Quanex Building Products Corp (NX) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2017 Quanex Building Products Corporation Earnings Conference Call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Mr. Scott Zuehlke, Vice President of Investor Relations and Treasurer. Sir, you may begin.

Thanks for joining the call this morning. On the call with me today is Bill Griffiths, our Chairman, President and CEO; and Brent Korb, our Senior Vice President of Finance and CFO.

This conference call will contain forward-looking statements and some discussion of non-GAAP measures. For a 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'll now turn the call over to Bill to say a few words about Hurricane Harvey before Brent discusses the financial results.

Thanks, Scott, and good morning, everyone. Before we get down to business, let me first provide some comments on Harvey.

As you all know, much of the Texas Gulf Coast, including Houston, suffered a devastating amount of rainfall and flooding during the hurricane. In fact, we had over a year's worth of rain in 4 days. Fortunately, all of our employees are safe, although 4 of them, including Brent, suffered flood damage to their homes and at least 1 family lost a car and the office was closed for all of last week. The encouraging news is that rebuilding efforts are already underway, and I am very confident that Houston will recover quickly.

The question, of course, on everybody's mind is how will the impact of Hurricane Harvey and the Florida-bound hurricane, Irma, affect business? The honest answer is it's really too early to tell. However, we can say that August results will see a relatively minor dip as at least one major customer had a plant down for all of last week. We also have a number of customers with plants that could be affected by Irma if it goes through the center of Florida and up through South Carolina and Georgia as currently predicted.

As the rebuild efforts continue, we would speculate that it should benefit our Cabinet Components segment more so than our Window segment, and more likely in fiscal 2018 than in the fourth quarter of this year.

Also due to the disruption in the supply of chemical feedstocks, we would also speculate that some of our input costs, probably resin, will increase over the next several months. However, as a reminder, PVC resin is a pass-through cost, and as such, should not be an issue if prices do, in fact, rise over time, but we also use several chemicals and compounds that are not subject to pass-throughs that could cause pricing pressure or to supply constraints as we exit this year.

I'll now let Brent cover the financial results, and then I'll wrap up with additional comments afterwards.

Thank you, Bill. I'll start with comments on our balance sheet and cash flow. Cash provided by operating activities increased to $29.6 million for the 3 months ended July 31, 2017 compared to $25.2 million for the same period of 2016. We generated free cash flow of $20 million during the quarter, representing an increase of approximately 20% compared to the third quarter of 2016. As a reminder, we generate most of our cash in the second half of each year due to the seasonality of our business, with Q4 historically the strongest cash-generating quarter.

As of July 31, 2017, our leverage ratio defined as net debt to last 12 months adjusted EBITDA was 2.5x, which represents an improvement of 0.2x compared to April 30, 2017. The improvement was mainly the result of the repayment of more than $22 million in debt during the third quarter.

Consistent with recent comments, we remained focused on generating free cash flow to further pay down debt. Our long-term leverage ratio target is 2 to 2.5x and we expect to be comfortably within this range at the end of our fiscal year on October 31, 2017.

Moving onto the income statement. We reported net sales of $229.4 million during the third quarter of 2017 compared to $248.1 million during the same period of last year. Similar to each quarter in the first half of the year, the decrease was primarily attributable to our previously disclosed decision to shed less profitable business in an effort to protect margins and increase long-term returns.

Net income increased to $10.2 million or $0.29 per share for the 3 months ended July 31, 2017 compared to a loss of $4 million or $0.12 per share for the 3 months ended July 31, 2016. On an adjusted basis, net income increased to $11.5 million or $0.33 per share during the third quarter of 2017 compared to $9.2 million or $0.27 per share in the third quarter of 2016.

The adjustments being made for the 2017 and 2016 earnings per share are as follows: acquisition-related transaction costs, purchase price inventory step-up recognition, restructuring charges related to the previously announced closure of 3 manufacturing plants, accelerated depreciation and amortization for equipment and intangible assets related to these facility consolidations and foreign currency impacts, primarily related to an intercompany note with HL Plastics.

We recorded additional restructuring charges in Q3 related to the previously disclosed closing of 2 U.S. vinyl extrusion facilities in the Mexican cabinet components facility in late 2016 and early 2017. We will continue to incur operating lease expense until the 2 vinyl extrusion facility leases end as well as other employee-related costs.

In addition, during the third quarter, we committed to a plan to close a woodcraft plant in Lansing, Kansas. We expect to incur costs related to equipment moves and employee costs and accelerated depreciation associated with disclosure during the remainder of fiscal 2017.

We reported EBITDA of $31.3 million for the third quarter of 2017 compared to $32.9 million last year. On an adjusted basis, EBITDA for the third quarter of 2017 was $32.2 million compared to $33.1 million last year, but adjusted EBITDA margin percentage increased by approximately 70 basis points during the quarter.

I will now turn the call back over to Bill.

Thanks, Brent. During the third quarter, we transferred the operating responsibility for 2 wood-based accessory plants and our North American Engineered Components segment to our Cabinet Components segment. On an annualized basis, this transfers approximately $25 million in revenues and just over $3 million of EBITDA from segment to segment. Of the $25 million in revenue, approximately 2/3 is fenestration related. These moves have been contemplated since the acquisition of Woodcraft in late 2015 but were consciously postponed until the core business was more stable. While there will be some minor cost savings related to these moves in 2018, they will immediately help relieve some bottleneck capacity issues at some of the other Woodcraft plants as we continue to relocate production to better balance capacity.

In an effort to clarify the year-over-year comparisons, we have provided a segment reconciliation table in the earnings release.

Operationally, we continue to make slow but steady progress in our Cabinet Components segment with margins improving 30 basis points during the quarter, and we continue to expect margin expansion in this segment during the fourth quarter of this year and through 2018.

The underlying growth rates in this segment, excluding the business we are exiting, was 1.5% for the quarter and 5.9% year-to-date. This compares to the latest KCMA numbers for the semi-custom segment of 2.8% growth for the quarter and 3.9% growth year-to-date.

In the North American Engineered Components segment, the underlying growth specific to our U.S. fenestration products business was a healthy 5.4% during the quarter and 5.0% year-to-date, which compares favorably to the latest Ducker numbers for the 3 months and 9 months ended June 30 of 4.3% and 2.9%, respectively.

Unfortunately, most of this growth has been offset by a significant decline in our non-fenestration products, driven mostly by solar-edge tape and our wood flooring business. This decline was expected but at a much slower pace. We expect non-fenestration products to continue to be a smaller percentage of this segment through 2018.

Adjusted EBITDA margin across the non-vinyl North America Engineered Components businesses improved slightly, which was in line with our expectations. With respect to our U.S. vinyl extrusion business, after successfully relocating 13 extrusion lines and 237 tools, we are now working to rebalance the capacity across our remaining 3 plants to better optimize manufacturing efficiencies. As such, we are in the process of relocating 123 tools from our Kent, Washington plant to Kentucky and anticipate that this will be completed during Q4. At this time, we do not expect to relocate any additional extrusion lines, but may very well mothball some of our older and less productive lines.

In Europe, despite Brexit, growth was still robust at 6.3% on a local currency basis. Margins fell in this segment compared to Q3 of 2016, mainly due to a very strong comp at HL Plastics, which had the benefit of a temporary trough in raw material prices last year. Notwithstanding this, and again on a local currency basis, the adjusted EBITDA margin of 17.7% for the quarter was in line with our expectations and similar to the fiscal 2016 adjusted EBITDA margin for this segment of 17.8%.

Now let me try to summarize what has been a somewhat complicated quarter. We transferred $7 million of revenue and $900,000 of EBITDA from the North American Engineered Components segment to the North American Cabinet Components segment during the quarter. Revenues were reduced by $23 million, almost 10%, during the quarter to the planned exit of products that do not meet our financial objectives.

On an annualized basis, the overall impact is now likely to be closer to $80 million rather than the $75 million we previously estimated. The slight increase compared to our previous estimate is related to both vinyl extrusions and cabinet components.

Revenues in the non-fenestration part of our North American Engineered Components segment declined faster than anticipated. This was led by a reduction in our wood flooring business, which is currently under strategic review. Secondly, our solar edge tape business is off significantly due to a technology change with our largest solar customer. The new design requires less tape than the previous design and the customers transitioning faster than planned.

Excluding this, our underlying U.S. fenestration business grew faster than the market compared to Ducker. The North American Cabinet Components segment grew more or less in line with the semi-custom segment of the market compared to KCMA, and Europe continue to outgrow expectations at 6.3% on a local currency basis.

In summary, above-market growth in fenestration components in North America is being offset by a decline in non-fenestration products, and European growth is being offset by continued FX headwinds. As a result, we now expect full year revenues to fall below the low end of our previous guidance range, which was $880 million. We currently expect revenues to come in closer to $870 million.

During Q4, we expect margins to continue to improve in the Cabinet Components segment, remain static in Europe and improve slightly in the North American Engineered Components segment. With that said, and after accounting for our year-to-date results, our current expectation is for the full year consolidated adjusted EBITDA margin to slip from 11.9% in 2016 to the low- to mid-11% range in 2017.

Looking ahead to 2018, we do not expect to shed any further business nor do we expect a further decline in our non-fenestration business. We do, however, expect market growth in fenestration -- above-market growth in fenestration, market growth in our Cabinet Components segment and continued growth in Europe on a local currency basis. In addition, we expect to return to consolidated adjusted EBITDA margin expansion led by accelerated improvements in the North American Cabinet Components segment. Finally, we expect to put a difficult transition year with multiple plant closures, lost business and product line repositioning behind us and look forward to a more normalized 2018.

Before I close, I'd like to comment on the recent promotion of George Wilson to the newly created position of Chief Operating Officer. George came to us in 2011 with the acquisition of Edgetech and he successfully consolidated it with our legacy Truseal business. This has been our most successful acquisition integration by far and has surpassed all of the cost savings and growth targets set at the time of the acquisition.

In his new role, George is now focused on implementing a more robust cross-selling initiative and accelerating the margin expansion objectives at Woodcraft. Both the board and I are confident that George can lead us to the next level of operational excellence, which in turn will continue our journey of margin expansion and improved cash flow generation.

Operator, we're now ready for questions.

(Operator Instructions) And our first question comes from the line of Daniel Moore with CJS Securities.

So what -- I figured I'd start with your last few comments there, Bill. As it relates to fiscal 2018, I know it's hard and early clearly, but you expect above-market growth in fenestration. What is your outlook for fenestration? And is there any more specificity with regard to, I guess, currency adjusted, your outlook for top line growth for next year and then as a corollary, it sounds like EBITDA margins might be pressured a little early with some input cost headwinds. What type of margin expansion do you think is reasonable to expect as we're looking to next year?

So as we look forward, I mean, we are clearly pleased with some of the traction we're now getting in the fenestration markets and, clearly, had a good quarter and good year-to-date numbers compared to Ducker. Ducker just reduced their full year forecast from just under 5% to 3.8% for the full year. I'm pretty confident we're going to beat that. I think at this point, we would say 4% to 5% is probably likely next year. We changed, you will note, the sales analysis table in the earnings release to better reflect what we thought was actually going on in the business because growth has been good in Europe. It's been good in the fenestration business. It's been steady despite all the customer moves in cabinets, but it's really being disguised by the magnitude of the businesses we're exiting and, of course, the non-fenestration business. So I think going forward, this will better reflect the underlying growth in business. So I think the key takeaway is we're almost at the end of all the noise in 2017. As I said, we don't expect any significant shifts in any other exited products that maybe some of it trails into next year, but I'm expecting 2018 to have a pretty clean start with mid-single-digit growth rates that ought to flow right through. I think our margin expectation, the improvement overall is going to come out of Woodcraft. It was a little slower than we expected in Q3. It's ramping up in Q4. Their August, which isn't finalized yet, the early read is looking pretty favorable there. So I think we've really turned the corner, and that business will really help us out in margin expansion through 2018. And then, quite frankly, George, who'll be 100% focused on operational improvement, he will help accelerate that a little faster than I have been able to do.

Helpful. Brent, is it possible to quantify in terms of the impacts in the quarter, the -- both revenue and either EBIT or EBITDA, the declines in solar edge tape?

We can, but we have -- we -- I think that's getting a little granular. I think it's clear from the table at the back of the earnings release that we, year-over-year, were down some $5 million of revenue for the non-fenestration business collectively.

Okay, I can make inference there. And is this the first quarter where we've seen that big impact? In other words, do we have another few quarters to go?

It's a bigger impact this quarter. It's -- as we said, we anticipate -- this has been known. We anticipated a much slower transition. So I think in a year-over-year comparison, you will see a very similar number in Q4 and going forward. This is a permanent change.

Got it. And lastly, and I'll jumped out. You mentioned the wood flooring business. I guess I don't know if you want to get granular, but what's the overall size of that business? And you mentioned maybe looking at that strategically and any color you'd be willing to add?

Yes, I don't want to talk too much about that business at this time. It's about $12 million and around 10% EBITDA margins. And that's been -- that's not a business that we really fully understand or have a strong distribution network for. You may recall, this business was born out of a bankruptcy, I think, 6, 7 years ago. We've significantly improved it but are clearly reviewing how it fits or how it does not within the rest of our portfolio.

Our next question comes from the line of Nick Coppola with Thompson Research Group.

So kind of a technical question. Unallocated corporate and other saw a pretty significant improvement in adjusted EBITDA year-over-year. I just want to make sure I understand that. Any kind of components that can impact there?

Yes, so really the unallocated portion was driven by a benefit on receiving refund from the insurance company on the -- some legal disputes that we've had. So the insurance company reimbursed us for past expenses that we had.

Okay. All right. And then moving to North America Engineered Components. Just want to maybe if you can get any color on the margin performance there. So down about 80 basis points year-over-year. Any major drivers of the margin performance?

Well, the biggest driver there is the significant loss of business in the vinyl extrusion part of it, right? I mean, we're down $23 million in revenue, which is 10% of total revenues for the quarter, even a greater percentage of the North American fenestration. If you exclude that, the margins actually improved slightly in the legacy businesses.

So is this kind of fixed cost leverage working the other way? Is that the other way to think about it?

Yes, absolutely. And as I said, I mean, we successfully moved a lot of equipment and a lot of tool in, and now we are looking at rebalancing production in the existing 3 facilities, primarily the 2 big ones, Washington and Kentucky, to better get -- to get manufacturing efficiencies. The Kent facility is relatively small and relatively cramped, and we have plenty of excess capacity now in Kentucky with some better equipment. So we're in the process of moving -- after moving 237 tools, but we're now going to move another 123 to better balance that. And to a certain extent, we're doing some of that at Woodcraft as well, trying to better balance our capacity across the total footprint.

Okay. And then I guess related to that, you walked away from some business. Can you talk about your ability to go out and win new business?

Yes. Obviously, we have not talked very much about that. But clearly, we're not sitting back assuming that we're never going to recover from this. We have a very robust pipeline for new business at this point in time. But as we've said before, it's a very long sales cycle and not easy to get new business, but we have a very active pipeline that's been in place now for at least 6 months, but I would not expect any significant announcements until early next year.

And our next question comes from the line of Ken Zener with KeyBanc.

Focusing on the U.K. within your EU Engineered, first of all, I want to say that your disclosure is very much appreciated and I think it helps explain the story through the numbers. I would also suggest to you that given that you gave third quarter and 9 months, from a modeling basis, if you guys are able in the Q to include second quarter, that would be very helpful so we can kind of reset everything and have it true-up. That's just the one comment there. But in the U.K., it's doing very well surprisingly. I mean, it was only down 1% in 3Q as I read your disclosures compared to down 6% on the first 6 months. 2 questions there. How do you think that trend is looking into your fourth quarter and FY '18? That's one component. And then on the margin side, given where the currency went, I mean, how is the cost based in dollars, I assume a lot, working out versus the price you're getting in the market?

So let me try the first one first. I think quite frankly, we all continue to be somewhat surprised at the growth level in Europe. I will say just anecdotally, I was there a short while ago, I'll be back there in a couple of weeks. Anecdotally, there are more and more discussions about things slowing down than there have been in the early part of the year. So from a growth standpoint, I would be surprised if we could continue in the high-single digits on a local currency basis. I suspect that may taper off somewhat but still with some decent numbers. On the margin side, other than, as I said, it was a pretty difficult comp because of an aberration last year, but the reality is, on a local currency basis, the third quarter margin, the run rate is consistent with last year and about in line where we expected this year to come in. So I think normalized, we would expect margins to remain static. Having said that, already, the chemical companies are looking to get price increases in the U.K. based on a global shortage of feedstock as a result of Harvey here in Houston. So -- and remember, while they have pricing power in the U.K., they don't have contractual pass-throughs as we do here. We've already had one significant price increase this year to cover currency. So I'm concerned that as we go into 2018, continuing to pass through some of these higher raw material costs, if in fact they materialize, could become more challenging.

Don't you have -- certainly, the extrusion side in Europe is what we are talking about, but you opened up that commodity cost curve. Isn't your guide -- don't you guys have contracts -- I mean, that was the whole thing 2 years ago where you guys -- there wasn't a pricing -- you had a fixed pricing basically and cost went up on you, but isn't your index tied to the CDI pipe index? I mean, where is your contract tied to?

No, it is. It is to CDI, but only in North America. The European part of our business, it is not indexed.

And then the U.S., switching gears here if you don't mind. Is your view that much of the industry is tied to CDI price index? I mean, so how -- the cost that you're seeing have contracted? I mean, is that -- would you say industry-standard because I believe some participants have fixed cost pricing to their customers?

That's true, but that's a conscious choice, right? So almost all of the industry is tied to CDI, that's how we buy resin and that's how we sell the finished product. As we stated, the competitor that took our business north of the border, I think, is working on a fixed price, which could certainly impact their bottom line.

And then how -- in America, when you do have these contracts, realizing they're different for different customers and -- is there generally a lag time between the input cost you are facing and what you sell out the doors? Is that kind of on a real-time -- I mean, is there a month lag? Or how does that work in terms of price recovery?

In some cases, they vary between 30 days and 3 months. So it is a very sharp increase or decrease. We can get hurt or helped, but it has to be a pretty sharp increase for that to really materialize.

Okay. And if I may, one more question, really. You said non-vinyl improved slightly, which obviously is going to be your warm-edge and your screens, and I suspect you're not going to give us an EBIT margin for those businesses.

You're suspect correctly, Ken, but it's a nice try.

It's all right. But you did say interestingly, your organic vinyl, which I assume excludes a $20 million loss, is kind of doing better. Can you quantify the amount -- is that $20 million loss sales, I mean, is there a way to think about that? I mean, just doing the math that you'd be up organically EBIT margin-wise. I mean, can you quantify how much your EBIT drag associated with that was?

Okay. You lost me. I thought you were talking about sales growth. So I would say as a general rule that excluding our lost business, revenues in the vinyl business are in line with, right, with the rest of our fenestration business.

$20 million?

Yes.

Yes. But I mean, was that $20 million, did that cost you $5 million in EBIT, I guess, is what I'm asking. I mean, if you lost that $20 million sale, what's the incrementals on that, negative incrementals?

Yes. I mean, clearly, we've said before that contribution margins are in the low- to mid-20% range, so you can do the math and we're obviously working on fixed cost in that business as well. But there's no question, year-over-year, the margins in the vinyl business are down from history because, I mean, you took -- effectively on a run-rate basis, we took 1/3 of the volume out.

(Operator Instructions) And our next question comes from the line of Jim McCanless with Wedbush.

I also want to pick up on Ken's question about North American cost, but maybe in a little bit different way. If I look at the distillate prices that are moving up, could you guys maybe talk about what percentage of cost of goods sold that might represent? And what type of price increases -- in mid-single digits, high-single digits, what type of price increases are you seeing on those costs that you can't pass through?

Well, so first of all, let me be clear. This is still speculation, right? As of today, we have not received notification, at least to my knowledge, of any price increases at this point. But clearly, I'm not concerned about resin. And based on history, the resin producers will take any excuse, whether legitimate or not, to try and push through a price increase. I'm not concerned about that because it's going to affect everybody the same way. It's going to be highly publicized and we have contractual pass-throughs. So that's really not going to impact us at all. What we typically don't talk about though is, for example, you will have seen on the news the chemical plant in Crosby, Texas, where they've been burning off silos or peroxide-based chemicals. We actually used some of that product in our warm-edge spacer. TiO2 is an ingredient in the PVC windows, which we use in relatively small amounts. It's already seen a significant price increase through this year. We're speculating that will also increase. Now to the extent we can, we will factor those into pass-throughs wherever it's possible, but it's just an early warning that there could be some inflationary pressure here if we can't pass on some of those ingredients.

Yes. And if I can maybe add just a little bit of color. If you think about it in North America across all the businesses, our primary chemicals that we have protection in place is about an 80-20 split. So the parts that we're talking about is the 20% where there's not maybe a contractual pass-through or some mechanism.

Okay. I'm sorry, 80% of it you do have protection on? Is that what you said?

Correct, correct.

Okay. All right. Good. Yes, that's very helpful. And then the next question I had, the SG&A leverage this quarter was much better than we'd anticipated. Do you guys see that continuing in the fourth quarter? And then any color or outlook you want to give for '18 if that can continue?

No, it's not going to continue. That was driven primarily by the insurance refund. So I mean, think of it perhaps this way. If you take the year-to-date number, right, that refund sort of gets normalized and that run rate will continue through Q4 and into next year.

Okay. So what should we think about as a normal SG&A level in dollar terms for you guys going forward on a quarterly basis?

We'll get back to you because I don't want to give out a number off the top of my head and then find it's not right. Let us do the work, and we'll -- Scott will give you guidance on what that is.

Okay. Got it. And then just wanted to -- the other question I had is, Bill, you talked about how you're probably going to see from a flood recovery efforts probably more benefit in cabinets than in windows. Is that just a function of rising flood levels taking out cabinets and people not doing as much window replacement? Just a little more light on that one.

Yes. So I think it's fair to say, as far as Harvey is concerned and Harvey only, most of the damage to property was a result of flooding. And if you just look at what's on the Internet and what you see on TV, there are a lot of kitchen cabinets piled up in people's front yards right now that are going to have to be replaced. In fact, Brent's sitting here smiling because he's in exactly that position right now. When it comes to -- if you move down towards Corpus Christi, where the hurricane actually hit, there was a lot of property down there that was either completely destroyed or where certainly windows blown out. But I think that's relatively small in terms of numbers compared to the number of homes that were damaged by flooding here in Houston. The early read on Irma is, I mean, that's obviously a very, very powerful hurricane, much more so than Harvey. So if, in fact, that continues its track through Southern Florida, I would expect there that there could be an awful more wind damage and maybe windows will be a bigger beneficiary if, in fact, that storm continues on its current trajectory.

And our next question comes from the line of Julio Romero with Sidoti.

So just on the gross margins. I know you mentioned there was a difficult year-over-year comp on the consolidated business, but were there any unusual items impacting this particular quarter?

No. That comp is specific to Europe, where there was an aberration last year. There were no unusual items in this quarter. We did continue to struggle with -- over time in a number of our facilities. We elected -- because volumes were soft, we elected to close our vinyl extrusion facility for an extended period over the fourth of July weekend. And the nature of that process is it could sometimes be difficult to restart smoothly, and unfortunately, we were actually inundated with a bunch of project orders as we restarted. So we ended up working in an ordinate amount of over time in that business. It got better at Woodcraft in terms of over time through the quarter. It got progressively better each month, and I think the worst is behind us there. But I would say, there are no unusual items in the gross margin level that would affect modeling going forward.

Understood. Just switching gears here. So yesterday, we saw an unrelated company lower their guidance and cite higher anticipated resin prices due to the weather situation, Texas and Louisiana. I know you mentioned, they're strictly pass-through. And in the past, you've proven that you do not chase business where you wouldn't be able to pass long resin increases. But just any color you can provide how a temporary spike would affect, if not your ability to past through prices, ability for the industry overall?

Yes. I'm not concerned about the margin impact because we are able to pass it through, and this is a very highly publicized event. So I think already, there's expectations throughout the channel. And so I would not expect difficulty in getting any pass-throughs there. I'd be surprised if there was a large enough increase that the inflection point would harm us right now. So I'm not concerned about it from that standpoint. One concern would be a disruption in supply, and there was at least, I think, 1 resin plant down here on the Gulf Coast, not one that we actually buy from that was severely damaged. And I think they're still assessing whether they can bring that up and when. But I'd be more concerned about a complete disruption in supply than anything else. But again, it's still early days. One of the observations we have been right here in Houston is the resilience in the community is astounding. And quite frankly, the speed at which infrastructure is being put back together and the rebuild that's starting to take place is actually positively shocking. So I have a high degree of confidence that this part of the country is going to recover very quickly.

Couldn't agree more on that front. And then just lastly, I know some other callers touched on it. Just because the cabinets business is relatively new to Quanex, maybe you could give some color on what the -- what Woodcraft have seen in the past after some severe weather and what the time line typically looks like for incremental demand to pull-through? I know it's kind of more anecdotal than scientific, but any color you could give would help.

Yes. Certainly, there's going to be a time lag. I mean, if you were -- if you think about it, by the time insurance adjusters and/or people decide how they're going to finance their own reconstruction here, you could see the first 30 days just getting organized then orders being placed on cabinet companies and could easily be 90 days from then before we see any components business, which is why I don't think we will see any positive impact of this in our current fiscal year. But I would expect in our first quarter to see an uplift in our Cabinet Components business.

And we have a follow-up question from Daniel Moore with CJS Securities.

Just a very simple math and sorry to be so simplistic, but just to clarify the comments we've had so far. So revised guidance, about $870 million for the full year and, Bill, low -- kind of low 11s in terms of adjusted EBIT margin. That's for the full year, not the fourth quarter, correct?

That's correct.

So that would put us in the sort of $95 million to $100 million range in terms of revised full year EBITDA guide?

Yes.

And then next year, you gave a lot of color and commentary, so maybe we'll leave it at that. But do we think we can get back to the 12% that we did in '16? Or is there potentially upside to that given some of the initiatives?

Dan, I'd -- not to try and avoid the question, I'd really prefer to wait until we get closer to the end of our fourth quarter. We're actually in the middle of our planning process now for 2018. I haven't seen a first pass of the numbers. I have definitely a high personal expectation, but I'd like to go through our normal process before I start talking publicly about expectations for next year.

Thank you, and I'm showing no further questions at this time. I would now like to turn the call back over to Bill Griffiths for closing remarks.

Thanks, everyone, for joining us again, and we look forward to talking to you in early December when we close our year. Thank you, and goodbye.

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