Simpson Manufacturing Co Inc (SSD) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the first quarter 2016 Simpson Manufacturing Co., Inc. earnings conference call. In this conference, the Company may discuss forward-looking statements such as future plans and events. Forward-looking statements, like any prediction of future events, are subject to factors which may vary and actual results may differ materially from these statements. Some of such factors and cautionary statements are discussed in the Company's public filings and reports. Those reports are available on the SEC's or Company's website. Please note, today's call may be recorded.

I will now turn the conference over to Tom Fitzmyers. Please proceed.

Thanks, everyone, and good morning and welcome to the Simpson Manufacturing Company's first-quarter 2016 earnings call. Earnings press release was issued yesterday and 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 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 very good sales quarter, up 16% compared to last year, based on an increase in housing starts and construction activity in most of the region due to a milder winter. Our European sales were up despite some foreign exchange headwinds, primarily due to volume increases and a milder winter. As we've 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 $10 million or nearly 50%, due to increased gross profits that was partially offset by the increase in operating expenses. Europe was down slightly against last year. Asia-PAC improved, that is due to severance costs recorded last year, which we did not -- reoccur this year. We continue to have a very strong financial position, with $232 million in cash, a $300 million unused credit facility, which gives us flexibility, and the capability to continue investing in our long-term strategy. In the quarter, we repurchased about 106,000 shares at an average price of $32.93, for a total of $3.5 million.

Before I turn the call over to Karen, I also wanted to mention that our Board of Directors has increased our quarterly dividend to $0.18 per share. This is an increase of 12%. Karen?

Thank you, Tom. As mentioned last quarter, we had a targeted release of our truss design and management software late last year. As a reminder, the design features allow us to approach about one third of the US truss market. Our truss specialists have been actively presenting this software and working on converting customers. We've converted a number of small component manufacturers since the release and are making good progress. Truss sales, although small, were up just over 30% from Q1 of 2015.

We continue to be engaged with M&A firms in North America and Europe, working to find good acquisition targets to help us meet our growth and diversification strategy. We are making positive steps in reducing our R&D, engineering, selling, and admin expenses as a percent of sales, 33% this quarter compared to 34.7% in Q1 of 2015. Expenses were up slightly, excluding commissions and CPS increases, due to higher sales and operating income. We will continue to monitor our operations and our operating expenses.

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

Thanks, Karen. As Tom mentioned, exchange rates had a significant negative effect on Q4 comparable sales, which we estimate to be about $1.8 million as the dollar strengthened primarily against the European and Canadian currencies. While the effect on operating income was minimal. The margin differential of wood-to-concrete products is about 15 percentage points this quarter compared to 17% Q1 last year, due to concrete product gross margin increasing at a higher rate than wood gross -- than wood product gross margins, both on increased sales. Those factors led to a Q1 2016 gross margin of 46.4%, up from Q1 last year of 43.9%. As noted in the press release, we believe the estimated gross margin will be in the 46% to 47% range for 2016, depending on how the year goes.

Total operating expenses -- so R&D and engineering, selling, and administrative -- as a percent of sales were down about 170 basis points in the quarter compared to last year as the Company focuses on managing those expenses. The tax rate of 38.1% both this Q1 and last Q1 -- and we believe the annual effective tax rate for 2016 will be between 37% and 39%. Q1 2016 CapEx was about $4.5 million, primarily for the improvements in West Chicago that we announced last year as we are continuing the build out of that chemical facility for a move of our two existing chemical facilities anticipated for late 2016. We also invested in manufacturing equipment and software development.

We estimate total 2016 CapEx to be in the $50 million range, assuming we complete all projects. And that includes an expansion of our facility in Texas for greater warehouse and office and training center capacity. For 2016, depreciation and amortization expense is expected to be around $29 million to $30 million, of which $23 million to $25 million is depreciation only.

Before we turn it over to questions, I would like to remind you that if you would like further information, please contact Tom at the phone number listed on the press release. Also, look for our quarterly report on Form 10-Q to be filed in the next couple of weeks. We would like to now open it up to your questions.

(Operator Instructions). Daniel Moore, CJS Securities.

Good morning. Congratulations on a very strong start to the year.

Thanks, Dan.

Good morning, Dan.

Curious, Karen, your thoughts as to how much of an impact, if it all, do you think the relatively favorable weather may have had on your volumes in North America on a year-over-year basis?

Yes. I think, Dan, certainly as we've always talked about in our construction business, weather is a huge impact. And we usually see that as a pretty big drawdown on first quarter. We also saw some interesting things on the Western areas, where it seems like a lot of contractors were trying to get foundations in the ground with the concern of El Nino, which was the big concern for the Western states.

And so I think that sort of acceleration of the foundations and the fact that we had a very mild winter in the East was very, very helpful in what we saw in not only our fourth-quarter results, but certainly our first-quarter results. As we look into the future here of where we are in April, we are seeing numbers very similar to where we were last year at this time.

[That was] April, so more closer to flattish or up slightly on a year-over-year basis. Am I hearing that correct?

That is correct.

Got it. That covers my next questions. And then maybe just talk about trends in concrete production. Are you experiencing a noticeable pick up? And what's the outlook for the remainder of 2016 in that business in particular?

Yes, I'm actually very excited to see our improvements. We have discussed the things that will help the margin expectation on our concrete line is certainly volume. We did see an increase in our sales volume and we've also seen some improvements from our manufacturing costs, but mainly an increase in that sales volume. Predominantly in North America concrete business, but we did see a nice increase also in our European concrete business. So, that is also going to be a function of weather. Whether it's again our wood products or our concrete products, good weather can help us in those areas.

But we are seeing a little bit of -- I mentioned our carbon fiber material has now got its code reports. It takes a little while once from a code report to get through the specification process and start to see that really end up on jobs, but we are starting to see a little bit of an uptick in that product line. But really, overall, the sales volume on all of our concrete product lines. So that would be our epoxies, our mechanical anchors, what we do with our repair/protect and our carbon fiber material. Again, we are starting to see a little bit of an uptick on the volume, and that volume is helping us cover some of our overheads and a little bit better on our raw material.

Excellent. And lastly and I will jump back in queue, maybe just a little bit more color. You mentioned truss; you had a few nice wins with smaller manufacturers. What -- just the tone of those dialogues and how long might it be until we -- expectations for when we would see increased penetration with larger players and a more meaningful impact to revenue in the bottom line? And thank you very much.

Yes, just as a -- a little bit more on the truss processes. As we've mentioned in the past that your real opportunity to convert a truss component manufacturer on a new software is really in your fourth and first quarter. You would see some revenue from those conversions in the remainder of the year. But because of the truss component manufacturers get busy during construction season, it's a very difficult time, obviously, for them to make a software change. So we will continue discussing our software and showing that to those component manufacturers.

The results, the input has been extremely positive. We've spent a lot of time listening to the component manufacturers and putting a feature set in our truss software that really meets their needs to make them more efficient in their jobs. And that has been very, very well received. We are continuing in our Boulder group working on additional enhancements from both our truss software and also a management piece of the software.

And as always, those enhancements -- the big rollout for those is at the October Building Component Manufacturing Conference, and we think we will have some additional feature sets by that time that will allow us to approach from the small-size component manufacturers, moving a little bit more into the midsize component manufacturers.

So, the response from our customers has been extremely positive. As always, there's always more to do. And as I've mentioned, software is a continuing improvement process, but we've been very happy. Our Boulder group has done an excellent job of really first, searching out what our customers are looking for, and then really incorporating those feature sets in our software. So, we are very encouraged, especially since last year was really our first release of this new software to that targeted market.

That's great color. Thank you again.

(Operator Instructions). Tim Wojs, Baird.

Hey, everybody. Good morning. Nice job. My first question is just a clarification. Did you say April sales were flat year-over-year or they are the same growth rate that you saw in April last year?

It's very similar to last April.

So the actual dollar numbers are similar April over April?

Correct.

Okay, okay. And then how do we think about pricing? And I'm just curious given with where steel costs have moved around, how has pricing held up just given the raw material volatility?

Steel is an interesting -- interesting things are happening in the steel market. I think everybody's aware that the tariffs for any steel coming in from China or India are pretty significant. And certainly that is going to change what the steel looks like as we -- the US steel manufacturers have a little bit more opportunity and a little more captive market. For us on that standpoint, not really an issue because we buy basically US-manufactured steel. We have seen several steel increase memos from various US manufacturers.

So I think we will start to see steel tick up, not only from a price standpoint, but we are also seeing some interesting things on availability of steel. And it's something that we really thought would happen based on the tariffs that -- for steel coming in from foreign entities. I think it's just happened a little bit later in the cycle than we anticipated.

So I would anticipate that we would probably see steel prices increase into Q2 based on just the information we've seen so far from the markets.

And how do the steel prices compare for you guys on a year-over-year basis? Even if steel prices are up from Q1, are they still favorable on a year-over-year basis?

Well, we do -- we have a very good person that helps buy our steel and we are always tracking this very carefully. So we are always trying to be sure, number one, that we've got the right quality of steel and it's going to meet our specifications. And number two, that we've got good pricing and volume of steel so that we never have a problem of meeting our customer needs.

Okay.

So, I think we are okay. We will definitely be able to meet any of our customers' needs, and we really pride ourselves on being able to turn our customers' requests into a delivery to them in a 24-hour timeframe. So, I think we are in good shape from that standpoint.

Okay, okay. And then just on -- going back to the truss discussion, is there a way to just quantify how big truss is? Maybe as a percentage of revenue or just in absolute dollars?

Well, we've talked about -- we've got about 2% of the market, and that's still pretty consistent. So, that is that $10 million or $15 million range.

Okay. And that 30%, should we expect that to actually accelerate a little bit as you get into Q2 or Q3? Because I imagine you probably didn't have the full run rate in Q1.

Well, and that's what I mentioned earlier. It's a little difficult to know what that run rate will be on truss, because as you convert these customers you are seeing a little bit of a run rate in second and third quarter. But you might not see an increase on the conversions because of the time frame and the busyness of their season. So it will be a little bit difficult. I think we'll have a little bit more clarity on that as we get into Q2.

Okay. Great. Good luck on the rest of the year.

Josh Chan, Baird.

Hi, good morning. Congrats on the quarter, too. Just wanted to circle back on the April comment. And do you have any thoughts in terms of why growth was so strong in Q1 and seems to have slowed down, according to what you were seeing in April? Did demand get pulled forward or did you see a slowing growth through the quarter? How did that turn out?

Well, I think a little of the Q2 demand maybe was pulled into Q1 just based on where we are in April. But as I mentioned, certainly housing starts are still hovering around just a little under 1.1 million. The fact that you have good weather, I think that really accelerates what the builders are looking to be able to do. And I would say those are really the main reasons, is that the weather allowed that construction cycle. Whereas in previous comparable years, we would not have seen that opportunity, especially in the eastern areas.

They would typically be under snow for at least two of the three months of the first quarter. So, that mild weather is pretty significant. And I would also add that Europe also saw mild weather, and so that was helpful from the standpoint of the increased volume that we saw in Europe.

Okay. Thank you for the clarification.

And it appears we have no further questions at this time.

Great. Thank you.

Thank you very much.

Thank you, everybody.

And that does conclude today's program. You may disconnect at this time. Thank you and have a great day.