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Friday, 29 March 2024
Tuesday, 28 Apr 2020 12:00 pm

Simpson Manufacturing Co., Inc. Announces 2020 First Quarter Financial Results and Business Update In Response To COVID-19

All comparisons below (which are generally indicated by words such as "increased," "decreased," "remained," or "compared to"), unless otherwise noted, are comparing the quarter ended March 31, 2020 with the quarter ended March 31, 2019.

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Simpson Manufacturing Co., Inc, engineered structural connectors and building solutions, announced its financial results for the first quarter of 2020. Refer to the "Segment and Product Group Information" table below for additional segment information (including information about the Company's Asia/Pacific segment and Administrative and All Other segment).

All comparisons below (which are generally indicated by words such as "increased," "decreased," "remained," or "compared to"), unless otherwise noted, are comparing the quarter ended March 31, 2020 with the quarter ended March 31, 2019.

2020 First Quarter Financial Highlights

  • Consolidated net sales of $283.7 million increased 9.4% from $259.2 million.
    • North America net sales of $249.1 million increased 12.5% from $221.4 million, primarily due to higher sales volume. Canada's net sales were negatively impacted by foreign currency translation.
    • Europe net sales of $32.7 million decreased 8.5% from $35.8 million primarily due to lower sales volumes.  Net sales were impacted by approximately $1.0 million of negative foreign currency translations resulting from some Europe currencies weakening against the United States dollar. In local currency, Europe net sales decreased.
  • Consolidated gross profit of $129.7 million increased 17.6% from $110.3 million. Gross margin increased to 45.7% from 42.5%.
    • North America gross margin increased to 47.7% from 44.4%, primarily due to decreases in material costs and factory and overhead costs (on higher production), partly offset by higher warehouse and shipping costs, each as a percentage of net sales.
    • Europe gross margin increased to 32.7% from 32.3%, primarily due to decreases in material costs, partly offset by higher labor, factory and overhead costs, shipping and warehouse costs, each as a percentage of net sales.
  • Consolidated income from operations of $49.4 million increased 64.4% from $30.0 million. The increase was primarily due to the increase in gross profit. Consolidated operating margin increased to 17.4% from 11.6%.
    • North America income from operations of $53.6 million increased from $32.8 million, primarily due to the increase in gross profit and slightly lower operating expenses.
    • Europe loss from operations was $1.7 million compared to a loss of $0.4 million, primarily due to lower net sales and increased cash profit sharing, severance and amortization expenses.
  • The Company's effective income tax rate decreased to 21.3% from 22.5%.
  • Consolidated net income was $36.8 million, or $0.83 per diluted share of the Company's common stock, compared to net income of $22.7 million, or $0.50 per diluted share.
  • Cash flow provided by operating activities increased approximately $7.1 million to $16.8 million from $9.6 million.
  • Cash flow used in investing activities decreased approximately $4.6 million to $6.2 million from $10.8 million. Capital expenditures were approximately $6.8 million compared to $7.4 million. Given current circumstances, the Company is heightening its focus on tightly managing all expenses and planned capital expenditures.

Management Commentary

"We delivered a solid first quarter both operationally and financially with sales of $283.7 million improving 9.4% year-over-year on higher sales volume in North America," commented Karen Colonias, President and Chief Executive Officer of Simpson Manufacturing Co., Inc. "Our gross margin was strong at 45.7%, an improvement of 320 basis points year-over-year largely due to sales mix and lower material costs. Our gross margin, coupled with relatively flat operating expenses, helped generate operating income of $49.4 million, up 64.4% year–over–year, and strong earnings of $0.83 per diluted share, up 66.0% year–over–year. We also completed the final phase of the SAP implementation in our major U.S.–based sales organizations during the quarter with the successful on–boarding of our Stockton manufacturing facility."

Mrs. Colonias continued, "Our thoughts go out to all of those who have been impacted by the COVID-19 pandemic. The health, safety and wellbeing of our employees, their families, our customers and our communities remains our top priority. We took immediate action at the onset of this crisis, implementing preparedness plans to keep our employees and customers healthy and safe, as well as to ensure continued operations and business continuity across our global network. While government authorities in the countries and states where we operate have issued various and differing shelter in place and other similar governmental orders, in many of those locations our products and services are classified as an essential business and all of our North America manufacturing and distribution facilities continue to operate in accordance with those orders. However in late March, two of our larger European manufacturing facilities in the United Kingdom and France were ordered to cease nearly all operations, forcing us to temporarily furlough many of those affected employees. We have every intention of being able to bring those employees back to work when the timing is right. Our supply chain partners have been very supportive and continue to do their part to ensure that service levels to our customers remain strong.  To date, we have not experienced any supply-chain disruptions related to COVID-19 and have been able to meet our customers' needs."

Mrs. Colonias concluded, "Due to the significant level of uncertainty regarding future market conditions surrounding COVID-19, we have chosen to withdraw our previously issued annual 2020 outlook as well as the financial targets associated with our "2020 Plan." While this situation is highly unique, we believe our strong balance sheet, combined with the investments we have made in adjacent products and markets to diversify our business, and our recent cost rationalization efforts have positioned us to emerge on the other side of this crisis from a position of strength. We ended the quarter with nearly $306 million in cash on hand after drawing down $150 million on our $300 million revolving credit facility as a precautionary measure to preserve financial flexibility. We have proactively taken measures to ensure we maintain our strong financial position, including implementing a hiring freeze and adjusting employee hours based on lower production levels in the near term. We will also remain conservative in our capital allocation approach with a focus on cash preservation."

Corporate Developments

  • As previously announced, in March 2020, the Company borrowed $150 million from its $300 million revolving credit facility and has approximately $150 million of remaining borrowing capacity under its revolving credit facility.  
  • During the first quarter of 2020, the Company repurchased 902,340 shares of the Company's common stock in the open market at an average price of $69.46 per share, for a total of $62.7 million. As of March 31, 2020, approximately $37.3 million remained available for repurchase under the previously announced $100.0 million share repurchase authorization (which expires at the end of 2020). Given current circumstances, the Company has temporarily suspended its share repurchase program.
  • On April 23, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend will be payable on July 23, 2020 to the Company's stockholders of record as of July 2, 2020.

Business Outlook

During the first quarter of 2020, the execution of the Company's 2020 Plan continued to deliver financial and operational efficiencies.  The rapidly developing COVID-19 pandemic has generated significant uncertainty in the economy and for the Company's outlook for the full year of 2020.  While the magnitude and duration of the outbreak, including its impact on its operations, supply chain partners and general economic conditions, is uncertain, the Company is continuing to monitor the impact of the pandemic on its operations and financial condition, which was not significantly adversely impacted in the first quarter of 2020.  Given the uncertainties surrounding the impact of COVID-19 on its business, which may include the economic impact on the Company's operations, consumers, suppliers and vendors, Simpson is withdrawing its prior full year 2020 guidance issued on February 3, 2020, as well as the financial targets associated with its "2020 Plan." The Company is unable to provide updated full year 2020 guidance at this time.

A significant portion of the Company's total product sales is dependent on housing starts and its business, financial condition and results of operations depends significantly on the level of housing and residential construction activity, which is expected to be negatively affected by the COVID-19 outbreak and pandemic. In the month of April, sales declined compared to March levels due to lower demand from the anticipated slowdown in housing starts and general construction activity. Declines in housing and residential construction, such as housing starts and home improvement projects, which generally occur during economic downturns, have in the past significantly reduced, and in the future can be expected to reduce, the demand for, and net sales, of the Company's products.


Neha Pandey

Aware of her elements, Neha writes the best articles across industries including electronics & semiconductors, automotive & transportation and food & beverages. Being from the finance background she has the ability to understand the dynamics of every industry and analyze the news updates to form insightful articles. Neha is an energetic person interested in music, travel, and entertainment. Since past 5 years, she written extensively on sectors like technology, finance and healthcare.


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