Simpson Posts Strong Q3 Earnings, Shares Up

Zacks

Shares of Simpson Manufacturing Co., Inc. (SSD) gained 9% a day after reporting upbeat third-quarter 2013 earnings on Oct 24. Results improved 52% to 41 cents per share from 27 cents in the year-earlier quarter and were ahead of the Zacks Consensus Estimate of 33 cents.

Operational Update

Total revenue increased 13.8% to $195.9 million from $172.1 million in the year-ago quarter, surpassing the Zacks Consensus Estimate of $187 million. The rise was primarily attributable to improved North American sales, from increased homebuilding activities, partly offset by reduced home center sales and lower selling prices.

Cost of sales increased 9.7% year over year to $106 million. Gross profit was $90.2 million, up 19% from $75.7 million in the year-ago quarter. Consequently, gross margin expanded 200 basis points (bps) to 46% compared from 44% in the prior-year quarter.

Research and development and engineering expenses increased 3.5% year over year to $9.2 million. Selling expenses declined 1.5% to $20.6 million from $20.9 million in the prior-year quarter. General and administrative expenses increased 20.7% year over year to $28.8 million.

Income from operations increased 40% year over year to $30.9 million. Consequently, the operating margin grew 300 bps to 16%.

Segment Performance

Revenues in the North American segment grew 15% to $157.3 million from $137 million in the year-ago quarter. The growth was led by increased sales in the U.S., despite the softness in home center business and price reductions. Segment gross profit rose 16% year over year to $75.4 million.
 
Total revenue for the European segment went up 6% year over year to $34 million, buoyed by improved economic conditions and favorable currency translations, partially offset by price reductions. Gross profit increased 38% to $13.7 million from $9.9 million in the prior-year quarter.

Asia/Pacific segment’s total revenue increased 57% to $4.5 million from $2.8 million in the year-ago quarter. Segment gross profit almost doubled to $0.9 million.

Financial Position

Cash and short-term investments amounted to $215.7 million as of Sep 30, 2013, against $187.4 million as of Sep 30, 2012. The company has no debt on its balance sheet.

Our Take
 
For 2013, Simpson revised its gross margin outlook from the range of 42–43% to 43–44%. The company lowered its capital expenditure guidance from $29–$30 million to around $22–$24 million. Depreciation and amortization expense budget for the full year remains unchanged at $27–$28 million.
 
Simpson expects to benefit from its ongoing investments in strategic initiatives, which include an expanded offering of concrete and reinforcing products and systems, in specialty chemicals and software.

Pleasanton, CA-based Simpson is a leading manufacturer of wood construction products, which include connectors, truss plates, fastening systems, fasteners and shearwalls. The company, through its subsidiary, Simpson Strong-Tie Company Inc., designs and engineers concrete construction products comprising adhesives, specialty chemicals, mechanical anchors and powder actuated tools.

Simpson currently has a Zacks Rank #3 (Hold). Masco Corp. (MAS) belongs to the building and construction industry and holds a Zacks Rank #2 (Buy).

Simpson’s peers Armstrong World Industries, Inc. (AWI) and CaesarStone Sdot-Yam Ltd. (CSTE) are yet to announce their third-quarter results.

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