Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Simpson Manufacturing Co Inc (SSD, Financial) achieved net sales of $597 million in Q2 2024, consistent with the prior year despite challenging housing markets.
- The company outperformed the declining US housing market by mid-single digits on a year-to-date basis.
- European net sales increased by 1.6%, or 2.5% on a local currency basis, year over year.
- Simpson Manufacturing Co Inc (SSD) continues to benefit from large share gains in the residential market due to partnership agreements and customer conversions.
- The company generated $119 million in cash from operations, supporting significant investments in capital expenditures, acquisitions, share repurchases, and dividends.
Negative Points
- Consolidated gross margin declined to 46.7% from 48.1% in the second quarter of last year.
- Operating margin decreased by approximately 200 basis points to 22.1%, compared to the previous year.
- Consolidated adjusted EBITDA declined by 7.8% year over year.
- The company faced higher factory overhead costs and increased path to market costs, impacting gross margins.
- Simpson Manufacturing Co Inc (SSD) incurred additional costs to support synergies in Europe, resulting in further margin compression.
Q & A Highlights
Q: Can you repeat the commentary around national retail accounts and the impact of inventory management or de-stocking? Is this a headwind for the next quarter or two?
A: We continue to be pleased with our national retail team. Quarter-to-date volume was down 3.3%, primarily due to challenging comps from last year. Year-to-date volume for national retail is up about 3%. We are particularly pleased with the growth of our outdoor accents and fastener business in this segment. - Michael Olosky, President and CEO
Q: Is it your expectation to continue outpacing US housing starts by at least low- to mid-single digits for the balance of the year?
A: Yes, our target is to outgrow the market by at least 250 basis points. Despite the market being down, we have added significant revenue and operating profit over the past few years. We aim to continue this trend. - Michael Olosky, President and CEO
Q: How should we think about SG&A growth in 2025 if housing reaccelerates?
A: We have been reinvesting in the business due to strong gross margins. We believe we have set a solid foundation and can dial back costs if necessary. We aim to be in the top quartile of operating margin among our peers. - Brian Magstadt, CFO
Q: Are you looking at tuck-in acquisitions, and will you continue share repurchases at a similar rate?
A: We are evaluating tuck-in acquisition opportunities to accelerate our strategic ambitions. We will continue to be opportunistic with share repurchases while balancing our capital allocation plans. - Michael Olosky, President and CEO
Q: What has changed in the market to revise your guidance from low single-digit starts growth to flat or down?
A: Initially, we expected the market to be flattish. However, Q2 saw a significant slowdown, leading us to revise our guidance to flat or slightly down. We still expect some pickup in the second half of the year. - Michael Olosky, President and CEO
Q: How significant of a headwind are the new warehouses, and what are the cost implications for 2025?
A: The new satellite warehouses are a competitive advantage, helping us deliver high customer service. We expect additional revenues through these locations. The Columbus expansion and Gallatin facility will come online in late 2025, with some initial cost implications but long-term benefits. - Brian Magstadt, CFO
Q: Can you elaborate on the calculated structure design acquisition and its integration with existing software offerings?
A: The acquisition allows us to offer a comprehensive solution for component manufacturing, integrating truss, wall, and floor panel designs. This will help us target larger component manufacturers. - Michael Olosky, President and CEO
Q: Are you at a complete state to service the largest players with your software offerings?
A: We still have some work to do to fully integrate our software solutions and develop production management capabilities. We are making good progress but are not yet fully there. - Michael Olosky, President and CEO
Q: Does your gross margin guidance for the year include any benefit from potentially lower raw materials?
A: Not necessarily. While we expect some help from lower raw materials, this will be offset by higher costs in freight and logistics. We feel good about our inventory position and material costs. - Brian Magstadt, CFO
Q: What are the biggest levers you could pull if the top line comes in below expectations over the next 18 to 24 months?
A: We would focus on expense control, including travel, consulting, and marketing. We aim to keep our teams in place to take advantage of market recovery. - Michael Olosky, President and CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
