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Simpson Manufacturing (SSD)

Participants
Kim Orlando Investor Relations
Karen Colonias President & Chief Executive Officer
Brian Magstadt Chief Financial Officer
Daniel Moore CJS Securities
Tim Wojs Baird
Steven Chercover D. A. Davidson
Julio Romero Sidoti & Company
Call transcript
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Operator

Greetings, welcome to the Simpson Manufacturing Company Incorporate First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Kim Orlando, Investor Relations. Ms. begin. may you Orlando,

Kim Orlando

plans and XXXX welcome this earnings discuss as Company ladies Company's call, Simpson first may future such statements quarter conference forward-looking events. gentlemen, afternoon, to and Manufacturing the and Good call. On

events, Forward-looking factors, subject results differ which or statements. these actual to materially and are from statements vary prediction like may any future may

at issued will is the replay earnings Please are Company's being available Some public X:XX filings website, today release Company's that the website. of a and also in available approximately The be the earnings PM was discussed Eastern on call webcast on press the available press Time. these at on website. factors are Today's and Company's SEC www.simpsonmfg.com. Company's is Company's the the or reports, note cautionary which corporate statements release and

Now, to over Officer. the I Chief Karen Colonias, turn like Executive would President and conference to Simpson's

Karen Colonias

We our sales to good start had selling Thanks, solid afternoon prices. year-over-year X% to increasing quarter Kim, first primarily higher to $XXX.X average everyone. and due a million, with XXXX year the net

was relatively volume quarter the with sales Our of XXXX. fourth steady

and impacted quarter and of are year. of leading percents our weather following true our U.S., across Although, of U.S., southern into especially unusually fourth wet year-over-year, due sales volume the soft, conditions due space mechanical up adverse it the stores. which concrete a XX conditions. western was to strong a which our approximately the roll-out down the last cold anchor products to indicator business it for nicely starts weather mainly first Depot negatively That was were basis and regions was relates as said, our on year-over-year sales housing the impacted quarter to a products. by volume Home This the connector in U.S. in remains continued which the challenging

including strong growth support availability. housing unemployment low stock consumer and there rates, starts, U.S. underlying confidence, rates, factors of declining in believe housing many are level to interest extremely we healthy However, low a

the the already ahead weather to during we quarter, demand expect April start a of improved improve solid with Looking off to conditions. second to month

Over the few increase over starts long housing an that will rate at optimistic digit remain the U.S. annual mid-single we years. term, cautiously next

quarter first margin pressured gross by lower volumes. material costs was to plus profit labor increased unabsorbed Our costs, XX.X% of attributed and factory

While impacted negatively tested highest industry our through the proprietary our the the profit of built relationships deep climate to customer we've current superior has the due we longstanding in capabilities, maintain trusted, one margins margin, and gross reputation continue industry to of microeconomic gross brand service. level

to on We growing quarter, operating to our share, our drive rationalizing improved technology the cost enhancing infrastructure. focused initiatives are continue which our during structure and market our execute profitability, on

a of share expand our We for mechanical Home products into the the our in market introduction continue to anchor space concrete Depot stores.

all steps of quarter purchase three of reduction anticipate end goal for stores anchor locations by Strong-Tie be into XXX available X,XXX with be the in approximately In customers mechanical of been were Our of XXX operating SKU additional stores offering. our our the full March products. Depot XXst to year, to European the by will make improvement start to in second to working margins We further annualized product local reduction the prices. profit in program We're an rationalization phases a improvements continued right XXXX. and replacement region. roll-out end net structure, simultaneously set our stages SKUs, Home regards our year XXXX. currencies a period accomplished cost our an end the headway final over over and pleased to prior to volume our million representing of through by of moving slow of SKU selling higher gross revenue were increase seeing we've and the completed. XXXX, the we Europe, also size sales on our once In the $XX additional of combination of opportunity with in X,XXX on over removed rationalizing the we In we've XX% Since XXXX, converted this of as

of external-linked We from continued purchasing to partnership with our improve expect our learnings endeavor our practices. who'll strive continually as our facilitate this consultants we and management inventory

an as balance $XXX XXXX, of million, or March X% inventory Our $XX increase approximately XX, year-over-year. was million nearly of

XXXX our targets. in to turn inventory before, from stated our our we've most one improving a of rate XXXX two of XXXX time is plan times As four aggressive goal by

on progress have made factors released we had build have that inventory. plan October we of three front, to since required transpired particular this While the XXXX, when us

our inventory built our China anchor of tariffs anticipation from finished anchor as we proactively in Depot mechanical well in on advance Home as potential of up First, roll-out. the goods

to order Second, SAP in mitigate availability. had built we steel we bought an of additional as ensure And needs customer meet can impact continue have we to allotment our inventory the third, we our roll-out. potential of

continue reaching keep be turn to and you strive inventory our We four-time sure as this of work informed we to inventory, we'll through towards progress. goal, our

selling terms infrastructure, of at the facility. technology to of April, improvements beginning completed roll-out successful our U.S. highly we second in Finally, manufacturing at SAP a our and

into able the by toward key of to XXXX year. We've completion year. on already well go-live pleased track first our to use. end cycles an as branches remain system our detailed early We been technology are with system versus U.S. having by a data focused training after in in We early improvements our our existing learnings remaining out translate more SAP as the multiple decision rolling through company-wide to next by this

meeting board Board start after comment summary, despite the his for the contributions by an to to wet and In Peter of to shareholders. On all approved demand results Chairman thank of reelection environment, to solid Simpson year briefly at the former measures proposed weaker on I'd of were by conclude, I of exacerbated many behalf stepped Company. Strong-Tie, The service. want shareholders the the XX I winter. members. a years relatively officially our cold our which was had the including of of Louras, us has unusually like Before our the we down Peter of annual our

is our For operational the committed pick shareholder can cautiously remain we remainder through demand the will employees I’d call assets for we Simpson's over culture to and execution the that's their like especially turn financial on our I'd without best-in-class long-term to commitment focusing healthier way excellence recognize and first like areas also who Simpson, to service. optimistic, housing to levels. discuss XXXX their Brian, in starts our to drive goals, be We and up the safety dedication remain on value. of to of XXXX, business continued today best it and people. now enable will results control our to our quarter plan customer wouldn't detail.

Brian Magstadt

you everyone. to results Thank discuss quarter with you, pleased and first Karen, afternoon I'm our financial today. good

Our of first the first of consolidated net to sales XXXX. XXXX for million million, in $XXX.X were the quarter compared up quarter $XXX.X X%

States' of from from North of year-over-year in product up quarter the products in XXXX. net net first represented under local just due in sales currency, XXXX, compared million, Europe quarter total In and XX% million X% of year-over-year to of America negative net sales United foreign translations sales volume Wood against higher resulting net segment, and Europe, the both products volume. first currency $XXX.X quarter decreased sales increased increases to XX% total Concrete primarily to construction sales X% in the dollar. quarter first currency's weakening Europe Within prices. the $XX.X sales of XX% In primarily prices of to construction the the due average net increased first XXXX average to due product to XX% XXXX. sales in represented primarily

declined dollars our to resulting $XXX.X increased profit gross of quarter year-over-year X% by of profit first points. approximately profit million, Compared in gross XX.X%. by approximately XXXX, gross basis consolidated a XXX to the margin margin Our

highlighted, As margin labor a concrete for products North wood decline a raw ago profit resulting tightening conditions. gross year was higher margin quarter labor the profit the the XX.X% was in to material year on gross products year-over-year Europe, our in improved quarter. costs was XX.X% XX.X% higher XX% America to steel from to the to From increased margin basis, gross in quarter market In the perspective, compared profit to gross compared first compared XX.X% in was primarily first including in XX.X% profit our segment period. margin product due and our quarter. prior prior to and XX.X% compared priced costs On XX.X% year quarter, year prior Karen

in costs. year segment X% quarter compared the percentage year-over-year by and and a in and and the expenses to a down first by costs. research to the year XX decreased and the higher expenses quarter first to increases project. turning North X%, and personnel compensation quarter, in year Total $XX.X in the sales and to profit and to to of were costs the $XX.X increased our year-over-year in nearly of Europe, quarter. or X% increased primarily X% to operating XX.X% that America for On net million Operating X% were administrative by development with We Consolidated in a the quarter primarily points operating primarily operating America in stock-based engineering associated SAP costs. expenses to quarter. XX% and increased compared expenses first On up increased stock-based to Now year-over-year. increased expenses XX% professional dollars increase compared $XX.X due basis personnel compensation year-over-year General G&A expenses, increased increased million, pleased they as first basis for million to expenses quarter, are quarter personnel expenses by general were quarter the a selling $X.X and year the compared due prior quarter our million of $XX.X due fees decreased prior XX%. level, approximately million to selling of segment administrative total prior were North primarily first XXXX consolidated due expense consulting prior an cash Europe, to and sharing

the X% from to first decreased quarter $XX.X of million million income consolidated year-over-year XXXX. the $XX in Our compared to quarter operations first for

our decreased income quarter an prior eminent on a domain included loss to In of the America, operations lower Europe, year-over-year $X compared to margin. gain year of the reduction from $X.X income operations to to consolidated reminder, million In in in period due a first $XX.X from primarily As exercise from $XXX,XXX operations million loss gross operating of was expenses. million a approximately due profit in North XX% claim. XXXX the

our first quarter a consolidated approximately XXX a margin income from by result, points of operating basis XX.X% declined basis As of the on XXXX.

in increased XX.X% quarter Our to from XXXX. the of slightly XX.X% effective tax first rate

share diluted of Our was $XX.X per to quarter or or the consolidated net share million first prior net fully income $X.XX income diluted $X.XX quarter. per fully in per compared for the million year share $XX.X

balance for XXXX, primarily from accounting operating our turning remain real effect $XXX.X March estate The paid now our million quarter to that cash totaled to equivalents $XX.X cash from a new balance a million $X.X of debt approximately approximately sheet We on of sheet as compared XXXX. million XXXX. lease Now, leases, period. to XX Simpson, portion $XX million to January stockholders. We leases. $X.X Xst the March and in $X.X in our March expenditures of cash the for XX million million We small cash dividends prior with operations and At XX, flow XX resulted year free during million, and of recognized capital generated compared took capital used decrease on flow. pronouncements in

Additionally, of repurchase share XXX,XXX at during stock for per common our average the approximately shares total we $XX first quarter an of price million. XXXX, of a $XX.XX of

million $XX remains As under which we the had our of effect authorization XX through March of XXXX, end XXXX. in share $XXX repurchase approximately million available

the to and drive continue business that XXXX performance plan share return will to our in improved activity. be operational capital, expect as higher confidence our we it repurchase and Given expectation a on relates to invested active our

over XXXX questions, it to like to turn we our discuss I'd Before outlook.

follows. XXXX, full are as year of the reiterating For we guidance

in gross material and on consolidated our XX.X% the given to our profit expect expectations XX.X% to margin starts. We range be of housing costs

in as federal of increase of and represents of per dividend. XXXX share, declared macroeconomic the we including Our in which dividend dividend and to state XX.X%. in In with tax XX.X% full rates XX% to of both net Depreciation July and be X.X% payable year questions. The shareholders summary, amortization to XX, against of XXXX. operational quarter the execute a of be X, be range $X.XX of operating The of to be record the pleased percentage despite the up XXXX, expenses and income to to to our pressures, on to million the for $XX over will $XX first XXXX as first stockholders effective sales XX% updating initiatives. look cash like taxes. expenses expenditures in of forward approximately weather Directors which is related be depreciation, and to a range to continue to including the pure quarterly XX% million time your attention Thank pleased open XX, and call million $XX today. I'm our and of were to our quarter April as $XX results on $XX you of maintenance now range And for financial million our announce We we in Board Operator? for $XX strategic, capital CapEx. million range million July

Operator

question-and-answer comes proceed your Our session. Daniel question. Instructions] CJS Moore, At a this [Operator from Securities. be we Please conducting question time, first will with

Daniel Moore

Brian. Good and the questions. taking Thank afternoon, for you Karen

off provide or off, to Kind thanks time? gross color start line, the steel of the Quick margin can a bouncing more little in year do year-over-year terms the range you've both of in labor provided little bit on the a impact perhaps might a bit with basis leveling prices and or Let's gross the gross and see quantify with costs steel margins margin for inflation? take of you up, prices follow back that you QX full more

Brian Magstadt

This Dan. is Sure, Brian.

margin we've due gross affirm had given. guidance on So, gross pressure based margin the material. we on our or still to we Yes, there guidance the

of earlier recall, through year. you gross of it But adequate guidance. than labor, margin price allocation, impact we that this we work few a expect purchases, were had quarters, occurring commented inventory, would in were material that an we Labor if quarter, but on as some them a making margin that that have supply. second, first, we we at material And so more steel labor couple an would during couple in last our As impact, we on we that the that expect gross takes to purchasing also still of what quarters achieve had order to than the magnitude, higher was

Daniel Moore

third those absorption behind And be would two?

Daniel Moore

Right.

Daniel Moore

about? tick run it, up good costs you've Or plus helpful. there rate to R&D Got And then, higher, in a the is personnel mentioned million kind little the anything is quarterly the XX increased a of think unusual quarter?

Brian Magstadt

year, the quarter at a No, the beginning put standard nothing we as we increased unusual the in wage on during -- of soon there, rate them like.

perspective. expect other that that a QX do be So, any I to that would fairly normal on have from thoughts you Karen, one?

Karen Colonias

Yes, have in happening and standpoint reports but of place coming thing, unusual R&D. the know, it's from just in really nothing sort sometimes, code you what's we of that

Daniel Moore

the to you're the next get in really management when Got do inventory year that it. of update we the through a for me plan expect obviously we terms turn on When anyway, then Once, some of And reduction to recognized attention looking Thank and execution the still, now, to do work lastly, a still in I kind is to priorities your but cost you this but year three go diversification? for still growth, ahead. just to two capital XXXX it's toward and plans. your in you side allocation, much. phase very I investors? do know right start

Karen Colonias

we always go some us great for a we've put And and at do. what shareholders. growth the and be speak do on on information, those that's headwinds to where that point forward highly would we metrics those Yes, things but the plan. how effects the mentioned, as very the strategy our we what it question. where public be as working of the we're metrics on accomplishing XXXX make work would to that looking not as our ready Obviously, place few we've of a focused We're for certainly are to all we're know a the we're certainly got and future that in the on at that want standpoint you well impacts, from in

management the conversations share are with have ready and within and work something community. more be going when constant defined, that board, to system that little a the we’ll team on So we investment

Daniel Moore

April. sneak you and revenue volume growth growth in going for us month Could the I'm overall a one Okay, give more of sense for April?

Karen Colonias

bit definitely XXXX We Yes, the in you rain pretty West, the where in weather we to a we stronger to of in most in regions. a mentioned, had this I as impact was see countries. across where regions, especially of think, April weather nice Coast were West we our consistent compared all quite was I across year slow April see our pretty pretty to that first significant quarter, compared and the even of conditions, very dry we think little improvement snow, very, definitely improvement of the across and all a had but did definitely bit the from

Operator

Our from your next proceed Baird. question. Please Tim question comes Wojs, with

Tim Wojs

to volumes if were I'm there, sounds turn going a first actually year-over-year if things they where it positive April, curious, down in back trying sequentially, up volumes just improved the guess, the basis just question on were last in in like QX? I quarter. to just the I'm And -- because Maybe year-over-year just

Brian Magstadt

sure a I bit up for there volumes think little in are would April.

Tim Wojs

for from XXs think, approaching really something a a mid level that's the for now of maybe gone as the guess longer and margin kind -- if approaching concrete And I that right basis low nice at your last kind business, XX%? the to look we to gross margin then, on What's it's of concrete business? really look term. gross it's kind I years the couple been they you in margins -- of sales

Karen Colonias

Yes, a question. that's great

our refocusing going an have helps concrete the markets have able we're strategy that and has team differentiate standpoint. a our really line, done where customer those margin us obviously, we six base, as after to that product. we So, extensive excellent job gross margins on we mentioned, I target new from an product a think of and big And

have margin, concrete what even Also are now better they wood will the where an place. still very and get the exceed volume nice the we a pushing coming doing team is think gross a obviously helping but margins from slightly that get in than they're I maybe to job. in absorption margin still that we gross obviously overhead we're

the So, line make our which really and Xiong'an the products from Home helps standpoint, roll-out a helps us the costs Depot of volume mechanical facility. anchor manufacturing our into in those we China

So helping that is absorption. that factory increased volume

So, we're Tim, focus Margin, market. have team think product the an is the but has little focus more been doing differentiate job. and to certainly room costs, on the to sensing We're a thing that excellent There's has at looking that better. been bit there line. I main our

Tim Wojs

stores then, not you at did don't -- Depot And it -- guess on number first roll-out. I on I stores QX how many did hand? you add know the -- How many Home into I am have quarter?

Karen Colonias

about Yes, XXX, to XXX we're totals. in probably XXX so

Brian Magstadt

Probably March. of end -- of end the

Karen Colonias

we March, XXX of end had Yes, totals.

we quarter, added probably of XXX the end around in So, by XXX with another QX. the scheduled

Tim Wojs

-- kind of ERP And the roll-out, it ERP the the the think kind then, and of or launch What of will when kind roll-out? you've successful like had tranches we second a second fourth third about the round? when sounds

Karen Colonias

year we be that XXXX which locations completing location. of working we at early mentioned, looking should on that all American follow phase roll-out roll-out, early European work North out our next up do but and will year have North So, We'll our into then America our as pulled should with we're preparing this we location, another XXXX. into we're

Tim Wojs

Great. Okay,

Karen Colonias

in is XXXX. of yes, completion the SAP Our, projection sometime a project

Operator

D. Our with next Please Steven Davidson. your proceed A. comes question Chercover, from question.

Steven Chercover

Brian. hi, you, Karen, Thank hi,

the sound ground sorry, Or So, but quarters? like a I'm weather those can does for aren't recaptured was next do lost? issue what was real in these you QX. stars was wondering, few think And it lost breakers, just be

Karen Colonias

the think function a great really building that's those in cycle. And Steven. question, a it's starts I were of Yes, where

was from the a little are bit we standpoint. So in or that foundation delayed

is there manpower. the I on the builders perspective, think the limitation still from

it, at So you can't up those on starts. just to throw catch more manpower

we'll through we I for of sort a better -- much have as that, spring think feel get the the season.

we feel manpower manpower we going catch because be them will at it throw they as able the we're -- to QX, that But standpoint, have better still get to up. whether not from up, will through is builder be catch just really more available. So to can't

Steven Chercover

least. good concern my a that's segue a source for of real Well, next into at it's because question, me

-- pressure, a going the labor you I mean, you so looking going of visited a one construction higher activity your and unless to governor we some And I'm I time we change as policies? were just source hire, maxing cited are to this facilities, wondering, be on margin the last of forward, is out?

Karen Colonias

couple there things is a that Well, on. I are think, Steve, of going

of Simpson a industry as schools people on training as industry. on working and schools, into really other First of bit high quite trade all are construction really get representatives well the doing to trying

or teaching is those when itself to on electrician a be efforts. the or enhancing really So working framer plumbing, industry

we're thing roof building. lot is second the a The of under we're seeing seeing

So and components roofs, means of that walls, floor job prefabbing the of these people taking systems and they're the out helping a labor then as constraints. site and doing are

labor really looked two on, areas the to issues main help being are worked So some and actively those there's those definitely that and at are ones.

Steven Chercover

seem Yes. of even initiatives overdue. like perhaps And both long those

an the we've could and have or initiative So, are for it got or put context, to coming to realized this young seen embrace if that to the we inventions pike early have factory of the trades and you people construction. innings down people get in innings offsite this

Karen Colonias

several years ebb is something shortage, I kind think it Factory by of fell no and some was and kind of questions both ago, there off. not so flow. was It manufacturing concept. of a manpower new attempted that builders was those

such try this build at shortage should When a look we about, -- of manpower factory to more has standpoint. push. concern been the a there from Now, this labor, I really we pushes think

in You don't -- know, they trades we teach school have anymore. high don't

I that that push, that's not to a college. to push such a needs available. go also, everybody been there's think And So

people this to it's high experience to of them walk So some colleges giving the group of training these jobs. a its junior role, engaged into getting in, good is process be some work really lot to A that this good of on a and and -- thought area there's associations. with areas in and trades able those schools work of definitely those in both

I've here. So both and my of seen these flow things in time ebb

Steven Chercover

Sure, will but bias not against digress too perceived prefabricated to some be mean, much, of existed ago. Sears a XXX mean, I sort there to I is years homes a home that is kit?

Karen Colonias

a building complete I'm architectural Obviously how for changed the not the things project to sure a you what I could job kind looked aspects on there's from see think, you as to the And the site. take as a roof various at, being have lot, bias. of out do in far under going as we standpoint. the

modules mentioned, and on where I to sort stack top. the walls roof, As from a flooring, the completed you module, all of the the way

It's take question so I from of aspects, ship aspects. there's much there's logistics, don't can a things, how a the think and you home. those give of resistance in different each of So buyers the just far

Steven Chercover

gears. Okay, and final switching question,

For QX, be you steel the to flat. expect prices

XX% down that be do that you -- saying XX.X% view allows to maintain QX. you're You margin? steel that that extend the be could and to gross think Does rest for actually forecast the down that in is to the of they that it year? on Now want could you

Brian Magstadt

to right. from continue are Brian. is we would levels Steven, drop it that that's Hi, saying don't that know We today. I Yes, where -- it's it

it that from holding fairly our higher seen obviously But forward. but is guidance that from what That I assumption steady we've we've earlier, point guess seen, Although prices. this into year. for baked moderate moderate the decrease is

Operator

Sidoti Please proceed Company. question your Romero, question. with next Our from comes & Julio

Julio Romero

So had I consider But QX, on the prior volume you we tough when how we had strong a year year-over-year volume optimistic in the pretty you start be growth about year-over-year comparison in out you appreciate the should quarter? calling side, in April.

Karen Colonias

quarter, pretty as based with a dismal Yes, said, volume weather and that's on question. after great associated a and first having we it. And everything

a As really West we I strong in the of content and April when said, discussed, in those regions, South, in we have and we little all product and more into is houses. which saw we've West, the more bit the as put will increases encouraging

always at a we've you encouraging as an quarter-over-quarter looked housing not that's South bit and the the of Also a us. basis, numbers, you uptick the March look little but see into February if at versus So for the start starts, on just on West the numbers.

an factor. So that's also encouraging

Julio Romero

Okay, if is than the about faster talk that's may Depot said to stores prospect, there if you little call. anticipated? is XXX just you next roll-out Can just changed down I on and that on you be called a February your has out anything helpful. store you there I X,XXX completing than entire be quarter, at a should drill wanted you're and by Think And bit at roll-out. Home more which think faster

Karen Colonias

Yes.

we end are XXX March, and in set currently on. the stores available As we locations stores XXX -- it's X,XXX that we're there we had working of said, by and

be are the finished end XXX by QX. scheduled to Another the of

process. roll-out. us with how But fast stores. trying Home leave working schedule we as constantly But, to Home really rollout a mentioned more still I push much will another would that in is to Depot, So don't those on possible. difficult on have finding which a that a space as are we've as Depot it, XXX XXX it's

continued have But, second Depot I beyond with quarter on that don't numbers. work schedule So we the in those of Home rollouts. to have anything the

Operator

concludes and the today's of the answer this conference. session, question end and We reached have

time. disconnect your at Thank this your may you lines participation. for You