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Simpson Manufacturing (SSD)

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

Greetings. Welcome to Simpson Manufacturing Company Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Kim Orlando with ADDO Investor Relations. Ms. begin. may you Orlando,

Kim Orlando

plans and XXXX welcome this earnings discuss as company ladies Company’s call, Simpson third 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 of statements. these actual to materially and are from statements vary prediction like may any future may

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

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

Karen Colonias

Thanks, third volumes good you of provide year-over-year. for to year-over-year a sales our grew meaningful our comparable due sales discuss starts all business, today. almost totaled we Net am approximately results the I Kim primarily grew pleased the afternoon amount of U.S. period in million, homes, leading up X.X% with XXXX higher of $XXX.X into X% and areas throughout X.X% last starts, company. a quarter which to XX% housing everyone. where are south versus for content indicator of our year. Notably

we the wet first due XXXX and from year. U.S. in of unusually the were the also experienced up primarily the of volumes quarter Our across second cold weather conditions half to the

though at Stockton was net strike we reached quarter experienced believe many we the in in which of employees through the where the years Our in and the and sales labor facility our economic community. good even will due bargaining the provide employees employees collective negotiations located. a strongly believe our union unions of I helped facility agreement successful our most contingency market through new that that third Valley, September early October hourly thank this to our this the representing execution is for plant faith of like that a I We increased labor with resolution process. fair is exists by growth am Central our one part to pleased of the X-year of more company of to all large Stockton plan. us would And throughout through who representative we

to fourth we impacted months. there Looking construction from holiday low quarter, forward, We consumer winter as going to the unemployment factors to activity remember ahead a underlying QX into of the availability. are and confidence, related our a healthy it still including experienced strong seasonality growth many typical the slowdown that U.S. support rates, fewer in the interest believe stock rates starts, declining housing level low housing of shipping maybe result due is and a important in days closures by volume

increased As quarter and third due anticipated, primarily pressure, as overhead of under margin as material to labor, our gross costs. raw remained XX.X% well factory

of sufficient purchased to we half the XXXX supply raw year, turbulent work is light us have first the of in than the longer the during in Due fourth we which it volume market. materials, ensure taking to the to priced anticipated higher through quarter

costs by unabsorbed volumes pick-up improvement factory was quarter, experience for While of the in portion partially we did a resulting a from facility. production, lower our offset the Stockton strike third the at in

have our built of service. margins the to one level the XXXX. highest margins to the costs material our industry continue customer we remainder products brand affect said, We in of superior through gross and reputation still trusted of industry gross negatively for and That services, to relationships we deep expect our raw maintain long-standing

customers. X.X% prices. combination a operating on in update Europe in focus service without our quarter technologies net XXXX to edge to sales. initiatives are despite million from of and Simpson systems Further, Turning selling to an fastener and sacrificing we currencies, a on year-over-year to the structure and to $X Many result continues local key and improved growing our and initiatives, our This improving rationalizing currency which rollout into net the improvements Europe, our our of our unveiled from In France of XXXX sales now competitive third increased consecutive $XX third drive to our profitability which line growth our a provide to of volume increasingly progress our margins million long-term, plan, represents our through and of translations. quarter market with cost In best-in-class financial operating these share, Gbo our year-over-year the of Nordic impact sustainable nicely growth. higher the objectives goal strategy negative in transparency continues and operating profitable foreign increases providing as position region of stem achieved our be improving. for

right also headway final X size our reduction phase weighed and lean SKU have of program on We the our product stage initiatives our to offering.

down or of down marginally our dollars XX% little have $XXX.X America Since our increased XXXX. while in X% by XXXX North pounds decrease approximately our benchmark June of come looking including the X% finished balance planned hand have within bulk XX, hand pounds XXXX down terms hand, we aggregate we including product December nearly continued X%. progress. North make on was to When $XX.X by element XX, our which which is June X%. come of finished a America, control our compared have the at on approximately which total levels good an pounds in XX, is reduced decreased since XX%, have hand, total XX, at September have of by on million on by nearly in And goods, As million inventory in over inventory inventory goods, inventory which to by

and through on focused practices. are our We purchasing management, improving inventory inventory careful balance

our technology Finally, of and SAP infrastructure, in the U.S. remainder XXXX to companywide early terms for improvements of in XXXX. continuing our work are completion rollout our continue toward branches we through to a

our we third results, are and pleased progress summary, management. In our including with inventory quarter in Europe our

key to maintaining optimistic ability cautiously continue are environment. long-term to a our confident providing all to like U.S. starts work execute sales value helping and operating goals dedication. and all Thank and for power. safe remain shareholder our customers acknowledge to of will your ongoing against drive best-in-class drive initiatives We for housing employees higher. our you finally, improved the in and workplace to XXXX we service I And also their plan to would our our commitment earnings hard to improve,

I quarter our like turn financial call to would now in to third detail. who will the over results discuss Brian,

Brian Magstadt

I and our Thank everyone. am to afternoon quarter you you, pleased with third good financial results Karen discuss today.

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

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

quarter. conditions. consolidated compared perspective, prior a of year-over-year declined by gross points. material in year year-over-year to the year our profit was in Our XX.X% our in The gross third lower third and was XXX the period. was On compared quarter XX.X% to From to margin well quarter to decline margin market raw third margin overhead our gross our on due resulting quarter higher prior tightening XX.X% prior factory gross of margin quarter million, to labor approximately a in segment ago on gross wood to costs a resulting gross products compared in XXXX, $XXX.X margin year increased labor and XX.X% the as XX.X% by products XX.X% XX.X% costs XX.X% North production gross year was as costs, decreased basis from the America margin Europe, In dollars XX.X% basis, concrete in compared in product quarter. to the to increased compared X% primarily

million the North to in by quarter, were sales engineering expenses to and and the offset Now, research costs prior to in and million decreases turning decreased expenses third costs, year an to fees. basis profit X% compared year-over-year and to personnel expenses primarily X% America due increased sharing, the by $XX.X due consolidated for increased development commissions increased quarter, XX% cash quarter to a operating $XX in costs. personnel On partly and Europe, for expenses, year-over-year Consolidated selling X% primarily segment selling in increase third professional quarter our up they

in segment consulting, North due General On expenses $XX and and level by year-over-year profit quarter. to year-over-year. decreased decreased and in XX% primarily decreases the administrative to expenses quarter were America and fees. cash relatively to administrative compared prior G&A third general Europe, million In in a expenses year the X% sharing flat professional

prior third of or Total of $XX.X operating the million, an expenses to million $X quarter. in the XXXX year were increase approximately compared X% quarter

higher compared primarily net XX.X% Included dollars $X basis were year prior operating of expenses percentage to third points total an to were a implementation to increased the of million SAP and quarter. in quarter As our the costs. prior expenses expense year due Operating compared support of improvement million $X.X quarter. sales, operating costs in XXX in personnel XX.X%,

have $XX.X XXXX, total XX, with million in the September of expensed million capitalized have project. $XX.X the we of associated SAP costs and As

implementation, further capitalizing of costs progress versus As our primarily we SAP now we expensing are more the into them.

to $XX operations from America, slightly quarter year-over-year in primarily in gross consolidated lower to due year-over-year Our profit from by $XX.X $XX.X the partly third the personnel from third X% to $X.X Europe, of In for increased to million income operating income to due income In increase quarter XX% expenses. North offset dollars, year-over-year expense. primarily compared million the increased operations million XXXX. increased to increased million, operations

operating from XXXX. XX.X% third the of approximately points by declined XXX income quarter Our basis of consolidated margin

Our effective quarter in tax XX.X% decreased XX.X% rate of from XXXX. to the third

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

compared million September of and and balance our remain June our $XX.X increase cash $XX.X flow sheet free We to cash We flow, levels compared equivalents an at to turning totaled capital only cash XXXX. leases. Now, million, cash operations prior of million amount year from the debt $XX.X a period. at in to XX, XX, $XXX.X with of million generated XXXX small

included quarter, SAP ongoing capital our from we the million implementation project. During approximately for a expenditures, amount minimal used $X.X which

In total of $XX.X stockholders addition, dividends average common of we paid shares $XX.X of million share XXX,XXX price and million. repurchased at an our a $XX.XX our per in stock to for

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

stockholders January am our of $X.XX on XXXX. XX a dividend The cash per XX, record that XXXX, XXXX share. I of on dividend January Directors be addition, pleased will quarterly October to In as of payable X, to declared of announce Board

I Before we like our to would to questions, over financial discuss outlook. it XXXX turn

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

the rate given costs be and taxes, net million $XX capital federal $XX is million $XX material our XX% $XX be of in expectations $XX million to to depreciation to of in the in We depreciation to which in and margin Total expect amortization be million be the including to million expenses as profit which maintenance and on in CapEx. tax the of range our will to including operating expenditures and to for percentage XX.X% XX.X% range XX.X%, of fixed used to XX.X% state of of and XX%, the of be the expenses, gross both for range $XX million income range approximately of housing consolidated assets to to a range starts. sales XX.X% effective be

Operator? up look forward results In on against operational financial you you today. summary, questions. quarter executing for the on coming our third and our attention we and We remain for quarters. open pleased We updating Thank are your in now to progress strategic, the call time focused would initiatives. and with like to our

Operator

question first Our is Please Instructions] with proceed question. your from Daniel [Operator Moore, Securities. CJS

Daniel Moore

my Karen, Brian, good afternoon. Thanks for taking questions.

Karen Colonias

Good afternoon, Dan.

Daniel Moore

conditions QX may benefited any of from much relative in North QX in in America tougher delayed with QX whether the to revenue to way volumes terms how given early starting quantify Just have much year?

Karen Colonias

would I tough associated volume. you a be think with get metric that that to

As we think stated half year I that was first it the one of we in of QX, the have wettest seen.

have bit as kind I We don’t think of of of that been would little into so exactly And out have were push QX. a we June. started of seeing I volume coming improvement what

Brian Magstadt

But in the lack labor the to up able industry. don’t just the I due we be positions due catch to volume those QX, skilled labor, that in know lack of with to and of necessarily continue that would

Daniel Moore

in there impact any weeks, guess, QX to any Understood. and Yes, as strike, first certainly couple lingering on operating Were into settling impact congratulations and or makes it I relates income that. the revenue of QX? the that makes sense.

Brian Magstadt

Yes We to into on net more impact based XX approximately X% quarter. would Dan, XX negative would XX gross that, to points overhead basis the fourth QX. margin pulled impact, revenue than in on was expect not be to unabsorbed Brian. probably X% of to And that the it’s likely there

approximately – obviously day-to-day a So can volumes on fluctuate is I’m reason the saying basis. and

exactly know how we our best time. guess So, this shipped don’t September, in that’s have we much at would but

Daniel Moore

you’ll impact just X% understand – just impact QX understand you QX or X% couldn’t understand, that volumes help Thank will in Okay. I the that that me in QX, to that you. is The revenue do margin trying on you gross commentary. to I’m to incur think

Brian Magstadt

revenue. to clarify on QX sorry, X% So, to X%

Daniel Moore

Thanks and Got And kind just the all do much then, you steel queue. jump gave bleed inventories. me you the revenue, it, steel it. to in longer through at Impact – got be inventories? expect cost we QX, on QX working through COGS I How more could know of for expect cost through into we higher that color. or year-end? one terms I’ll commentary, okay. that higher from good largely to of mentioned in QX by be back

Karen Colonias

Dan, Yes, function see, function that’s what quarter typical I of of think, weather. it’s we the fourth obviously, a a

we it’s XXXX on certainly it puzzle really to So, be through and all of the take from the winter at this weather. standpoint will point, what going think the of happens rest

Operator

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

Tim Wojs

Hi afternoon. Hello? good everybody,

Karen Colonias

Tim. Hi

Tim Wojs

Can you guys hear me?

Brian Magstadt

Yes.

good. You’re

Tim Wojs

great. Okay,

hearing implies circling just am so or basically of of kind million the lost envelope million just the on about last quarter. North grown you XX%. you the America maybe So strike question, from back $X $X I back thought would that if third you have like right, in guess I the

And so, the because up that only to content South, up the relative know to you more West. gap but and think have a I starts, is little trying South, in only in the understand I’m obviously is starts X% than what less they’re the just bit I in

the starts help of what and volume just underlying is us kind is? you bridge activity kind between can gap of So, what growth that the

Brian Magstadt

what the the of Yes. Tim quarter the compared year. month at during on – Part to starts looking of we’re starts the last are the –

of the XXXX July, some But QX X%. We So August, quarter see the we we price was taken about that at very QX just suspect South on see down of X%, for September, the beginning increase into reminder, up year we that – last pre-buy and West the that. place take X.X%. a about had

change So, QX in of where QX seeing of I that’s you’re the XXXX. to think really volume XXXX

Tim Wojs

Okay.

just it an last was it’s that of So, that impact sizable year?

Brian Magstadt

the then are what to that attributable that’s seeing revenue and think that on suspect starts, we pre-buy, that activities the balance, the would there. had X% with QX, that up would and had those I have the had Well, we’re you’re – it’s to the it volumes about obviously consolidated additional being due strike, in have we the sales to which X% right,

Tim Wojs

to though of it kind tied of guess was or And all, that And inventory some have Okay. a kind still there plans fact if is just you strike were that improvement permanent to down. ship, inventory any so, was of is inventory able might I that at even you the any production level the had reduction? stock even to the replace

Karen Colonias

Yes. our branches. Tim, able that was to during think Simpson great what I was be of from shipping effort meet our met from needs, and customer by saw the employees lot a other of some strike the we to producing

a for So facility. strike and almost have a second lasted certainly into certainly had stocked month hit, probably significant the that our manufacturing would pretty largest

the So, were really we to really on other focused and a on trying locations. customers I again, employees job get of think out sure, great products our, some did the making

do a of can be We we are bit over time that. quite to sure working

right trying of rebuilding all strike production that that us that’s inventory, and very actively you during are of see we that will locations at So, – are that of and so inventory rebuilding is some on we that we lost where now our working time.

Tim Wojs

I kind how conceptually, revenue SG&A then, to rate if don’t should at think And guess Okay. lower grow and a to into looking I than out but I have XXXX of year? next why? leverage, mean, kind as conceptually you of SG&A or get would so, not, look you if just a number, about

Karen Colonias

is and XXXX from same on, we revenue XXXX rate at been Well, standpoint. in what flat a fact not the we��ve of place, being successful in certainly since obviously fairly SG&A it’s has, that were dollar put we the working the – should grow ever plan flat very

go into bottom place, from to the process excellent being top profitable costs think standpoint our continue I will that company’s we XXXX the that and we that year a nicely that have our in and contributing cycle. more both are budgeting from that’s from as line, an that certainly we done whether be or putting job projects this teams our of ensuring headcount

Tim Wojs

that runs that the gain there quarter? the you’ve one any is of And in the sort through fourth last I have sold, Okay. the P&L building is,

Brian Magstadt

we in clarify fourth that you again close building quarter? in Can earnings building the – the the – that release announced that will the

Tim Wojs

Right.

Brian Magstadt

Yes.

– $X anticipating think on gain I million we’re on a are We there. or sale million minus expecting to $X plus $X million

Tim Wojs

Good of Okay, the year. luck rest on thanks. the

Karen Colonias

Thanks.

Brian Magstadt

Thanks Tim.

Operator

from D.A. next Davidson. question. with question Steve Chercover, is Our Please proceed your

Steve Chercover

Thanks. Good afternoon, everyone.

Karen Colonias

Hi, Steve.

Brian Magstadt

Hi, Steve.

Steve Chercover

So, beat cost it’s in run you are the on a because and just laying accounting? have some we’d but steel, dead to through FIFO higher horse stuff cheaper to currently steel, not

Karen Colonias

products sure not Steve, certainly are same the making the same, at at we is look not steel all produced Well, all exactly that rate. and

So, some for of meet products. for material to we raw absolutely infill specific had the have needs the have to

So infill steel you steel this bought some however enough to that yes, be gross impact. we margin see from not that and lower, we an aren’t standpoint, a seeing would are of slightly where

Brian Magstadt

on more a costing, FIFO. a it’s on weighted Steve, Sorry, not average

Steve Chercover

And typically, inventory how do of many months carry? worth you

Karen Colonias

you it, one however, very turns too, nice of into came of months, of window. if indication how four. effect, kind the is many think tariffs in the out threw before our had place the turns our goals our hit being plan give would that plan obviously, to Well, inventory We which to that of

So, half. somewhere of X to to steel, again, steel. an like first depending did months, in specification of those X our the around on impacted we’d XXXX, by months the we unique were What most is, on get additional inventory typically on QX hand with of the

dramatically we’re XXXX. of in working still that course that’s purchased why then XXXX, think off the in I sales falling steel dramatically pretty through half finding that less some XXXX of ourselves December anticipated. QX was and And than of of first started of we

Steve Chercover

And of function the spots Karen. change. quarter in is step the concrete which Okay. opinion products, one a in my experienced bright almost Thanks,

the weather demand accelerated? beneficiary the a segment else wet that is something pent-up or So, with associated of

Karen Colonias

No.

the changed the you’re seeing we’ve again improvements space, our I strategy. think, in what in concrete

fixed products sales target have meet where markets. focused markets those We force got to we’ve these our on

change good a So, there.

Those that put concrete increases XXXX that over course, think mechanical had things gross and price in margin just been place, about anchor side. a on in have the roll that certainly stores. the XXXX then we’ve Depot Some really were out helped that of little – Home have

Steve Chercover

Alright.

So, a forward presumably? higher run-rate going

Karen Colonias

more absorption a standpoint. factory that’s Yes. facility I from costing run-rate higher us our in that helping mean, China

Steve Chercover

that the but almost else in last and your kind final noticed question the analysts permit the maybe of the is is just that book it’s applications there that time parabolic stock optimism should or my was versus you’ve almost would be frame, anything over thing went in housing? or that same it prompt weeks, few anything answering, And order

Karen Colonias

a of of have bit about still I rates low bit pent-up think available. optimism down. trending We are quite Again, there is housing. interest quite inventory demand, a very

from From increase things All of we XX-hour products general. customers provide in just I as a of those of time, from can really sign housing visibility you to a think the turnaround order our positive have know, are a our don’t we in book, so standpoint lot those we areas. an what those order you the positive – start And that we us, book. We’ve talked hurricane in the numbers, we from be about housing earthquake content more again for areas, call South. would put saw that know, in in would that

So, starts positive for in a that increase trend markets. southern X% the in us that’s seeing

Steve Chercover

How production Alright. from the about any California, way it a you either else? anything fires? or Did in standpoint in impact

Karen Colonias

So, on which wild wire. depends

fires latest in XX between any we previous been areas. had obviously there as it some before somewhere typically the structures fire to about that those takes talked see So, we burned damaged years, rebuild might months months XX in are

immediate from structures, those no burnt in those impact So, be those rebuilding of areas. will there out

Steve Chercover

Alright, thank you.

Operator

Romero, is Julio Our your from Please question. with Sidoti. next question proceed

Julio Romero

afternoon good Hi, everyone.

Karen Colonias

Hi Julio.

Brian Magstadt

Hello.

Julio Romero

misheard you mention that’s hear but color even I I gross I’m provide that there? in you not increase did if sales? that with you, within margins correct kind sure, declined, if concrete of can double-digit Brian, just concrete products the any

Brian Magstadt

of That gross gross which sales large in products, versus fiber-based carbon there tied projects. year. often are to concrete in XXXX up decrease margin last was was margin And large fair slight amount QX QX there is concrete sorry and in compared a – of I’m – a

going think to impact don’t see often but…. it’s I mechanical – So I we was chemical a anchor, anchoring, gross those speculate, from I margin, know for will actually sure,

Julio Romero

Okay, that’s…

Brian Magstadt

that’s primary reason there. think I

Julio Romero

you with I’ll with that. offline just follow up

it a looking that almost just or I segment segment, in op in step big the think XX% side something there? OpEx European at OpEx that had another a was out segment. the that material got margin to taken On down there the shift on cost Did numbers, you maybe there, the is

Brian Magstadt

we I Europe management focused and of We just European think like. out in may there strategy a European years and on and ago, combine take starting or a been very our SG&A of been strategy as bit very years, entire I a think, looking on Little in the lapping be really little really operation, the team, on to aggressive the we’re minor, I have as but couple that laid taken we some general be new severances cost trying prior see we’ve strategy focused some it’d at look some we there. costs whether bit facilities, but benefits have that in consolidation can facilities, mentioned. at to

are We nice some seeing improvement.

Julio Romero

have that’s maybe called And call. you of one already any be, that? by last target the on of to and there it. where you mentioned the you I the ahead the year from last update out is, – year Got in couple us year maybe maybe quarters after just end give expect had of me think XXXX date, might to rollout end the and stores I you here Can of you think Karen

Karen Colonias

Yes.

we’re few at I overstated that XXXX. stores, think by a I a think

reset still of and move these said, things stores. Depot with difficult We’re on And to it’s Home as very the around. working rollouts very, we

really the I slow push a of Again, see that process rollout a roll Depot we at one-by-one and pace had in the nice We that locations. to it’s start to be out. same it’s at. probably will kind each think these now, of I second you’ll continue as Home think the type down of really about quarter

still X,XXX at the year. of a we’re looking to get more end the before today So few

Julio Romero

Helpful. Thanks best for and taking in of XQ. the questions luck

Karen Colonias

Thank you.