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Edited Transcript of SSD earnings conference call or presentation 28-Oct-19 9:00pm GMT

Q3 2019 Simpson Manufacturing Co Inc Earnings Call

Pleasanton Nov 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Simpson Manufacturing Co Inc earnings conference call or presentation Monday, October 28, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian J. Magstadt

Simpson Manufacturing Co., Inc. - CFO & Treasurer

* Karen W. Colonias

Simpson Manufacturing Co., Inc. - President, CEO & Director

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Conference Call Participants

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* Daniel Joseph Moore

CJS Securities, Inc. - Director of Research

* Julio Alberto Romero

Sidoti & Company, LLC - Equity Analyst

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

* Timothy Ronald Wojs

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Kimberly Orlando

ADDO Investor Relations - SVP

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Presentation

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Operator [1]

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Greetings. Welcome to Simpson Manufacturing Company Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to your host, Kim Orlando with ADDO Investor Relations. Ms. Orlando, you may begin.

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Kimberly Orlando, ADDO Investor Relations - SVP [2]

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Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Co.'s Third Quarter 2019 Earnings Conference Call. On this call, 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 these factors and cautionary statements are discussed in the company's public filings and reports, which are available on the SEC's or the company's corporate website.

Please note that the company's earnings press release was issued today at approximately 4:15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at www.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website.

Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [3]

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Thanks, Kim, and good afternoon, everyone. I'm pleased to discuss our results with you today. Net sales for the third quarter of 2019 totaled $309.9 million, up 9% year-over-year, primarily due to higher sales volumes throughout almost all areas of our company. U.S. housing starts, which are a leading indicator for approximately 60% of our business, grew 4.1% versus comparable period last year. Notably in the South, where we provide a meaningful amount of content into homes, starts grew 8.3% year-over-year. Our volumes were also up from the second quarter of 2019 due primarily to the unusually wet and cold weather conditions we experienced across the U.S. in the first half of the year.

Our third quarter net sales increased even though we experienced a labor strike by one of the unions representing hourly employees at our Stockton facility through most of September, which was in large part due to the successful execution of our contingency plan. I'm pleased that through good faith negotiations with the union we reached a new 4-year collective bargaining agreement in early October that we believe is fair to our employees and representative of the labor market that exists in the Central Valley where this plant is located. We strongly believe the resolution will provide many more years of economic growth for the Stockton facility and community. And I'd like to thank all of our employees throughout our company who helped us through this process.

Looking ahead into the fourth quarter, it's important to remember our volume may be impacted by the typical Q4 seasonality that we experienced as a result of fewer shipping days from holiday-related closures and a slowdown in construction activity due to the winter months. We still believe there are many underlying factors to support healthy growth in the U.S. housing starts going forward, including strong consumer confidence, low unemployment rates, declining interest rates and a low level of housing stock availability.

As anticipated, our third quarter gross margin of 44.4% remained under pressure, primarily due to increased labor, factory and overhead as well as raw material costs. Due to light volume in the first half of the year, it has taken us longer than anticipated to work through the higher-priced raw material which we purchased in the fourth quarter of 2018 to ensure we had sufficient supply during a turbulent market. While we did experience a pickup in volumes in the third quarter, a portion of the improvement was offset by unabsorbed factory costs for lower production, partially resulting from the strike at our Stockton facility. We continue to expect raw material costs to negatively affect our gross margins for the remainder of 2019. That said, we still maintain one of the highest gross margins in the industry to our long-standing brand reputation we've built through our trusted products and services, deep industry relationships and superior level of customer service.

Turning now to an update on our key operating initiatives, which focus on growing our market share, rationalizing our cost structure to drive improved profitability without sacrificing our competitive edge and improving our technologies and systems to provide best-in-class service to our customers. Many of these operating initiatives stem from our 2020 Plan, which we unveiled with the goal of providing transparency into our strategy and financial objectives to position Simpson for long-term sustainable and increasingly profitable growth.

In Europe, our net sales of $42 million increased 0.5% year-over-year despite a $2 million impact from negative foreign currency translation. In local currency, the third quarter of 2019 represents our third quarter of consecutive year-over-year increases in net sales. This growth continues to be achieved through a combination of volume improvements and higher selling prices. Further, our rollout of the Gbo fastener line in the Nordic region and France continues to progress nicely, and as a result, our operating margins in Europe are improving.

We've also laid headway on our lean initiative and the final stage of our 3-phase SKU reduction program to rightsize our product offering. As of September 30, 2019, our inventory balance was $242.7 million, down $23.4 million or 9% compared to levels at June 30, 2019. When looking at the decrease in pounds on hand, which is an element within our control, we've continued to make good progress. Since June 30, we've reduced our product inventory in North America, which is the bulk of our total inventory, by nearly 7% in terms of pounds on hand, including finished goods, which have come down by approximately 5%. And since our planned benchmark of December 31, 2016, aggregate inventory pounds on hand in North America have decreased by nearly 19%, including finished goods, which have come down by approximately 22%, while total dollars on hand increased marginally by a little over 1%. We are focused on improving our inventory balance through careful inventory management and purchasing practices.

Finally, in terms of improvements to our technology infrastructure, we are continuing our SAP rollout for the remainder of our U.S. branches through early 2020 and continue to work toward a company-wide completion in 2021.

In summary, we are pleased with our third quarter results, including our progress in Europe and our inventory management. We are cautiously optimistic U.S. housing starts will continue to improve, helping to drive our sales higher. And finally, we remain confident in our ability to execute against our key operating initiatives and the 2020 Plan goals to drive long-term shareholder value and improved earnings power.

I'd also like to acknowledge all of our employees for their ongoing commitment to providing best-in-class service to our customers and maintaining a safe workplace environment. Thank you all for your hard work and dedication. I'd now like to turn the call over to Brian, who will discuss our third quarter financial results in detail.

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [4]

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Thank you, Karen, and good afternoon, everyone. I'm pleased to discuss our third quarter financial results with you today. Our consolidated net sales for the third quarter of 2019 were $309.9 million, up 9% compared to $284.2 million in the third quarter of 2018.

Within the North America segment, net sales increased 10.7% year-over-year to $265.5 million primarily due to increased sales volume and higher average product prices.

In Europe, net sales increased slightly by 0.5% year-over-year to $42.2 million despite the impact of the negative foreign currency translations resulting from Europe currencies weakening against the United States dollar. In local currency, Europe net sales increased primarily due to increases in both volume and average product prices. Wood construction products represented 83% of total net sales in the third quarter of 2019 compared to 84% in the third quarter of 2018. Concrete Construction products represented 17% of total net sales in the third quarter of 2019 compared to 16% in the third quarter of 2018.

Our consolidated gross profit dollars increased by approximately 3% year-over-year to $137.6 million, resulting in a gross margin of 44.4%. Compared to the third quarter of 2018, our gross margin declined by 270 basis points. The year-over-year decline in gross margin was primarily due to increased raw material costs, factory and overhead costs on lower production as well as higher labor costs resulting from tightening labor market conditions.

On a segment basis, our gross margin in North America was 45.6% compared to 48.8% in the prior year quarter. In Europe, our third quarter gross margin was 38.4% compared to 38.2% in the year ago period. From a product perspective, our third quarter gross margin on wood products was 44.4% compared to 47.3% in the prior year quarter, and concrete products decreased to 41.6% and compared to 43.4% in the prior year quarter.

Now turning to our third quarter costs and operating expenses. Consolidated research and development and engineering expenses for the third quarter increased 15% year-over-year to $12 million primarily due to an increase in personnel costs. Consolidated selling expenses for the quarter increased 3% year-over-year to $27.7 million primarily due to increased personnel costs, partly offset by decreases in cash profit sharing, sales commissions and professional fees.

On a segment basis, compared to the prior year quarter, selling expenses in North America were up 7%, and in Europe, they decreased by 9%. General and administrative expenses in the third quarter decreased 1% year-over-year to $37 million primarily due to decreases in cash profit sharing expenses and consulting and professional fees. On a segment level, general and administrative expenses in North America were relatively flat compared to the prior year quarter. In Europe, G&A decreased by 12% year-over-year.

Total operating expenses in the third quarter of 2019 were $76.7 million, an increase of $2 million or approximately 3% compared to the prior year quarter. As a percentage of net sales, total operating expenses were 24.7%, an improvement of 160 basis points compared to 26.3% in the prior year quarter. Operating expense dollars increased primarily due to higher personnel costs. Included in our third quarter operating expenses were SAP implementation and support costs of $3.6 million compared to $2 million in the prior year quarter. As of September 30, 2019, we've capitalized $19.2 million in total and have expensed $22.4 million of the costs associated with the SAP project. As we progress further into the SAP implementation, we are now expensing more of our costs versus primarily capitalizing them.

Our consolidated income from operations for the third quarter increased 2% year-over-year to $61 million compared to $59.7 million in the third quarter of 2018. And in North America, income from operations increased slightly year-over-year to $56.8 million primarily due to the increase in gross profit dollars, partly offset by increased personnel expense. In Europe, income from operations increased 36% year-over-year to $5.4 million primarily due to lower operating expenses.

Our consolidated operating income margin of 19.7% declined by approximately 130 basis points from the third quarter of 2018. Our effective tax rate decreased to 26.2% from 27.1% in the third quarter of 2018. Our consolidated net income for the third quarter of $43.7 million or $0.97 per fully diluted share compared to $44.4 million or $0.95 per fully diluted share in the prior year quarter.

Now turning to our balance sheet and cash flow. At September 30, 2019, cash and cash equivalents totaled $194.1 million, an increase of $52.3 million compared to our levels at June 30, 2019. We remain debt-free with only a small amount of capital leases. We generated cash flow from operations of $95.8 million compared to $52.6 million in the prior year period.

During the quarter, we used approximately $9.2 million for capital expenditures, which included a minimal amount from our ongoing SAP implementation project. In addition, we paid $10.2 million in dividends to our stockholders and repurchased 348,901 shares of our common stock at an average price of $61.44 per share for a total of $21.4 million. As of September 30, 2019, we had approximately $49 million available under our $100 million share repurchase authorization, which remains in effect through the end of 2019.

In addition, I'm pleased to announce that on October 24, 2019, our Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend will be payable on January 23, 2020, to stockholders of record as of January 2, 2020.

Before we turn it over to questions, I'd like to discuss our 2019 financial outlook. For the full year of 2019, we are reiterating guidance as follows: we expect our consolidated gross profit margin to be in the range of 43.5% to 44% given our expectations on material costs and housing starts; total operating expenses as a percentage of net sales to be in the range of 27.5% to 28.5%; the effective tax rate to be in the range of 25.5% to 26.5%, including both federal and state income taxes; depreciation and amortization expenses to be in the range of $39 million to $41 million, of which $33 million to $35 million is for depreciation of fixed assets; and capital expenditures to be in the range of $30 million to $35 million, including approximately 25% which will be used for maintenance CapEx.

In summary, we are pleased with our third quarter results and remain focused on executing against our strategic, operational and financial initiatives. We look forward to updating you on our progress in the coming quarters.

Thank you for your time and attention today. We'd now like to open up the call for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Daniel Moore, CJS Securities.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [2]

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Just starting with Q3 relative to Q2 in terms of weather. Any way to quantify how much revenue in North America may have benefited from delayed volumes in Q2 given much tougher conditions earlier in the year?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [3]

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I think that would be tough to get you a metric associated with that volume. As we stated in Q2, I think it was one of the wettest first halves of the year that we've seen. And so I don't have exactly what that push of volume would have been into Q3. We started seeing a little bit of improvement, I think, as we were kind of coming out of June.

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [4]

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Due to that lack of labor, I don't know that we would've been able to necessarily catch up and continue with the volume in Q3 just due to the lack of those skilled labor positions in that industry.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [5]

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Understood. Yes, that certainly makes sense. I guess, as it relates to the strike, congratulations on settling that. Was there any revenue and/or operating income impact in Q3 and any lingering impact into the first couple of weeks of Q4?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [6]

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Yes, Dan, it's Brian. It's -- we would expect approximately 2% to 3% impact on revenue that would be more likely than not pulled into the fourth quarter. And based on that, there was unabsorbed overhead, probably 20 to -- or 30 to 40 basis points of gross margin impact to the negative in Q3. So -- and the reason I'm saying approximately is, obviously, volumes can fluctuate on a day-to-day basis. So we don't know exactly how much we would have shipped in September, but that's our best guess at this time.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [7]

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Okay. The gross margin impact, I understand. I'm just trying to understand the revenue. 2% to 3% impact on Q4, is that volumes that will -- do you think you'll incur in Q4 that you couldn't in Q3? Or just help me understand that commentary.

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [8]

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No. Sorry, to clarify, 2% to 3% on Q3 revenue. So...

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [9]

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Got it. Got it. Impact on Q3 revenue, okay. And then, you gave good commentary, but one more for me. Just in terms of COGS and steel inventories, how much longer do we really expect to be working through the kind of higher-cost steel -- higher-cost inventories? I know you mentioned through Q4. Could that bleed into Q1 at all or we expect to be largely through that by year-end?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [10]

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Yes, Dan, I think, obviously, that's a function of what we see. It's a function of typical fourth quarter weather. So at this point, we think it's certainly going to take it through all of 2019. And the rest of the puzzle will be really what happens from the winter standpoint on weather.

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Operator [11]

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Our next question is from Tim Wojs, Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Can you guys hear me?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [13]

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Yes. You're good.

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [14]

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Yes.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [15]

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Okay. Great. So maybe just kind of circling back on the last question. So if I'm hearing you right, you basically thought you lost about $6 million or $7 million from the strike in the third quarter. I guess just back of the envelope, that implies like North America would have grown 15%. And so I'm just trying to understand what the gap is relative to starts. Because I know, obviously, you have more content in the South, but starts is only up 8% in the South. And I think they're only up a little bit less than that in the West. So can you just kind of help us bridge the gaps between what that kind of underlying volume growth is and what the starts activity is?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [16]

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A part of the -- what we're looking at, Tim, on the starts are the starts during the months of the quarter compared to last year. So for July, August, September, we see the South up about 8%. We see the West down about 3%, 3.5%. But just a reminder, last year, Q3, we had the price increase taking -- take place at the very beginning of that quarter, and we suspect there was some prebuy into Q2 of '18 on that. So I think that's where you're really seeing the volume change in Q3 of '18 to Q3 of '19.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]

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Okay. So it's just -- it was that sizable of an impact last year.

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [18]

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Well, I think that with the starts, the activities that we're seeing that are up and then balance, that's what we suspect being attributable to that prebuy. And the -- and on the revenue, you're right. It's 2% to 3% consolidated due to the strike, which would've -- had we had those sales in Q3, obviously, it would have had the additional volumes there.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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Okay. And was any of the inventory improvement tied to the strike at all, just the fact that you might have had some stock inventory that you were still able to ship even though production was down? And I guess, is there any -- if so, is there any plans to kind of replace that inventory level? Or is it kind of a permanent reduction?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [20]

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Yes. Tim, I think what we saw during the strike was a lot of great effort from the Simpson employees to be able to meet our customer needs. And some of that was met by shipping from our other producing branches. So certainly, the strike lasted for almost 1 month, and that certainly would have had a pretty significant hit to Stockton -- probably our second largest manufacturing facility. So I think our, again, employees did a great job on really making sure we were focused on the customers and really trying to get products out from the other locations. We're working quite a bit of overtime to be sure we could do that. So you will see us trying, and that's where we are right now, is rebuilding some of that inventory. And so we're very actively working on that at all of our locations of rebuilding that inventory production that we lost during that strike time.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Okay. Okay. And then, I guess, as you look into 2020, conceptually, how would you think about kind of SG&A leverage kind of looking out to next year? I mean I don't have to get a number, but should SG&A just conceptually grow at a lower rate than revenue? And if so, or if not, why?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [22]

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Well, it's certainly what we've been working on ever since we put the 2020 Plan in place, is the fact that SG&A should not grow at the same rate that revenue has. And obviously, we were very successful in 2018 of being flat, fairly flat from a dollar standpoint. I think our teams have done an excellent job this year ensuring that the cost that we are putting in place, whether that be from a headcount or from projects, that that's contributing nicely to both our top and bottom line, be more profitable from the company standpoint. And we will certainly continue that process as we go into our 2020 budgeting cycle.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [23]

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Okay. Okay. And the last one I have is, the buildings that you've sold, is there any sort of gain that went through the P&L in the fourth quarter?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [24]

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Can you clarify again? The building that -- the building that we announced in the earnings release that will close in the fourth quarter?

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]

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Right.

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [26]

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Yes. Yes. We're anticipating -- I think we're expecting $3 million, plus or minus, $3 million to $4 million on a gain on sale there.

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Operator [27]

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Our next question is from Steve Chercover, D.A. Davidson.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [28]

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So just not to beat a dead horse on steel, but are you currently laying in some cheaper steel and we just have to run through the higher-cost stuff because it's FIFO accounting?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [29]

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Well, certainly, Steve, we look at making sure that -- not all steel is exactly the same, and not all products are produced at the same rate. So we absolutely have had to have some infill to meet the needs of the raw material for specific products. So yes, we bought some steel from an infill standpoint, and you would see that steel be slightly lower. However, not enough of that to where we aren't seeing this gross margin impact.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [30]

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So I figure it's actually probably...

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [31]

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It's more on -- sorry, Steven. It's more on a weighted average costing, not on a FIFO.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [32]

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And typically, how many months' worth of inventory do you carry?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [33]

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Well, if you think of our turns being at 2, that would give the indication of how many months. However, obviously, one of our goals is to get that inventory turns to 4. We had a very nice plan in place before the tariffs came into effect, which kind of threw our plan out the window. So typically, on most of our steel, we'd like to get those inventory on hand somewhere around 3 to 4 months depending on the unique specification of the steel. What we're impacted with is, again, we did an additional buy in Q4 of 2018. The first half -- I think sales started falling off pretty dramatically in December of 2018. And then, of course, the first half of 2019 was dramatically less than anticipated. And that's why we're still finding ourselves working through some of that steel that we purchased in Q4 of 2018.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [34]

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Okay. And one of the bright spots in the quarter, in my opinion, is concrete products, which almost experienced a step function change. So is that segment a beneficiary of the pent-up demand associated with wet weather? Or has something else accelerated?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [35]

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No, I think what you're seeing in the improvements in the concrete space. Again, we've changed our strategy. We have our sales force focused on these 6 target markets where we've got products to meet those markets, so a good change there, some price increases that were put in place and then, of course, the mechanical anchor rollout that we've had in just a little over 1,100 -- I think about 1,100 Home Depot stores. Those have certainly been things that really helped that gross margin on the concrete side.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [36]

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All right. So a higher run rate going forward, presumably?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [37]

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Yes, I mean, a higher run rate, more factory absorption in our China facility. That's helping us from that costing standpoint.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [38]

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And my final question maybe is almost the kind of thing that the analyst should be answering, but the stock went almost parabolic in the last few weeks. And is there anything in your order book that you've noticed over the same time frame, permit applications or anything else, that would prompt that? Or is it just optimism versus housing?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [39]

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I think there's quite a bit of optimism about housing. Again, interest rates are trending down. We still have quite a bit of pent-up demand, very low inventory available. All of those things, I think, are a positive sign from the standpoint of just housing in general. From our order book, as you know, we can provide products to our customers in a 24-hour turnaround time, so we don't really have a lot of visibility from what we would call an order book. And from the housing start numbers, for us, again, that positive would be that increase that we saw in the South. We've talked about we put more content in those hurricane areas and those earthquake areas. So for us, that's a positive trend seeing that 8% increase in starts in the Southern markets.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [40]

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All right. How about the fires? Did any impact you in any way in California either from a production standpoint or anything else?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [41]

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So it depends on which fires. So the latest fires, there are obviously some structures that have been burned. As we talked about in previous years, typically, it takes somewhere between 12 to 18 months before we might see any rebuild in those fire-damaged areas, so there'll be no immediate impact from those rebuilding of those structures in those burnt-out areas.

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Operator [42]

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Our next question is from Julio Romero, Sidoti.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [43]

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Brian, did I hear you mention that within concrete products, gross margins declined even with that double-digit increase in concrete sales? I'm not sure if I misheard you, but if that's correct, can you just kind of provide any color there?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [44]

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That was compared to last year. And there was a slight decrease in gross margin in concrete versus Q2 -- or I'm sorry, Q3 of '18. And there there's a fair amount of concrete gross margin tied up in carbon fiber-based products, which are often large sales, large projects. So we'll often see those impact gross margin. I think, from a mechanical anchor, chemical anchoring, it's -- I don't know for sure. Actually, I was going to speculate, but I think that's the primary reason there.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [45]

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I'll just follow up with you off-line with that. On the European segment, yes, you had almost a 13% op margin there. Just looking at the numbers, I think there was a big step-down in the OpEx in that segment. Did that OpEx shift to maybe another segment? Or is there something material that got taken out on the cost side there?

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Brian J. Magstadt, Simpson Manufacturing Co., Inc. - CFO & Treasurer [46]

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I think as we've been focused on our new European strategy, and management team there have been very aggressive looking at SG&A costs in Europe and the like. We may be lapping a little bit on some severances that we've taken in prior years. But we're really focused on the European strategy as we laid out a couple of years ago and starting to really see some benefits there. A little bit of cost consolidation in some facilities, very minor, but trying to take a look at that entire operation, whether it'd be facilities we can combine or just the general strategy I mentioned, seeing some cost improvement.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [47]

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Got it. And maybe last one for me here is, I think, Karen, you mentioned you're at 1,100 stores to date. I think that's already ahead of the year -- the end of your target you might have called out on the last call. Can you just give us any update on the rollout there and where you maybe expect to be maybe by end of the year and a couple of quarters after that?

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Karen W. Colonias, Simpson Manufacturing Co., Inc. - President, CEO & Director [48]

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Yes, I think I overstated that by a few stores. I think we're at 1,050. We're still working with Home Depot on the rollouts of these stores. And as we said, it's very, very difficult to reset and move things around. I think the rollout will probably continue to be about the same pace at its -- that it's at. So we had a really nice push in second quarter. And now I think you'll start to see that really kind of slow down. Each of the Home Depot locations, again, it's a one-by-one type of process as we roll these out. So today, we're at 1,050, still looking to get a few more before the end of the year.

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Operator [49]

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We have reached the end of the question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.