Simpson Manufacturing Co Inc (SSD) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Simpson Manufacturing Company, first quarter earnings call. At this time, I would like to inform you that all participants are in a listen only mode. At the request of the company, we will open up the conference for questions and answers following the presentation. I will now turn the conference over to , chairman. Please go ahead sir.

Thank you. Good morning everybody and thanks for joining us. I have our CFO with me. And first to please our attorney, I must tell you that I believe everything I'm going to say. That it is based on current information, which may or may not prove to be accurate. Amazing, eh.

As you see, the first quarter was somewhat OK. [Inaudible] the same increase in both sales and profits over last year. The increases were despite our largest customers purchases from us being down. Although the sales of our profits were significantly up. This disparity was due to a new policy relating to inventory terms. With the growth due to 180 new stores projected this year, and inventory adjustments apparently somewhat close to being accomplished, the effect of the new inventory policy should go away shortly.

In Europe, we made real progress in the U.K. especially, which had a positive cash flow, as did France. , our Denmark acquisition, had a substantial loss, however, due to much lower sales in the No. 1 market there, Germany. And also the time that it takes a company and us to integrate a new acquisition. supplier has committed to using our products in six new stores contemplated in the next 12 months. That's out of 270 total, and it gets us a foothold in there, it's an account we've been working on for years.

Also, there's a new building code in the U.K., which is a plus for the use of connectors. Our manager told me yesterday that he expects biggest month ever in the U.K. this month. So we continue to see Europe as a significant part of our future, although currently the German economy is proving difficult to predict. Maybe it's a bit like the stock market here.

In the U.S., California made a substantial turnaround from the worst comparative sales record in the fourth quarter of last year, to one of the best in the first quarter of this year. And the south, southeast also showed double digit improvement in revenues. We feel that increasing adoption of the IMB and IRC building codes in the Midwest, east coast and the south should result in more specified use of our products.

Sales of our str...(beep). Sales of our strongwall, surewall, mostly in California, and practically all for new construction increased substantially in the first quarter.

Our R & D department, among many other projects, is working on a new wall for sale outside of California, which may be ready for market this year. Next year, the sophistication and variety of testing that we can do will be substantially enhanced by the use of our new 10 million dollar facility on the 47 acres that we purchased for expansion in Stockton, California. Anchor systems, , mechanical anchors, drill bits and are like our strongwall, as I have said before to any of you who have been on these; do not depend upon either new construction or wood construction. So these products lend a new dimension to the marketing and distribution of Simpson strong .

We continue to run a substantial deficit with this line as we develop new markets. But they are a very important part of our future, and we think very much with the investment.

Simpson sales were 85 percent, and Simpson 15 percent of total sales in the first quarter. The operating contributions were 90 percent and 10 percent. Right now, we're not expecting any big change in these ratios during the rest of the year, and current conditions in our budget show another record year in sales and profits. So questions.

The question and answer session will begin now. If you're using a speaker phone, please pick up the handset before pressing any numbers. Should you have any questions, please press one, followed by four on your touch-tone phones. Should you wish to withdrawal your question, please press one followed by three. Your questions will be taken in the order they are received.

Please stand by for your question. Our first question comes from . Please state your affiliation followed by your question.

Barry Vogel with Associates, good morning gentlemen.

Good morning, Barry. Why am I not surprised that you have a question.

I don't know. . Anyway, the first question I wanted to ask you was do you have any kind of an estimate of what kind of sales you might of lost from your large customer because of their change that they instituted in the first quarter.

Well, I don't uh, I don't see any long range implications at all except that we, like all our other customers, have had to really go after our delivery systems. We've got to deliver faster. And, of course, they did it to make more money, and I think it's a great move on their part, but it makes us work a little harder. And that's OK too.

All right, but if, did you calculate if they didn't change what your sales would have been? Would they have been larger? I think you did state that your sales would have been larger if they hadn't made their change. Give some idea of how much larger that your sales might have been had they didn't make that change in the quarter.

Double digit. (phone rings)

What your saying.

Low double digit.

Does that mean, $10,000,000?

I'm not going to go into that.

All right. OK. Now Mike, I have a couple of questions for you. You know that steel prices are going up dramatically as we speak. And they probably didn't affect you in the first quarter, because these prices take time to go through the system, and I know you're a big buyer of steel. Could you give us some idea of how this might affect you this year in terms of your profitability.

Yes, that's a good question asks. That's a major concern of ours, however, we have long range contracts. Long range, the definition being three quarters to a full year with our suppliers, major suppliers, and we're buying in the U.S., and we're having pressure on prices go up a little bit right now, but we're not going to see any big increase for us, we don't think, for the rest of the year. But in the future, it will be like it's been before. When steel prices go up, and of course, they're an extremely important part of our cost, the big part, when they go up, you've got a little lag before we can make it up. But there's never any question with what you can do that because we buy considerably more steel than our competition. And so we have more clout in the market place. And when they, prices go up, for sure, they have to raise. And so we don't have any problem raising ourselves. Now if prices go down, it's the other way. We gain a little from the lag.

OK. Now as far as the sales broken down by division you've been kind enough to give us those numbers on the conference calls, could you tell us what your anchoring systems sales were in the first quarter versus last year, and the same with strongwall. And could you give us your current estimate for revenues in those two areas this year.

Well I'll give you the first part of the question, , which is up. Anchor systems was around 10 percent up in the first quarter, and because it was so bad before, our strongwall was up about three quarters, about 73 percent I believe it was.

Last year?

That's not, yes. That's not something that you can count on at all. Not at all. We think the strongwall will certainly be up this year, but it won't be anything like that.

Now last year strongwall came in because of the fall off in the last part of the year at only $21 million approximately.

Correct.

And I know estimates are just estimates. Can you give us your best shot at your estimate for strongwall sales for this year and the same for anchoring systems.

Probably around five million increase.

For strongwall?

Yes.

And how about anchoring systems? It was 39 million last year.

Anchoring systems

It was 30 million last year.

Pretty tough. Any estimate right now is based on too many things where you don't have enough good facts. You know we're in the new markets, and we have things that may or may not happen and that could make a big difference. So I really don't want to make an estimate. Now I can tell you we're expecting it to be up, but not how much.

OK. And Mike, can you tell us what you expected capital expenditures are this year and depreciation and amortization.

Yes, I'll turn that over to Mike.

Depreciation will be $13 million, and we have not changed our capital plan. It's approximately going to be $25 million for the year.

Thank you very much.

O.K., thank you .

As a reminder, if you do have a question or comment, please press one followed by four on your touch-tone phones at this time. Our next question comes from . Please state your affiliation followed by your question.

Snotty and Company. Good morning Bark.

How are you Dwayne?

Not too bad.

Hey that was a good conference you had.

Thank you, thank you. It was good to have you. Just have a couple quick questions. I missed what you said for the (cutoff), I caught the anchor systems, you said that was up about 10 percent. What did you say for strongwall?

Ah yes. It was up 73 percent, but that is totally misleading because it was compared for the quarter, the sales are all in California, probably 90 percent, and California tanked last year. But now California made the big turnaround in the first quarter. And all new construction, the strongwall, so starts went way up here. And so did the strongwall sales. We don't look to the rest of the year anything like that.

Right, O.K. So you said you expect the strongwall revenue to be up about five million and anchor systems up slightly from 30 million a year ago?

Yes.

OK. The other quick question I have is about your margins, gross margin I guess was at just over 38 percent for the quarter, which even though that was down year over year, it was up versus the fourth quarter and was actually better than what I was looking for. Do you think the level we're at now even with the added cost with the Danish subsidiary, do you think the 38 percent gross margin sustainable for the rest of the year?

Yes.

O.K., good, good. And the last thing is, I mean, your cash positions, unbelievable. Eighty-five million dollars worth. Any plans for that cash?

Oooh, gee. It really, I, I. It's the same that it has been. That we want to be in a very strong position in case the right kind of acquisition substance in relation to our size comes along, and that's why we leave it there. Now I, I do get all kinds of comments all the time about why don't you use it to buy your stock, why don't you declare a dividend, but this is for the future and we think it's worthwhile to be in the strongest possible position. Now that doesn't guarantee anything there, but we look hard all the time. We're (indecipherable).

OK.

The economy's too good, that's the problem.

I think you and I and others have discussed in the past why we would just assume there was a recession for awhile, so maybe we could get a very substantial acquisition at a decent price. Our problem is we make too high a percentage on our sales. So we can't buy anybody that doesn't our profits over a period of time.

Right, right, right. OK, good quarter Barc. Talk to you later.

Thank you .

As a reminder, if you have a question it's one followed by four on your touch-tone phones. We do have another question from . Sir, your line is live.

Barclay, I have a question for Mike. You mentioned the reduction in bad debt reserves versus last year. And lower good will amortization. Can you tell us what that reduction in bad debt reserve was compared to last year and how much a lower good will amortization that you had in the quarter.

From bad debt, there were two primary reasons. Two large customers, one we had reserve over the last two quarters. That customer has turned around and has made the payments, so we were able to reduce part of the reserve we put up for that customer. And the second customer, large customer, we had gone back over the last two years. Normal re-shift, they were not sure if they received it or not. We provided all the documentation. So we were able to reduce our bad debt reserves close to a million dollars this quarter.

So that had the by a million dollars?

One million dollars total.

And how about the good will amortization?

The good will, we normally have $430,000 per quarter in good will amortization. And the cost of 142, we no longer had to amortize that. We did impair $188,000 of good will of our total (ring) .2 million.

So what was the overall effect of the good will amortization?

430 minus 188. So roughly $240,000 benefit.

O.K., as far as the tax rate for the year, could we use that 40.8 percent?

Yes, I'm comfortable with that.

Thank you.

Thank you. Our next question comes from . Please state your affiliation followed by your question.

Lord Abbot, good morning Barc.

Yes, how are you Justin?

Fine. Just a quick question. Not to delve too much into the acquisition strategy, but to follow up on Dwayne's question about the cash position. I mean, you have 85 million in cash, certainly you know, going up this year, borrowing capacity is significant, so it looks like you could do a meaningful acquisition, yet given the at least mixed performance to date of Europe and seemingly not a penchant to bet the ranch per se on a deal, could you give us a little insight in terms of what you would consider.

In terms of magnitude?

Yes, and or is it complementary product lines? Is it distribution channel? You're obviously going two different directions geographically and trying to get in the systems to take you a little away from being dependent on your core business, and. So just to get a little sense of what your ambition for the business over the next few years.

Really. Well, the size of the acquisition, we'd love to find somebody of our size that we could buy, whose product line fitted in with our strengths. And by our strengths, I mean mainly channels of distribution where we are very strong. Like with the engineering community we are building structures that use connectors at all, and that's most structures, not high-rise buildings. But most others, both commercial and residential. Those kinds of products that sell to this similar channels of distribution, the engineers specify us now. We have an honest strength. We can get them, we think, and have them as in the past, to specify a new line of products. Because we have confidence in our testing and in the quality of our manufacturers. So that's generally it's products that fit at least a significant part of our channels of distribution and the size, we're not reluctant to take a chance. Better to do a chance that we've looked at extremely carefully.

Do you feel, though, take anchor systems as an example as you've mentioned, the difficulty of getting into a new community of engineers to convince them that you have good product. Even though you'd like to go at the same engineers, presumably on the residential side with whatever this potential acquisition may be, at the end of the day you're going to have to jump through those hoops over a period of months or years to convince them again that you bring a superior process to the product. Is that true?

That's absolutely true. As a matter of fact, the engineer who specifies anchors systems' products often is different than the one who specifies our product for commercial and for residential building.

Right. OK. And then, can you just talk a little bit your customer base on the residential site, not with your big customer, but do you guys sell directly to home builders or is it through the stores that you do that?

No, we do not sell directly to home builders. On our largest channel of distribution is still distributors to dealers, hardware stores, that kind of thing.

OK. Is there an opportunity there you think? Because a lot of the national track builders are going towards more a contractual type arrangements with suppliers, or is it just your products are too small a component to the overall proposition for them?

Well I think that we have some very strong channels of distribution set up over a lot of years. And yes, you adjust to whatever the times are. But the times are not anywhere nearly where we would seriously consider wrecking our current channels of distribution which we would do if we so direct.

Yes, OK. Thank you sir.

Thank you Justin.

If there are no further questions. I will turn the conference back to Barclay to conclude.

No more questions. OK. Well thank you very much for being a part of this call, and I'm available any time if any of you have any questions. Thank you. Bye.

Ladies and gentlemen, that concludes our conference for today. Thank you all for participating, and have a nice day. All parties my disconnect at this time.

OK. Thank you.