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    Simpson Manufacturing Co Inc (SSD)

    Business Description

    Simpson Manufacturing Co., Inc. (SSD) designs, manufactures, and sells high-quality building construction products. The company specializes in engineered load-rated construction systems and solutions, focusing on wood and concrete construction materials. SSD operates across North America, Europe, and Asia/Pacific, serving residential, commercial, and industrial markets with innovative and cost-effective products.

    1. Wood Construction Products - Offers a wide range of engineered connectors, fasteners, and systems designed to enhance the strength and safety of wood-based construction projects.
    2. Concrete Construction Products - Provides anchoring systems, adhesives, and other solutions tailored for concrete construction applications, ensuring durability and performance.
    3. Other Products - Includes specialized items that complement the company's core offerings, catering to niche construction needs.

    Q3 2024 Summary

    Initial Price$168.43July 1, 2024
    Final Price$190.89October 1, 2024
    Price Change$22.46
    % Change+13.33%

    What went well

    • SSD is committed to maintaining strong operating margins around 20% EBIT, demonstrating financial discipline and cost management even in challenging market conditions.
    • Recent strategic acquisitions, such as Monet DeSauw and QuickFrames USA, expand SSD's offerings in component manufacturing and commercial markets, providing new growth opportunities.
    • Anticipated improved margins in Europe due to one-time costs not repeating and efforts on rightsizing their footprint, which should positively impact future profitability.

    What went wrong

    • Simpson Manufacturing expects lower Q4 sales and operating income due to slowdowns in the Southeast from hurricanes, with customers' facilities significantly impacted, leading to forecasts being "definitely lower than we thought it was going to be".
    • Margins in Europe have been declining for 2 to 3 quarters, and significant growth in the European market is not expected until at least 2026, delaying recovery and potentially impacting profitability.
    • The company needs to be more selective in investments and is adjusting to a lower level of market activity, which may impact future growth opportunities as they throttle back investments in response to updated views on housing starts.

    Q&A Summary

    1. Operating Margin Target
      Q: Is 20% operating margin the new floor? How will you achieve it?
      A: Management stated that 20% operating margin is their floor, aiming to return to that level next year . They will be more selective with investments in SG&A and cost of goods, focusing on controlling costs while still providing strong customer support. Anything below 20% is unacceptable, and they will work to improve profitability .

    2. Housing Starts Outlook
      Q: What are your expectations for housing starts in 2025?
      A: They anticipate 3–4% growth in U.S. housing starts next year, based on customer input and forecasters. In Europe, they expect 1–2% growth, with modest recovery due to lower interest rates . However, they acknowledge uncertainty and note that the second half of the year may be better than the first.

    3. Gross Margin Expectations
      Q: How do you expect gross margins to trend in Q4 and next year?
      A: They expect gross margins in Q4 to be flattish to slightly up from last year's 43.9% . Factors include slightly higher factory and tooling costs as a percent of revenue, potential benefits on freight costs, and a good position on material costs. They are comfortable with steel costs and haven't seen significant pricing pressure from competitors .

    4. Acquisitions Impact
      Q: What can you tell us about the recent acquisitions?
      A: The acquisitions of Monet DeSauw and QuickFrames add new tools to serve component manufacturers and commercial customers. The combined revenue from these acquisitions is expected to be less than $10 million in Q4. They see these additions as strategic fits that enhance their product offerings.

    5. Cost Control Measures
      Q: How will you manage costs to support margins?
      A: Management plans to dial in SG&A investments, being more selective on where they add both in SG&A and cost of goods. They aim to control costs while ensuring they provide great support to customers, which is key to their business model.

    6. Exposure to True Value Bankruptcy
      Q: Are there any risks from the True Value bankruptcy filing?
      A: They have sold to True Value in the past but the revenue is not material for Simpson. They are evaluating the situation and the potential buyer, with whom they have a good relationship, and will assess credit decisions accordingly.

    7. Impact of Hurricanes on Q4
      Q: How will the hurricanes affect Q4 sales and operating income?
      A: Hurricanes have caused slowdowns in the Southeast, with some customers significantly impacted . They haven't specified the exact impact on guidance, but forecasted Q4 sales in affected areas are definitely lower than expected.

    8. European Margin Improvement
      Q: Do you expect margin improvement in Europe next year?
      A: They are working on defensive synergies and rightsizing their footprint in Europe. Some costs incurred this year will not repeat, which should help improve gross margins going forward.

    9. Facility Expansions
      Q: What are the costs associated with facility expansions?
      A: They plan to provide more details in their 2025 guidance. The Ohio expansion adds to the existing footprint with no significant OpEx expected. Gallatin will involve moving costs but further granularity will be provided later.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Wood Construction Products454.8515.38491.1420.421,881.7449.51507.1494.4
    Concrete Construction Products76.781.3284.178.38320.578.7386.486.7
    Other Products3.00.88---2.343.46.1
    North America-465.47456.8-1,716.4406.75463.0-
    Europe-127.82119.0-480.8119.94129.9-
    Asia/Pacific-4.304.2-16.63.894.1-
    Total Revenue534.4597.58580.1501.722,213.8530.58596.98587.2

    Executive Team

    NamePositionStart DateShort Bio
    Michael OloskyPresident and Chief Executive OfficerJanuary 2023Michael Olosky has been CEO since January 2023. He previously served as President and COO (2022) and COO (2020-2022). Before joining SSD, he spent 22 years at Henkel in various leadership roles.
    Brian MagstadtChief Financial Officer and TreasurerJanuary 2012Brian Magstadt has been CFO since January 2012. He joined SSD in 2004 as a Financial Reporting Specialist and later became Financial Reporting Manager (2008-2012). He is a CPA and holds an MBA.
    Michael AndersenExecutive Vice President, EuropeJanuary 2023Michael Andersen has been EVP, Europe since January 2023. He joined SSD in 2005 and has held roles such as Regional Controller, General Manager, and VP of European Operations.
    Phil BurtonExecutive Vice President, North AmericaJanuary 2023Phil Burton has been EVP, North America since January 2023. He joined SSD in 1994 as a Sales Manager and became VP, Branch Manager in 2004. He oversees North American operations.
    Roger DankelExecutive Vice President, North America SalesJanuary 2023Roger Dankel has been EVP, North America Sales since January 2023. He joined SSD in 1993 and held roles such as Sales Manager and President of North American Sales (2014-2022).
    Jeremy GilstrapExecutive Vice President, InnovationJanuary 2023Jeremy Gilstrap has been EVP, Innovation since January 2023. He joined SSD in 2001 and has held roles such as VP of Engineering and Northwest Regional VP (2020-2023).
    Jennifer LutzExecutive Vice President, Human ResourcesJanuary 2023Jennifer Lutz has been EVP, Human Resources since January 2023. She joined SSD in April 2013 as Director of HR and became VP, HR in 2015. She oversees HR strategy and operations.
    Cassandra PaytonExecutive Vice President, General CounselDecember 1, 2023Cassandra Payton has been EVP, General Counsel since December 1, 2023. She joined SSD in August 2021 as Assistant General Counsel and became VP, Legal in 2022.
    Kevin SwartzendruberSenior Vice President, FinanceOctober 2017Kevin Swartzendruber has been SVP, Finance since October 2017. He previously worked at Flex Ltd. (2005-2017) and is set to retire on March 1, 2024.
    Matt DunnChief Financial Officer and TreasurerJanuary 1, 2025Matt Dunn will become CFO on January 1, 2025. He joined SSD in June 2024 as SVP of Finance. He has over 23 years of financial management experience, including roles at Helen of Troy and Procter & Gamble.

    Questions to Ask Management

    1. Given the revision of your operating margin guidance to 19%-19.5%, below your previous expectations, can you elaborate on the specific factors contributing to this decrease and what concrete steps you're taking to enhance profitability in the near term?
    2. With European margins under pressure despite efforts on defensive synergies and rightsizing, when do you anticipate seeing a meaningful improvement in Europe, and what actions are you implementing to achieve your midterm target of a 15% operating income margin?
    3. Considering the elevated finished goods inventory levels, what are the underlying reasons for this buildup, and how do you plan to reduce inventory without compromising your high service levels?
    4. You mentioned balancing growth-focused investments with cost control in a challenging housing market; can you detail how you're adjusting your investment strategy, and whether this includes reconsidering or reducing planned capital expenditures like facility expansions?
    5. In light of the recent hurricanes impacting your sales in the Southeast region, have you quantified the expected impact on your Q4 revenues and operating income, and what measures are you taking to mitigate these disruptions and sustain momentum in those markets?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateOctober 19, 2023 October 23, 2024
    End Date/DurationJanuary 1, 2024 - December 31, 2024 January 1, 2025 - December 31, 2025
    Total Additional Amount$100.0 million $100.0 million
    Remaining Amount$0 (fully utilized) $100.0 million
    DetailsFully utilized by November 5, 2024 Effective starting January 1, 2025

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Operating Margin: Expected to be in the range of 19% to 19.5%.
      2. U.S. Housing Starts: Revised expectation for U.S. housing starts to be down from 2023 levels, with softer sales due to slowing construction activity in the wake of storms in the Southeast.
      3. Gross Margin: Lower overall gross margin anticipated due to the addition of new warehouses and increases in labor and tooling costs as a percentage of net sales.
      4. Defensive Synergies in Europe: Expected total costs of $4 million to $5 million to pursue defensive synergies in Europe and other acquisition opportunities.
      5. Interest Expense: Estimated to be approximately $4.9 million for the year, including the benefit from interest rate and cross-currency swaps.
      6. Effective Tax Rate: Estimated to be in the range of 25.3% to 25.8%, including both federal and state income tax rates.
      7. Capital Expenditures: Estimated to be in the range of $175 million to $185 million, including $90 million to $100 million for the Columbus facility expansion and the new Gallatin fastener facility construction, with the remaining spend carrying over into 2025.
      8. Q4 Gross Margin: Expected to be flattish to slightly up compared to Q4 2023, which had a gross margin of 43.9%.
      9. Revenue from Recent Acquisitions: Combined revenue from acquisitions (Monet DeSauw and QuickFrames) expected to contribute less than $10 million in Q4 2024.

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Operating Margin: Expected to be in the range of 20% to 21%.
      2. Key Assumptions:
        • Moderate volume growth on relatively flat U.S. housing starts and stable pricing.
        • Slightly lower overall gross margin due to the addition of new warehouses and modest increases in labor, factory, and tooling costs as a percentage of net sales.
        • $4 to $5 million in expected total costs to pursue defensive synergies in Europe and other acquisition opportunities.
        • Operating expenses at a level necessary to position the company for continued meaningful share gains and growth initiatives.
      3. Annual Interest Expense: Approximately $8 million, including the benefit from interest rate and cross-currency swaps.
      4. Effective Tax Rate: Estimated to be in the range of 24.5% to 25.5%, including both federal and state income tax rates based on current tax laws.
      5. Capital Expenditures: Estimated to be in the range of $180 million to $190 million, including $90 million to $100 million for the Columbus facility expansion and the new Gallatin facility construction, with the remaining spend carrying over into 2025.

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Operating Margin: Expected to be in the range of 20% to 21.5%.
      2. Interest Expense: Approximately $8 million, including the benefit from interest rate and cross-currency swaps.
      3. Effective Tax Rate: Estimated to be in the range of 24.5% to 25.5%, including both federal and state income tax rates.
      4. Capital Expenditures: Approximately $185 million, which includes $105 million for the expansion of the Columbus, Ohio, facility and the construction of the new fastener facility in Gallatin, Tennessee. This amount is slightly down from the prior outlook due to the timing of the 2024 cash outlay on real estate projects.

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Operating Margin: Expected to be in the range of 20% to 21.5%.
      2. Gross Margin: Anticipated to be slightly lower overall due to the addition of new warehouses and modest increases in labor, factory, and tooling costs as a percentage of net sales.
      3. Operating Expenses: Expected to remain at levels necessary to support market share gains and growth initiatives.
      4. ETANCO Integration Costs: Estimated at $4 million to $5 million, including other synergies in Europe.
      5. Interest Expense: Approximately $8.4 million, including the benefit from interest rate and cross-currency swaps.
      6. Effective Tax Rate: Estimated to be in the range of 25% to 26%, including both federal and state income tax rates.
      7. Capital Expenditures: Estimated at approximately $200 million, which includes $120 million for the expansion of the Columbus, Ohio facility and the construction of a new fastener facility in Gallatin, Tennessee.

    This table summarizes the guidance provided in the last four earnings calls.