Simpson(SSD) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved consolidated full year net sales of approximately $1.1 billion, an increase of 10% from $997 million in 2017, driven by increases in both sales volumes and average unit prices [6] - Full year operating income rose by 28% to $176.2 million compared to the prior year, while net income increased by 40% to $129.5 million, resulting in earnings of $2.78 per diluted share, a 43% year-over-year increase [7] - Fourth quarter net sales increased 4% year-over-year to $241.8 million, primarily due to increases in average selling prices, although sales volumes were down due to softer U.S. housing starts [14][35] Business Line Data and Key Metrics Changes - Wood construction products represented 84% of total net sales in Q4 2018, flat compared to Q4 2017, while concrete construction products accounted for 16% of total net sales [36] - In North America, net sales increased 7% year-over-year to $204.7 million, while in Europe, net sales decreased 9% year-over-year to $34.9 million, impacted by reduced sales volumes in the concrete business [35][36] Market Data and Key Metrics Changes - U.S. housing starts, a leading indicator for approximately 60% of the business, were softer in Q4 compared to the previous year, particularly in the western and southern regions [15] - Despite the softness in housing starts, underlying factors such as strong consumer confidence and low unemployment rates support healthy demand [17][18] Company Strategy and Development Direction - The company remains focused on achieving aggressive targets under the 2020 Plan, including an organic net sales compounded annual growth rate of 8% and reducing total operating expenses as a percentage of net sales to 26% to 27% [9][10] - The introduction of mechanical anchor products into Home Depot stores is progressing, with expectations of a full rollout into all 1,900 stores by the end of 2020, representing a $30 million annualized revenue opportunity [23] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding U.S. housing starts, expecting a mid-single-digit annual growth rate over the next few years, despite recent market volatility [18][32] - The company is monitoring severe weather conditions that may impact operations and is committed to executing against its 2020 plan for sustainable growth and profitability [32][33] Other Important Information - The company repurchased $111.1 million of its common stock in 2018, reflecting confidence in its business outlook [8] - As of December 31, 2018, cash and cash equivalents totaled $160.2 million, with inventory levels up by approximately $23 million due to higher priced raw materials [49][28] Q&A Session Summary Question: Can you elaborate on what stable growth means? - Management anticipates low to mid-single-digit growth in housing starts, with January showing organic volume growth after a low December [63][64] Question: How should we think about gross margins as we go through the year? - Gross margins are expected to be better in the second and third quarters due to increased selling activity, with the first quarter typically being weaker [68][69] Question: What caused the lower sales volumes in Europe? - The decline was attributed to a lack of large projects in the concrete business that had previously boosted sales in Q4 2017 [112] Question: How does January's strong demand align with expectations for housing starts? - January showed organic growth, but it is too early to determine if this trend will continue throughout the year [125]