Simpson Manufacturing Co., Inc. Q3 FY2024 earnings call

• Expressed condolences for those impacted by Hurricanes Helene and Milton, and provided donations for recovery efforts. None of the employees were injured and facilities sustained no damage. - Third quarter net sales totaled $587.2 million, above prior year despite housing market pressure. - Highlighted growth initiatives including acquisitions (Monet DeSauw, QuickFrames USA), market share gains in various segments, and supplier awards. - CFO Brian Magstadt announced retirement effective end of 2024, with search ongoing for new CFO. - Facility investments: Columbus, Ohio facility on track to be fully operational in early 2025; Gallatin, Tennessee fastener facility completion in late 2025.

North America: Third quarter net sales totaled $461.4 million, relatively flat with last year. National retail market saw high single-digit improvements, component manufacturer volumes improved modestly, while commercial and residential markets experienced low single-digit declines, and OEM market had mid-teens volume growth. Gross margin in North America declined to 49.5% from 51.8% primarily due to higher factory overhead and warehouse costs. Europe: Third quarter net sales of $121.2 million increased by 1.8% year-over-year. Gross margin in Europe declined to 36.6% from 37.9% due to higher labor, factory, overhead, warehouse, and freight costs as a percentage of net sales, partially offset by lower material costs.

• 2024 operating margin expected in the range of 19% to 19.5%. - US housing starts expected to be down from 2023 levels in 2024 and grow in low single-digit range in 2025. - Europe housing starts expected to be down high single-digits in 2024 with meaningful growth pushed to 2026 and beyond. - Capital expenditures estimated to be in the range of $175 million to $185 million for 2024, including investments in Columbus and Gallatin facilities.

• Macroeconomic challenges in US and European housing markets. - Impact of hurricanes on sales in the Southeast region. - Uncertainty in the recovery of the European housing market. - Potential exposure to changes in customer relationships, such as the True Value bankruptcy filing.

Q: How much of an impact do you expect the hurricanes to have on your Q4 sales and op income as it relates to the revised guidance?

A: We've seen slowdowns in the Southeast from hurricanes, forecast for Q4 is lower than expected, but gross margin expected to be pretty comparable to Q4 2023 and resulting operating margin a little better than Q4 2023 to get to the 19%-19.5% overall 2024 operating margin.

Q: Maybe just talk about the key assumptions underlying the expectation of low single-digit growth in US housing starts as we think about '25?

A: We use a specific forecaster that breaks down the market by regions. The feeling is it's going to be in the 3% to 4% housing start market next year in the US. Europe will probably be low single digits, 1% or 2% of the numbers from most forecasters, with second half expected to be better than first half.

Q: Would you expect to start to see some improvement in Europe's margins next year based on the forecast?

A: A big part is working on defensive synergies over there and rightsizing our footprint, so those costs won't repeat, which will help lead to a better gross margin in Europe going forward.

Q: What was the price mix contribution in aggregate in North America?

A: There was a slight change in the mix of products that went out the door, a little higher dollar per pound shift, but there was an offset from bigger builders getting bigger and more rebates paid to larger customers nearly offsetting the price mix change.

Q: Is there any implications risks or opportunities around the True Value bankruptcy filing and any exposure you might have there?

A: We have sold to True Value in the past, evaluating the potential buyer, revenue to True Value itself is not a material amount for Simpson, but we're evaluating how to handle the transaction and related credit and selling conversations.