, I would like to think, I walk before I run. As you look, we have to be able to step it up in terms of produced pounds off the caster to be able to meet the normal outputs that we would have even a year ago. I'm encouraged with the changes that we're making, we're 10%, 15% ahead of where we were a year ago. I think the potential's there.

Pete, this is like my golf game. I can have a few good shots. I lower my handicap by having several solid rounds. I'd like to be in front of you the next quarter and say, hey, we've had some good rounds here. I see early signs, but that's where I'll make that commitment.

Okay. All right. And then if I could just switch gears to the EP segment. If I look at the margin, the op margin adjusted on a sequential basis, it was actually down, even though revenue was up from third quarter to fourth quarter. I'm trying to understand, is that simply a function of mix, or is there something going on there competitively, just a feel for what caused that? And then when we look to 2013, you've got the $8 million of savings, but how should we think about mix impacting what the margin might look like, given maybe strong top line growth for 2013?

I would say the mix is playing some role, but more pricing pressures on the vinyl side. We have been aggressive in our price leadership, but with prime window demand effectively flat, there's people out there with capacity that's idle and it's certainly pressed us, so that affects the margin at EPG, some higher selling cost I think can be offset by growth in Europe, and upside on the new construction side.

Okay. All right. Thanks. I will jump back in queue and happy holidays.

Same to you, Pete.

Thank you. Our next question is from Robert Kelly of Sidoti & Company. Your line is open.

Just on Nichols, the $6 million loss if we throw out everything from the strike, that's kind of your starting point, what can -- if we assume the volumes improve gradually like you're talking about, and spread and pricing is just a little bit better, I mean, what kind of productivity initiatives do you have on the board to get this business turned around? What kind of impact can we expect from them?

Yes, I mean, I guess the best thing I would do, Bob, is just looking back at the past, when you look back to 2010, 2011, your $6 million loss in 2012 is adding back the $11 million that we've talked about. But when you see $17 million of OI in 2011 and about $30 million of OI in 2010, we think with some simple moves, we can get on the trajectory to get back to that path. One key item that we do need to get in place is the paint line oven upgrade in the middle of the year. That's key and critical, because that's one area where we've had reliability issues, and that's on our highest-margin products on the wide painted sheet. So we do need some things to happen for us to really get back to the volume levels that we experienced and efficiency levels that we saw in 2010 and early 2011.

The upgrade of the paint line at Alabama is a major move. It's a big capital investment. The same engineering resources and mines that we had on the massive consolidation at Cambridge, Ohio are working the project at Nichols Alabama, so I've got a high level of confidence. In terms of scale, it's nothing compared to what we just completed at Cambridge and it will improve the mix and our margins as a result.

So is this a couple quarters before we start to see the impact? I know you talked about 4Q feeling some of the impact, but, I mean, it sounds like you got a lot to do in Nichols still before we get back to those fiscal 2010, fiscal 2011 trajectories.

I would look first at the pounds produced.

Okay.

We produce 66 million in the fourth quarter of 2011 and we produced 73 million in the fourth quarter of 2012. I think that's a pretty good signal that some things are going right there.

Fair enough. And then just on the EVP side, you have a couple big positives helping the earnings line there in 2013, as far as the cost savings and hopefully a tailwind from volume. You stressed that mix is adverse with new construction being strong. Could you just give us an idea of what the differential is between your remodeled margin and your new construction margin, how you think about --

it's difficult because we make so many components. The repair and replacement market for windows is two-thirds of the market today. The windows that you put in to replace the low-performance windows they put in new construction, let's say it's $200 an opening versus $500. When our customers up-sell in that replacement space, it carries high performance IG, it carries higher performance vinyl. Example, our energy core, our EnergyQuest, the Pella 350 series, upgraded screens and engineered accessories. So it moves the ball significantly for us in terms of points. I can't tell you, but the R&R space has got to really go.

I think I have an idea. Thanks, have a good holiday.

Thank you. Our next question is from Tim Hayes of Davenport & Company. Your line is open.

Just one question on Nichols, the 1.2 million pounds per day off the caster. I'm coming up with -- are you up to 440 million annually then, or is that just some rounding that we're getting with the 1.2 million?

No, you've often heard me talk about the potential of Nichols. Your math is right, but we shift from wide to narrow. When we go to narrow, we drop down the 800,000-pound level, so mix through the casts are important but the message I'm trying to drive at Nichols on the days that we operate, that we have good throughput on the types of metals that we want to run through there and I believe there's unlocked capacity. I do not want you to think there's 440 million just waiting to be untapped. But it's what we would call optimization, and we're going to work hard towards that.

So Tim, let me also -- I want to be clear, so that when Dave quotes a number off the caster, that's a gross pound. That is different than when we talk about shipped pounds in a month. The 30 million of shipped pounds, that is netted for yield loss that occurs as the metal moves from the casting facility to the finishing plant. So there is an expected amount of yield lost from the gross number Dave's quoting you, versus our shipped pounds. You can't just take that times number of days and say you're now producing 440 million shipped pounds.

Certainly. Yes.

I want to weigh back in. Brent always grounds me, and that's a good thing. Part of the management changes, the investment in Lean Six Sigma in capital is we've historically said 360 million pounds. I believe with good execution we can raise the lid on that, and I think calculations like that show you that we have the opportunity.

Okay. Thank you.

Thank you. Our next question is from John Kohler of Oppenheimer and Company. Your line is open.

Quick question, on primarily related to maintenance CapEx with Nichols. The 11 to 13 or the number that was thrown out, that's going to include some accelerated, what I would classify as deferred, previously deferred maintenance. Can you give us an idea of what the maintenance CapEx is likely to be once that gets completed?

I think you drop down $2 million. Normal CapEx at nil Nichols should be between $8 million and $10 million. I'll give you a little more color. Running Nichols, you're going to rebuild a melter every year. That's between $1 million and $2 million. There's a level of maintenance CapEx that with some big tickets but this -- the oven system at Alabama was installed in 1965, so we'll get a lot of mileage out of that. There's some big ticket items as we went through the strategic assessment of Nichols in 2006 and 2007, delayed. We believe we will be able to improve the bottom line of the business through better operating efficiency.

If Company-wide between EPG and Nichols, prior maintenance CapEx was in the $11 million to $13 million annual range, it's likely to go up just a $2 million or $3 million or so overall.

I think if you exclude the SAP that we're putting in, that's a good assumption.

Okay. Great. And I know it's a lot of disparate products, but I was wondering if you had an overall general capacity utilization figure for EPG in Q4?

I would say 55.

Great. Thanks a lot and have a great holiday.

Thank you. Our next question is from Daniel Moore of CJS Securities. Your line is open.

Thank you, again. Regarding the ERP spend, any update there, the initial expectation was $35 million or so over three years. Are we trending a little bit above that at this stage?

So yes, we are trending above that. We are working through what our future roll-out's going to look like and putting some numbers to that before we can give a revised guidance. But our objective was to have our initial operating plant go live here in November, and we have held off on that, and we'll push that into early 2013. So that in and of itself tells us that we're above our $35 million number. We're currently looking to see what we can do for the future here.

Okay. And lastly, anything else you'd be willing to share around purchase price, revenue, margins, et cetera, the opportunity for Aluminite?

Not today, but in the future, we'll come back and make you whole on that. We feel very pleased about the acquisition and how it complements our strategy.

All right. Appreciate it and we'll you in January at our conference.

Our next question is from Peter Lisnic of Robert W. Baird. Your line is open.

Just a follow-up on Nichols. The spread improvement for fiscal 2013 that you're embedding in your model, can you give us a sense of order of magnitude, and then I guess maybe more importantly, it's probably two or three pieces that go into that. Can you give us a feel for how much of that improvement might just be driven by your operations becoming a bit more efficient, or better able to service customers versus what might be going on with scrap or spread one and two or LME versus scrap costs?

I guess the way I would say it, in our modeling, to be honest with you for our operating plans next year, we've only factored in a few pennies, just to give you an order of magnitude improvement in the spread. I would say as it relates specifically to spread, the numbers I'm giving you are really more market-driven as relates to efficiency and serving the customer and those kinds of things, that's below the line, below the spread line, and we do have efficiency assumed in here and things of that nature. But specific to spread, we're talking a few pennies is what we're modeling today.

Just to follow up, is that higher LME or lower scrap or combination of the two? Just wondering what underpins that.

It's probably a combination of really -- I call it the bigger influencer would be some stability. When you think about what's gone on during 2012, we've been in a period of declining prices, and then an increase and then decline. So what that assumption is, is if we just have some stability, we'll see -- I don't want to put an exact number on it, but you could see $0.01 improvement just from stable prices. Because then our scrap pricing will come a little more in line over time with what's gone on with LME. That's just to give you a flavor for what our thoughts are right now. We're not forecasting some noticeable increase in LME prices. Let me put it that way.

Okay. Got it. That's very helpful, Brent. I appreciate the follow-up. Thanks.

Thank you. Our next question is from Robert Kelly of Sidoti & Company. Your line is open.

I was going to ask about Aluminite, too, but I'll just try. Is this going to be a separately-run operation or is there some integration process like you did with Edgetech?

I'll give you some more color at the next call. Simple operation, it complements what we do, but I'll give you more color down the road.

Okay. Thanks.

Thank you. (Operator Instructions). We have a question from Trey Grooms of Stephens. Your line is open.

Just coming on the topic of M&A, can you give us a little bit of color on what you see out there as far as your pipeline? Is there anything sizable that's out on the horizon as you see it, and also just given where we are in the cycle and everything, what your appetite for additional M&A is, as we look forward?

So we would characterize the pipeline as robust. We've got Gus Coppola, a 30-year veteran of the window industry partnered with a young guy here at Corporate, Tobiah Utter, and that pipeline is as strong as it's been since I joined Quanex. I think the Aluminite deal, privately negotiated, is an example of that. I would say there is nothing of the scale of an Edgetech today on the horizon, although those things are populating in our pipeline, but we continue to work pretty hard. We think the screen category continues to be important or what we call engineered components, and we have been working hard. We want to get bigger in the fenestration section of the vinyl extrusion. We continue to cultivate those opportunities.

The last segment that continues to have interest for us is things that can complement our IG business. We have a world-leading position. It's growing faster in Europe. You're going to see that as we go through. Those are really the three arenas, and the pipeline is rich, but big things of scale, nothing pending, that's how I'd characterize it.

Thanks, that's all I had. All my other questions have been answered. Thank you.

All right. Happy holidays.

Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to management for any further remarks.

Okay. 2012 presented several challenges and opportunities, and I'm pleased with how the Quanex leadership team responded. In 2013, we'll be looking for improved operational performance from Nichols as the management team pushes our lean process initiatives and our investment in equipment and maintenance, improved reliability and throughput. We also continue to drive productivity improvements, lower costs, improve customer service and grow our customer base. All of these things will benefit our shareholders in the long run, and allow us to achieve our vision of profitable growth. That concludes today's call. Thank you for joining us. Have a great day, and happy holidays.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.