Simpson Manufacturing Co Inc (SSD) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the fourth-quarter 2014 Simpson Manufacturing Company Incorporated earnings conference call. In this conference call, the Company may discuss forward-looking statements such as future plans and events. Forward-looking statements, like any predictor -- prediction of future events, are subject to factors which may vary, and actual results might differ materially from these statements.

Some of these factors and cautionary statements are discussed in the Company's public filings and reports. Those reports are available on the SEC's or the Company's website. Please note today's call may be recorded.

Now I would like to turn the conference over to Tom Fitzmyers. Please proceed.

Thanks, everyone. Good morning, and welcome to the Simpson Manufacturing Company, Inc.'s fourth-quarter 2014 earnings call. Our earnings press release was issued yesterday. It is available on our website at simpsonmfg.com. Today's call is also being webcast and a replay of that webcast will be available on our website.

As usual, joining me in Pleasanton for today's call are Karen Colonias, Simpson's CEO; and Brian Magstadt, Simpson's CFO. I will start, followed by Karen and Brian, and then we will be delighted to take your questions.

North America had a good sales quarter compared to last year, based on an increase in housing starts. Sales were up 7% in North America for the quarter, due to increased homebuilding activity in many parts of the region. Housing starts in the US are up from this time last year, and we are continuing to benefit from these starts. But unlike lumber or other products that have a more direct correlation to starts, our products are used to a greater extent in code-based areas that are subjected to natural forces, such as seismic or wind events.

Europe's sales were down primarily due to foreign exchange effect, and we are seeing the effects of a continuing tough economic environment there. As we mentioned before, we estimate that about 55% to 65% of our total Company wood product sales are dependent on housing starts.

North America operating profits were up $986,000 or 9%, due to increased sales volumes. These were offset by increased manufacturing expenses. Europe's operating loss was $1.3 million, worse by $800,000 over last Q4, due primarily to lower gross profits. We continue to have a very strong financial position with $260 million in cash at the end of the quarter, very little debt, and a $300 million unused line of credit, which gives us a lot of flexibility and a capability of continuing to invest in our long-running strategic plan.

Karen?

Thanks, Tom. I attended the International Builders Show in Las Vegas last month, and the builders seem to be enthusiastic about the 2015 housing outlook. We are prepared, from both a sales support and inventory standpoint, to meet our customer's needs with our connectors, fasteners, and anchor products.

Our initiatives in wood truss and concrete repair and strengthening are large market opportunities in which we have enhanced our engineering, marketing, manufacturing, sales, and customer support. These are the elements that our brand was built on and that differentiate us from our competition.

In the second quarter, we expect to have our next truss software release. And in late Q2, we also anticipate we will be marketing our new US-code approved fiber-reinforced polymer product line for concrete strengthening applications.

As always, we are dedicated to our entire product line, and we work hard every day to ensure that we continue to meet our customer's needs for service, support and availability. We'll continue to monitor our operations and SG&A expenses around the world to strive for long-run returns that are acceptable to us and our shareholders.

I'd now like to turn the call over to Brian, who will share some more additional financial information.

Thanks, Karen. As noted in the earnings release, Q4 2014 gross margin was 43.7%, flat from Q4 last year. So the margin differential of wood to concrete product is about 9 percent points this quarter compared to about 16 percent points -- of last year, sorry -- with concrete products up and wood products down slightly.

As noted in the press release, we believe our -- the estimated gross margin will be in the 44.5% to 46% range for 2015; although depending on the rest of the year, that may change. Total operating expense as a percent of sales were slightly less in the quarter compared to last year.

Now regarding taxes, the tax rate of 32.3% is down compared to last year Q4, due to a tax reserve release in France and the renewed R&D tax credit in the US, offset by foreign operations, which had slightly higher losses subject to valuation allowances this year compared to last year. The annual rate of 36% for 2014 came in just under the rate we had been estimating for the year. The 2015 estimated tax rate is believed to be between 36% and 38%.

Q4 2014 CapEx was about $6.2 million, primarily for manufacturing equipment and software in the US. We estimate total 2015 CapEx to be in the $30 million to $33 million range, excluding software. For 2015, depreciation and amortization expense is expected to be between $30 million and $32 million, of which $24 million to $26 million is depreciation.

Before we turn it over to questions, I'd like to remind you that if you'd like further information, please contact Tom at the phone number listed on the press release. Also, look for our Annual Report on Form 10-K to be filed at the end of February.

We'd like to now open it up to your questions.

(Operator Instructions) Tim Wojs, Baird.

Close enough. Good morning, everybody. So I guess just, Karen, to touch on something you said -- you said the builders were enthusiastic about the outlook in 2015. And I'm curious, has any of that enthusiasm led to sticks in the ground? Or are we still -- is it a little bit more talk right now versus -- I'm just trying to understand what might be enthusiasm versus what might actually be going in the ground now.

So, Tim, as you know, late fourth/early first quarters are typically based on weather conditions, not the primary building seasons. They were enthusiastic, I think, about what they are seeing as far as potential customers, what they are looking at from economic conditions, things that are happening from what's going on with interest rates and that sort of thing. So, I would anticipate again that we would see the standard type of building timeframe, which would be largely in second and third quarter, just as it has always been.

Would you say that maybe their tone is a little bit more -- is a little more positive than maybe the last 12 or 18 months?

Yes. I would say their tone is more positive than it was at the IBS show last year.

Okay, perfect. And then, just, Brian, the corporate line, I think there was a larger than expected income item there. I'm just wondering what that might be and how we should think about that line moving forward?

Tim, can you elaborate? What do you refer to on the corporate line?

Yes. There was a -- I believe in the press release, there's a -- in the segment breakout, there is an Administrative and Other -- All Other Income line.

Oh, right. The Admin and All Other.

Yes. And that was just a $4 million number. I was just wondering what exactly that is? And is that something that is repeatable as we go forward? I'm just -- I'm a little curious there.

Yes. No, I think the -- you know it's typically going to be in the $1 million to $2 million range for the year. If you look at the 12 months, it's really allocations from the home office to the rest of the segments. And at the end of the year, there are some true-ups. So, if you look toward the -- look at the 12 months, it's -- the 12-month number is about where we would typically expect the range to be. So, Q4 ends up being the quarter where items get trued-up.

Got you. Okay, that's helpful. And then just a couple of housekeeping questions that -- what was the FX translation impact in the quarter? And how much of North America is Canada? I just can't recall.

Yes, for North America and Canada, it was less than $1 million on revenue. And for the entire Company, it was about $2.5 million negative effect in the quarter, companywide. So, obviously, primarily Europe.

Perfect. And then how do you think about just the outlook for steel in 2015? And how should we think of gross margins looking into 2015?

Well, we provided a little bit of guidance to 2015 gross margins, so I don't think we are anticipating any significant changes there.

Okay. I'll jump back in queue. Thank you.

Thanks, Tim.

Thanks, Tim.

Steve Chercover, D.A. Davidson.

It's good to hear that the truss software is going to be released in Q2. I'm just wondering is that too late really for the 2015 building season?

Well, we are constantly doing releases, and so it's -- the release that we are anticipating in Q2 will give our sales force the opportunity to call on a few more customers. As you've pointed out, Steve, it's certainly not going to allow us to really pursue heavily the entire truss market, but it will allow us to pursue an incremental number of customers.

As we mentioned, the truss software that we are releasing right now is probably targeted to those customers with a little less complication on the trusses that they build. And that, alone, kind of gives us that little bit better window of opportunity.

So, is this the big one, so to speak? Or is there still more to come? And once you finally have the software that you've been working so hard on in the marketplace, remind us of the addressable market size.

So we believe the addressable market size for truss at about 1 million housing starts is between $450 million and $500 million. When you mention the big one, I think software is continually under development, improvement, and enhancement. So we will continue to have our software expense as we work on even improving this more to meet some of those needs of those customers who have much more complicated designs.

Okay. My other question was with respect to the concrete margins. Good to see them coming up as opposed to wood coming down. So, what is it that you are doing? Is it an improved product or how -- cutting costs? How are you getting those margins up?

Yes, Steve, this is Brian. I think a lot of it has to do with getting some expenses behind us related to certain factory improvements that run through that cost of sale line. There could also be a bit of a mix issue as we go into more of the fiber reinforced polymer products that Karen mentioned in her prepared notes. But I think it's largely due to, like, getting some past expenses behind us.

So they ought to be sustainable? Is there more to come?

You know, I think it may be too early to make that call on more to come, at this point.

Okay, thank you.

Sure.

Alex Rygiel, FBR.

Good morning, everyone, and nice quarter. Could you comment on why the Home Center sales declined in the quarter? Third-quarter was very strong; fourth-quarter seemed to be a little bit soft. Obviously, 2014 was a little bit of a lumpy year. Should we be reading into that weakness in Home Center sales in the fourth-quarter at all?

Alex, this is Karen. I think Home Center sales is really a function of what you see them preparing for their future growth opportunities. Again, they are really looking for those spring/summer building seasons. And so it's not unusual that we would see a little bit of a slowdown in the fourth-quarter for Home Centers.

I think last year, when we looked at Home Centers other than the Northeast -- which, I believe, had some pretty tough winter -- we saw Home Centers picking up kind of in their normal fashion of when we see peaks and valleys. The other thing I would mention, I think, as we've said in the past, that Home Center sales might not be tied so closely to housing starts, as we see a lot of our product going through our contractor distributors and our lumberyard distributors.

Do you sense that --

So, a couple more avenues that the product is delivered.

Do you sense that they may be a little bit gun-shy going into the winter this year, after maybe carrying a little bit too much inventory in sort of the earlier months of 2014?

I have no idea on that one.

Okay. You also referenced that there was an increase in shipping costs in the quarter. Could you discuss that in a little bit greater detail? And comment on sort of the outlook for shipping costs in 2015, given that fuel is declining?

Yes, Alex, this is Brian. It was -- had a marginal effect. But, as we work with our vendors, we take a look at all those different opportunities. And although we are not necessarily projecting any significant movement in shipping costs, you are right, to the extent that fuel obviously plays a big impact there, we will be monitoring those. But I don't know that we would have a specific guidance for that particular number.

And lastly, any view on sort of how product mix might change in 2015, specifically? Should we think about wood products growing at the same rate as concrete? Or should we continue to sort of anticipate concrete to outgrow wood?

Well, I would -- I would anticipate that we would see wood products obviously to continue to grow, but I think there's more opportunity on the concrete side, just because we have a smaller market share there, and we are introducing some new opportunities and some new avenues in which to market and sell our Engineered Systems. So I think we've got some things in place that will help us a little bit more on that concrete side.

Great. Good luck. Thank you.

Barry Vogel, Barry Vogel & Associates.

Karen, could you give us the percentage change of home centers overall for 2014 versus 2013? And at the same time, your largest customer changes in 2014 versus 2013. That's my first question.

Brian is looking that up right now, Barry.

Yes, so for the year, our largest customer was flat. And for the channel -- bear with me just a second -- the channel was flat as well for the year.

Are you surprised that your largest customer was flat when the economy and the building environment was improving?

Well, of course, we are always working with all the Home Center chains to put more products in and to make sure we've got products that are really moving. And our group continues to do that. We did that through 2014. I just think that what you are seeing is, as home starts increase, that our other avenues of distribution is the location that the customers are purchasing the product.

So we are going to see more of that going forward? Flatness for your largest customer?

Well, we work with them, obviously, very often to make sure, as Karen mentioned, that we've got the right products in there. I mean, it does, obviously, no good for them or for us if the products that we have in there aren't turning as much as we need to. So, we work with them -- all customers on a continuous basis to make sure they've got shelves of product and the right product. So, and that's always a focus with those customers.

And I have a couple of questions, a couple of numbers questions for you, Brian. What was the capital expenditures last year?

It was total-year CapEx $23.7 million.

And did you repurchase any shares last year?

Well, we repurchased earlier in the year. We did not do any repurchases in Q4.

And what was the total amount of the dollar repurchases?

About $3 million.

Right.

About $3 million, yes.

Okay. And what is the -- considering your balance sheet of $260 million, and your depreciation for next year being similar to capital expenditures, obviously, you have a tremendous balance sheet, and has had it for a long time. What -- is there any plans to use that balance sheet a little more aggressively going forwards?

Barry, as we've said in the past, on a quarterly basis, we review where we are at from a opportunistic standpoint to repurchase shares, like we did last year. We have a $50 million line of credit that the Directors have approved. And --

$50 million --

Right.

-- dry bag approval.

Yes. Dry bag approval that the Directors approved. And we look at that from an overall opportunistic standpoint. We review the dividend levels on a quarterly basis. And I think that Karen has been pretty explicit about some of the areas that we are interested in, as far as adding acquisitions. And she might want to expand on that some.

And also, it takes a certain amount of cash just to run the business. I think Ryan has estimated it's between $90 million and $100 million worldwide. But we are aware of it. We are paying attention to it and we are considering all alternatives.

Another thing that happens, and it doesn't really appear there to the same extent, you might think, is that we are constantly improving the Company in a lot of different places. And while it doesn't necessarily show up as a CapEx, for example, we do spend a lot of money to improve everywhere that we can. And you've seen that from the margins that we have been able to both increase and maintain after the 2008 period.

Now, it was early in the morning -- well, not early in the morning -- well, it's fairly early in the morning -- I noticed that the Asia-Pacific operating profit on your sheets, which are very well done, had a profit of $217,000. Was that the correct number?

We believe so, yes.

So, how did that happen?

Well, we've got a lot of different programs going on. One of the -- Asia-PAC is a pretty big part of the world. We've got China, a little bit of the Middle East, Asia, and then we've also got Australia and New Zealand, South Africa. And we are seeing -- in the PAC part of that Asia-PAC of Australia and New Zealand, I mean, it's their summer, it's their busy season down there now. And I think we are seeing opportunities for improved -- increased sales due to a lot of things that are going on down in that region.

You know, for example, a few years ago, New Zealand had a pretty devastating earthquake in Christchurch, and there's some rebuild going on there, which used a lot of our concrete type products. So, it's relatively a mix between the region.

Now, could you -- Karen, what do you think the outlook is for Asia-Pacific in 2015 as well as Europe?

Well, I think if we looked at Europe, they are definitely having some struggles from an economic condition. Our Managing Director there is doing a great job of really searching out and working for the -- with the sales force to make sure we can get our products in all different avenues.

We've, as I've mentioned in the past, we've done some reorganization and we've certainly seen some great improvement from Europe, if you look at the operating income line. I think they will have a tough year and -- but, again, I think we've put some things in place where they can really take the advantage of the revenue that they have, and transferring that down to the operating income line.

When we look at the Asia-PAC, as Brian mentioned, we have some opportunities in Australia and New Zealand. They are on a different cycle than us. And we are looking to -- predominately, we used to only sell fasteners in those market areas. We are now selling mechanical anchors and adhesives. And we're looking to also do some opportunities with some of the connector lines, because they build very similar to how we do in the US market.

And in Asia, we have had -- the opportunity there is really with some of our new fiber reinforced products, and our repair and strengthening. It's predominantly a concrete market. We don't sell really our fastener line or our connector line. But as we've discussed in the past, the Asia market's pretty tough from a competition standpoint and to really get your product line on some of these large projects. And again, we are working very hard in the -- in Asia, to be able to do that.

Thank you very much. Keep up the good work. And maybe you know we'll see some big numbers coming on.

Thanks, Barry.

(Operator Instructions) Daniel Moore, CJS.

I was hoping you could talk a little bit about the pricing environment, what you're seeing, whether the easing of some of the pressures from your largest customers -- sorry, competitor in North America is eased? And your expectations for 2015.

Hi, Dan. I think we've mentioned in the last couple of conferences, we haven't seen so much price pressures as -- certainly, as the increase in housing starts goes up, that takes a little bit of price pressure off, because people are really more concerned about availability and support. As we look into 2015, we are currently not seeing a lot of pricing pressures, and I would, I guess, anticipate that that might be similar going into 2015.

Very helpful. And just taking a stab at the expenses, obviously, well-documented, significant investments that you've made. As we come out of 2015, should we think of this -- the level of SG&A as sort of a good run rate? Do you have additional projects that you are anticipating? Or are there actually some expenses that might come out of the line as we look forward?

Yes, hi, Daniel, it's Brian. I would say other than some of the variable expenses that are tied to sales or profits, I would expect the run rate to be fairly comparable at this point. But I think it would be too early to make that call on any significant variations there.

But nothing anticipated in terms of incremental investment that we might hear about over the next quarter or two?

No, I don't think so.

Okay, thank you.

Thank you.

Thanks, Dan.

And at this time, we have no further questions. I will turn the program back over to Mr. Fitzsimmons for any additional or closing remarks.

Thanks very much, everybody. We appreciate you listening. And I'd be glad to take any phone calls that you might have. Bye.

This does conclude today's program. Thank you for your participation. You may now disconnect.