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Simpson Manufacturing Co., Inc. (SSD) Q2 2023 Earnings Call Transcript

Simpson Manufacturing Co., Inc. (SSD)

Q2 2023 Earnings Conference Call

Company Participants

Kimberly Orlando - ADDO Investor Relations

Michael Olosky - President and Chief Executive Officer

Brian Magstadt - Chief Financial Officer and Treasurer

Conference Call Participants

Daniel Moore - CJS Securities

Timothy Wojs - Robert W. Baird & Co.

Kurt Yinger - D.A. Davidson

Julio Romero - Sidoti & Company

Presentation

Operator

Greetings and welcome to the Simpson Manufacturing Co., Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Kim Orlando with ADDO Investor Relations. Thank you, Ms. Orlando, you may begin.

Kimberly Orlando

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's Second Quarter 2023 Earnings Conference Call. Any statements made on this call that are not statements of historical fact are forward-looking statements.

Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC or the company's corporate website.

Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise.

Please note that the company's earnings press release was issued today at approximately 4.15 PM Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website.

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

Michael Olosky

Thanks Kim. Good afternoon, everyone, and thank you for joining today's call. With me today is Brian Magstadt, our Chief Financial Officer. My remarks today will provide an overview of our financial results, key growth initiatives and capital allocation priorities. Brian will then talk you through our Q2 financials and our fiscal 2023 outlook in greater detail.

We delivered solid performance in a difficult operating environment, with second quarter net sales of $597.6 million, which is an increase of 0.7% over Q2 2022. North American volumes increased 2.3%, leading to a growth in net sales of 2% year-over-year to $465.5 million. To further break-down our performance, national retail showed double-digit improvements year-over-year from a volume standpoint, due to our business model and an improving market environment.

We have dedicated teams working with our national retail customers that provide training and merchandising support. In our residential market, while our volumes were down in the low-single digit range we experienced notable strength in the Midwest and Northeast regions of the US, over the prior year, with sales in the Southeast region holding relatively flat in a challenging market.

Multifamily continues to be an area of strength. In addition, sales in the west recovered nicely following the significant precipitation that led the materially softer sales in the first quarter of 2023. While 2023 housing starts will finish below 2022 levels, the market continues to improve relative to our earlier outlook, in part due to a high share of new single family home sales as a percentage of all single-family sales.

We continue to believe in a sustainable strength in the housing market in the mid to-long-term given the shortage of new housing. We are confident key attributes of our business model will help stem some of the short-term downward pressure, given first our increasing diverse portfolio of products and software and a commitment to developing complete solutions for the markets we serve.

Second, our longstanding reputation, relationships and engagement with engineers, building officials and contractors to design safer, stronger structures and improve construction practices. Third, a dedication to innovation, extensive product engineering and rigorous research and testing in our nine state-of-the art labs.

Fourth, best-in class field support, technical expertise, digital tools and training to make it easy to select, specify, install and purchase our products. Fifth, industry-leading product availability and delivery standards on our vast product offering, across multiple distribution channels with typical delivery within 24 to 48 hours. And sixth, a deep commitment to trade education and partnering with organizations that provide training and career opportunities to attract more people to the construction industry and alleviate labor shortages.

Turning to Europe, our second quarter sales totaled $127.8 million, down 4.1% year-over-year on lower volumes. ETANCO continues to perform well in a challenging market with relatively flat sales. Our business associated with the residential housing market was down modestly due to lower housing starts. We continue to believe in the longer-term potential of the European market, given the ongoing housing shortage, increasing use of wood construction and new regulations that drive new applications and specifications.

Our consolidated gross margin for the second quarter improved to 48.1%, primarily reflecting lower raw material costs, partially offset by higher costs in our production facilities. Brian will further elaborate on the key drivers of our margin performance shortly.

I'll now turn to an update on our key growth initiatives within our five end-use markets, which helped fuel our ambition to be the partner of choice. Residential, beginning with our residential market, our longstanding relationships and high-service levels resulted in many new customer wins, with both single-family and multifamily builders, and our channel customers that serve them. As a reminder, we have 26 of the top 30 US homebuilders, along with several hundred smaller regional builders and our program that specify our connected products and other solutions.

Commercial, in the commercial market, our solutions are specified for the first ventilated facade application on a building in New York City, demonstrating the early implementation of energy conservation regulations by several cities and states in US that are similar to those adopted in Europe. The facade will be dealt with products already available in the US, highlighting a future opportunity to rollout the ETANCO product-line in the US.

OEM, in the OEM market, to further support the mass timber initiative, our team designed, manufactured and installed many critical connections in the construction of 112 foot wood building that was used for the world's tallest shape table test. The building suffered no significant damage after withstanding 100 large-scale earthquakes.

It's another example of our rigorous research and testing effort that is consistent with our mission to build safer, stronger structures. National retail, within the national retail space, we have successfully expanded our product-line and off shelf merchandising efforts with the home center channel, which has resulted in improved sales volume.

Our outdoor accents decorative hardware line has been a strong contributor to our success with double-digit sales growth year-over-year in 2023 versus last year. Building technology, and finally in building technology, we continued successfully converting new component manufacturers over to Simpson's trust software, trust play and connector solution set.

The software critical to this market segment has improved substantially over the last couple of years. Our strong business model has also helped us become the partner of choice for several new customers. We are pleased with the traction we've made on our growth initiatives to date, as we seek to extend our mission to help people design-and-build safer, stronger structures in to new applications. Throughout all of our operating segments, we believe our ambition to outperform the US housing market will be supported by our comprehensive strategies, specific to each market segment and product-line.

Turning now to capital allocation, our priorities remain centered on growth opportunities, both organically and through M&A, returning value to our stockholders via quarterly dividends and opportunistic share repurchases, and paying down the debt we incurred to finance the acquisition of ETANCO.

As it pertains to organic growth, we've been making key investments to not only strengthen our business model, but to also expand our operations in order to enhance our manufacturing capacity and supply chain efficiencies, and uphold our best-in class customer service standards. To that end, we have identified a new greenfield opportunity to replace our facility in Gallatin, Tennessee....

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