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Simpson Manufacturing Co., Inc. Announces 2018 Fourth Quarter And Full-Year Financial Results

PLEASANTON, Calif., Feb. 4, 2019 /PRNewswire/ --

  • 2018 net sales of approximately $1.1 billion increased 10% year-over-year
  • Repurchased a record $111.1 million of the Company's common stock in 2018
  • Declared quarterly cash dividend of $0.22 per share

Simpson Manufacturing Co., Inc. (the "Company") (SSD), an industry leader in engineered structural connectors and building solutions, today announced its financial results for the fourth quarter and full-year of 2018. 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).

2018 Fourth Quarter Financial Highlights

All comparisons below (which are generally indicated by words such as "increased," "decreased," "remained," or "compared to"), unless otherwise noted, are comparing the fourth quarter of 2018 with the fourth quarter of 2017. In the fourth quarter of 2018, the Company recorded an out-of-period adjustment for the fourth quarter of 2017, which increased cost of sales and decreased general and administrative expenses by $0.8 million. Such adjustment only applied to the North America segment, which resulted from recording certain depreciation expense on company-owned real estate as general and administrative expense rather than cost of goods sold. Income from operations and net income for the fourth quarter of 2017 as presented below were not affected by the adjustment. In the fourth quarter of 2018, the Company changed the presentation of its consolidated statement of operations to display foreign exchange gain (loss), net, as a separate item below income from operations. Foreign exchange gain (loss), net, was previously included in general and administrative expenses and in income from operations. Income before tax and net income for the fourth quarter of 2017 presented below were not affected by the change in presentation.

  • Consolidated net sales of $241.8 million increased 4.4% compared to $231.7 million.
  • Consolidated gross profit of $98.4 million decreased 3.4% compared to $101.9 million. Gross profit as a percentage of net sales decreased to 40.7% from 44.0%.
  • Consolidated income from operations of $22.7 million decreased 6.7% compared to $24.4 million. Income from operations for the three months ended December 31, 2018 included an $8.8 million gain on the sale of a facility that was not occupied by the Company and was leased to a third party, and was negatively impacted by goodwill impairment of $6.7 million related to its Europe segment. As a percentage of net sales, consolidated income from operations decreased to 9.4% from 10.5%.
  • The Company's effective income tax rate decreased to 28.7% from 45.3%, primarily due to the enactment of U.S. Tax Cuts and Jobs Act of 2017. The effective income tax rate for the quarter ended December 31, 2018 was affected by reduction of the United States statutory federal corporate tax rate from 35% to 21% and by a nonrecurring impairment of goodwill related to the Europe segment, which was not taxable. The enactment of the Tax Cuts and Jobs Act in December 2017 resulted in a provisional net charge of $2.2 million in the fourth quarter of 2017, or an impact of $0.04 per fully diluted share. The charge encompasses several elements, including a federal tax on accumulated overseas profits, changes to tax credits and valuation allowances, and the revaluation of deferred tax assets and liabilities resulting in a higher effective tax rate of 45% for the fourth quarter of 2017
  • Consolidated net income was $15.6 million, or $0.34 per diluted share of the Company's common stock, compared to net income of $13.1 million, or $0.27 per diluted share of the Company's common stock.

2018 Full-Year Financial Highlights

All comparisons below (which are generally indicated by words such as "increased," "decreased," "remained," or "compared to"), unless otherwise noted, are comparing the year ended December 31, 2018 with the year ended December 31, 2017. In 2018, the Company recorded an out-of-period adjustment for the year ended December 31, 2017, which increased cost of sales and decreased general and administrative expenses by $2.9 million for the year ended December 31, 2017. Such adjustment only applied to the North America segment, which resulted from recording certain depreciation expense on company-owned real estate as general and administrative expense rather than cost of goods sold. Income from operations and net income for the year ended December 31, 2017 as presented below were not affected by the adjustment. In the fourth quarter of 2018, the Company changed its presentation of its consolidated statement of operations to display foreign exchange gain (loss), net, as a separate item below income from operations. Foreign exchange gain (loss), net, was previously included in general and administrative expenses and in income from operations. Income before tax and net income for the year ended December 31, 2017 presented below were not affected by the change in presentation.

  • Consolidated net sales of $1,078.8 million increased 10.4% compared to $977.0 million.
  • Consolidated gross profit of $480.5 million increased 8.4% compared to $443.4 million. Gross profit as a percentage of net sales decreased to 44.5% from 45.4%.
  • Consolidated income from operations of $176.2 million increased from $137.9 million. Income from operations for the year ended December 31, 2018 included an $8.8 million gain on the sale of a facility that is not occupied by the Company and was leased to a third party, and was negatively impacted by goodwill impairment of $6.7 million related to its Europe segment and increased SAP related expenses of $6.1 million. As a percentage of net sales, consolidated income from operations increased to 16.3% from 14.1%.
  • The Company's effective income tax rate decreased to 26.4% from 35.9%, primarily due to the U.S. Tax Cuts and Jobs Act of 2017, which reduced the United States statutory federal corporate tax rate from 35% to 21%. The effective income tax rate for the year ended December 31, 2017 was also reduced by a nonrecurring gain on a bargain purchase related to the Gbo Fastening Systems acquisition, which was not taxable. The effective income tax rate for the year ended December 31, 2018 was increased by a nonrecurring impairment of goodwill related to the Europe segment, which was also not taxable.
  • Consolidated net income was $129.5 million, or $2.78 per diluted share of the Company's common stock, compared to net income of $92.6 million, or $1.94 per diluted share of the Company's common stock. The $92.6 million consolidated net income for the year ended December 31, 2017 included a $6.3 million nonrecurring gain on a bargain purchase of a business, which increased diluted earnings per share for the same period by $0.13.
  • Cash flow provided by operating activities increased approximately $41.0 million to approximately $160.0 million from $119.1 million.
  • Cash flow used in investing activities decreased approximately $64.0 million to approximately $12.0 million from $75.8 million. Capital expenditures were approximately $30.0 million compared to $58.0 million. Proceeds from the sale of property and equipment, primarily real estate, were approximately $21.0 million compared to $0.7 million. The Company had asset acquisitions of $2.0 million in 2018 compared to $27.9 million of asset acquisitions, net of cash received, in the prior year period.

Management Commentary

"2018 was a year of positive operational execution at Simpson, as we achieved full year net sales of approximately $1.1 billion, an increase of 10% year-over-year, due to increases in both sales volume and average unit prices," commented Karen Colonias, President and Chief Executive Officer of Simpson Manufacturing Co., Inc. "Our full year gross profit margin of 44.5% was solid, though lower than our projection of between 45.5% to 46.0%, due to an unexpected sharp decline in revenues during December,  which resulted in an increase of factory, material and labor costs as a percentage of net sales in our fourth quarter. Looking ahead,  we expect demand to remain relatively stable as demand in January was strong, indicating the December buying patterns may have  been postponed due to short term uncertainty."

Mrs. Colonias continued, "Our strong sales for the year, combined with our focus on cost containment initiatives, resulted in a 2018 operating income of $176.2 million, an increase of 28% compared to the prior year period. Net income increased by 40% to $129.5 million, and we produced strong earnings of $2.78 per diluted share, an increase of 43% year-over-year.  These results represent meaningful progress towards our key financial targets under the 2020 Plan, which we announced in the third quarter of 2017 with a goal of maximizing operating efficiencies and driving long-term shareholder value.  Our team has worked hard to execute against these goals, and we thank them for their dedication and commitment. Today we remain focused on achieving our 2020 financial targets. Our 2018 share repurchases of $111.1 million of our common stock, a record for Simpson, reflect our continued confidence in the strength and outlook for our business."

Corporate Developments

  • During the fourth quarter of 2018, the Company repatriated $43.5 million, net of tax from its foreign subsidiaries. In the year ended December 31, 2018 the Company repatriated a total of $63.5 million, net of tax from its foreign subsidiaries.
  • In November 2018, the Company sold a facility that was not occupied by the Company and was leased to a third party. The Company received net proceeds of $17.5 million, after closing costs and sales price adjustments.
  • On December 6, 2018, the Company's Board of Directors authorized the Company to repurchase up to $100.0 million of the Company's common stock. The authorization is in effect from January 1, 2019 through December 31, 2019.
  • On January 28, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.22 per share. The dividend will be payable on April 25, 2019 to shareholders of record as of April 4, 2019.
  • During the fourth quarter of 2018, the Company repurchased 970,093 shares of the Company's common stock in the open market at an average price of $62.93 per share, for a total of $61.0 million. For the year ended December 31, 2018, the Company repurchased 1,772,658 shares of the Company's common stock on the open market at an average price of $62.69 per share. The Company also received 182,171 shares of its common stock as the final delivery of a $50.0 million accelerated share repurchase program initiated in December 2017. As of December 31, 2018, the Company repurchased approximately $234.6 million of the Company's previously announced $275.0 million share repurchase authorization (which expired at the end of 2018).

Business Outlook

Subject to changing economic conditions, future events and circumstances:

  • The Company currently believes the market price for steel will be flat during the first quarter of 2019.
  • The Company estimates that its full-year 2019 gross profit margin will be between 44.5% to 45.5%.
  • The Company estimates that its 2019 full-year effective tax rate will be between approximately 25% to 27% including both federal and state income tax rates. The ultimate impact of the Tax Cuts and Jobs Act may differ materially from the Company's estimates due to changes in the interpretations and assumptions made by the Company as well as additional regulatory guidance that may be issued and actions the Company may have taken or may take as a result of the Tax Cuts and Jobs Act, such as cash repatriation to the United States. The Company will continue to assess the expected impacts of the new tax law and provide additional disclosures at appropriate times.

Conference Call Details

Investors, analysts and other interested parties are invited to join the Company's 2018 fourth quarter and full-year financial results conference call on Monday, February 4, 2019, at 5:00 pm Eastern Time (2:00 pm Pacific Time). To participate, callers may dial (877) 407-0792 (U.S. and Canada) or (201) 689-8263 (International) approximately 10 minutes prior to the start time. The call will be webcast simultaneously and can be accessed through http://public.viavid.com/player/index.php?id=132732 or a link on the Company's website at www.simpsonmfg.com/financials/events.html. For those unable to participate during the live broadcast, a replay of the call will also be available beginning that same day at 8:00 p.m. Eastern Time until 11:59 p.m. Eastern Time on Monday, February 18, 2019, by dialing (844) 512–2921 (U.S. and Canada) or (412) 317–6671 (International) and entering the conference ID: 13686314. The webcast will remain posted on the Investor Relations section of the Company's website for 90 days.

A copy of this earnings release will be available prior to the call, accessible through the Investor Relations section of the Company's website at www.simpsonmfg.com.

About Simpson Manufacturing Co., Inc.

Simpson Manufacturing Co., Inc., headquartered in Pleasanton, California, through its subsidiary, Simpson Strong-Tie Company Inc., designs, engineers and is a leading manufacturer of wood construction products, including connectors, truss plates, fastening systems, fasteners and shearwalls, and concrete construction products, including adhesives, specialty chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials. The Company's common stock trades on the New York Stock Exchange under the symbol "SSD."

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements relating to events or results that may occur in the future are forward-looking statements, including but not limited to, statements or estimates regarding our plans, sales, sales trends, sales growth rates, revenues, profits, costs, working capital, balance sheet, inventories, products (including truss and concrete products as well as software offerings), relationships with contractors and partners (including our collaboration with The Home Depot, Inc.), market strategies, market share, expenses (including operating expenses and research, development and engineering investments), inventory turn rates, cost savings or reduction measures, repatriation of funds, results of operations, tax liabilities, losses, capital spending, housing starts, price changes (including product and raw material prices, such as steel prices), profitability, profit margins, operating income, operating income margin (referring to consolidated income from operations as a percentage of net sales), operating expenses as a percentage of net sales, effective tax rates, depreciation or amortization expenses, amortization periods, capital return (also called return on invested capital), stock repurchases, dividends, compensation arrangements, prospective adoption of new accounting standards, effects of changes in accounting standards, effects and expenses of (including eventual gains or losses related to) mergers and acquisitions and related integrations, effects and expenses of equity investments, effects of changes in foreign exchange rates or interest rates, effects and costs of SAP and other software program implementations (including related expenses, such as capital expenditures, and savings), effects and costs of credit facilities and capital lease obligations, headcount, engagement of consultants, the Company's 2020 Plan and other operating initiatives, the Company's efforts and costs to implement the 2020 Plan and initiatives, the targets and assumptions under the 2020 Plan and such other initiatives (including targets associated with organic compound annual growth rate in consolidated net sales, operating income, operating income margin, operating expenses as a percentage of net sales, cost structure rationalization, improved working capital management, return on invested capital, stock repurchases, and overall balance sheet discipline) and the projected effects and impact of any of the foregoing on our business, financial condition and results of operations. Forward-looking statements generally can be identified by words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "target," "continue," "predict," "project," "change," "result," "future," "will," "could," "can," "may," "likely," "potentially," or similar expressions. Forward-looking statements are necessarily speculative in nature, are based on numerous assumptions, and involve known and unknown risks, uncertainties and other factors (some of which are beyond our control) that could significantly affect our operations and may cause our actual actions, results, financial condition, performance or achievements to be substantially different from any future actions, results, financial condition, performance or achievements expressed or implied by any such forward-looking statements. Those factors include, but are not limited to: (i) the impact, execution and effectiveness of the Company's current strategic plan, the 2020 Plan, and initiatives the realization of the assumptions made under the plan and the efforts and costs to implement the plan and initiatives; (ii) general economic cycles and construction business conditions including changes in U.S. housing starts; (iii) customer acceptance of our products; (iv) product liability claims, contractual liability, engineering and design liability and similar liabilities or claims, (v) relationships with partners, suppliers and customers and their financial condition; (vi) materials and manufacturing costs; (vii) technological developments, including system updates and conversions; (viii) increased competition; (ix) changes in laws or industry practices; (x) litigation risks and actions by activist shareholders; (xi) changes in market conditions; (xii) governmental and business conditions in countries where our products are manufactured and sold; (xiii) natural disasters and other factors that are beyond the Company's reasonable control; (xiv) changes in trade regulations, treaties or agreements or in U.S. and international taxes, tariffs and duties including those imposed on the Company's  income, imports, exports and repatriation of funds; (xv) effects of merger or acquisition activities; (xvi) actual or potential takeover or other change-of-control  threats; (xvii) changes in our plans, strategies, objectives, expectations or intentions; and (xviii) other risks and uncertainties indicated from time to time in our filings with the U.S. Securities and Exchange Commission, including the Company's most recent Annual Report on Form 10-K and the Company's most recent Quarterly Report on Form 10-Q under the heading "Item 1A - Risk Factors." In light of the foregoing, investors are advised to carefully read the Company's securities filings in connection with the important disclaimers set forth above and are urged not to rely on any forward-looking statements in reaching any conclusions or making any investment decisions about us or our securities. Except as required by law, we do not intend and undertake no obligation to update, revise or publicly release any updates or revisions to any forward-looking statements hereunder, whether as a result of the receipt of new information, the occurrence of future events, the change of circumstances or otherwise. We further do not accept any responsibility for any projections or reports published by analysts, investors or other third parties. Each of the terms the "Company," "we," "our," "us" and similar terms used herein refer collectively to Simpson Manufacturing Co., Inc., a Delaware corporation and its wholly-owned subsidiaries, including Simpson Strong-Tie Company Inc., unless otherwise stated. The financial information set forth herein is presented on a preliminary unreviewed and unaudited basis; audited financial statements will be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, when filed. In addition, the Company regularly uses its website to post information regarding its business and governance. The Company encourages investors to use http://www.simpsonmfg.com/ as a source of information about Simpson.

Simpson Manufacturing Co., Inc. and Subsidiaries

UNAUDITED Consolidated Statements of Operations

(In thousands, except per share data)



Three Months Ended
December 31,


Twelve Months Ended
December 31,


2018


2017


2018


2017

Net sales

$

241,845



$

231,681



$

1,078,809



$

977,025


Cost of sales

143,409



129,777



598,290



533,644


Gross profit

98,436



101,904



480,519



443,381


Operating expenses:








Research and development and engineering expense

10,216



12,565



43,056



47,616


Selling expense

26,278



28,753



109,931



114,903


General and administrative expense

41,325



36,236



155,223



143,107


    Total operating expenses

77,819



77,554



308,210



305,626


Net gain on disposal of assets

(8,810)



(13)



(10,579)



(160)


Impairment of goodwill

6,686





6,686




Income from operations

22,741



24,363



176,202



137,915


Loss in equity investment, before tax

(11)



(33)



(63)



(86)


Foreign exchange gain (loss), net

(571)



342



430



1,252


Interest expense, net

(239)



(104)



(571)



(788)


Gain on bargain purchase of a business (adjustment)







6,336


Loss on disposal of a business



(654)





(211)


Income before taxes

21,920



23,914



175,998



144,418


Provision for income taxes

6,288



10,829



46,490



51,801


Net income

$

15,632



$

13,085



$

129,508



$

92,617


Earnings per common share:








Basic

$

0.34



$

0.28



$

2.81



$

1.95


Diluted

$

0.34



$

0.27



$

2.78



$

1.94


Weighted average shares outstanding:








Basic

45,357



47,307



46,132



47,486


Diluted

45,774



47,594



46,527



47,774


Other data:








Depreciation and amortization

$

10,345



$

6,844



$

39,393



$

33,724


Pre-tax equity-based compensation expense

2,402



2,092



11,176



13,908


















 

Simpson Manufacturing Co., Inc. and Subsidiaries

UNAUDITED Consolidated Condensed Balance Sheets

(In thousands)




December 31,




2018


2017


Cash and short-term investments


$

160,180



$

168,514



Trade accounts receivable, net


146,052



135,958



Inventories


276,088



252,996



Other current assets


17,198



26,473



Total current assets


599,518



583,941



Property, plant and equipment, net


254,597



273,020



Goodwill


130,250



137,140



Other noncurrent assets


37,287



43,422



Total assets


$

1,021,652



$

1,037,523



Trade accounts payable


$

34,361



$

31,536



Capital lease obligation - current portion


1,874



1,055



Other current liabilities


111,475



103,900



Total current liabilities


147,710



136,491



Other long-term liabilities - net of current portion


15,553



16,254



Stockholders' equity


858,389



884,778



Total liabilities and stockholders' equity


$

1,021,652



$

1,037,523



 

Simpson Manufacturing Co., Inc. and Subsidiaries

UNAUDITED Segment and Product Group Information

(In thousands)





Three Months Ended




Twelve Months Ended






December 31,


%


December 31,


%


2018


2017


change *


2018


2017


change *

Net Sales by Reporting Segment













North America

$

204,656



$

190,932



7%


$

910,587



$

803,697



13%


Percentage of total net sales

85

%


82

%




84

%


82

%




Europe

34,931



38,404



(9)%


159,027



165,155



(4)%


Percentage of total net sales

14

%


17

%




15

%


17

%




Asia/Pacific

2,258



2,345



(4)%


9,195



8,173



13%


Percentage of total net sales

1

%


1

%




1

%


1

%





Total

$

241,845



$

231,681



4%


$

1,078,809



$

977,025



10%

Net Sales by Product Group**













Wood Construction

$

202,323



$

193,993



4%


$

913,202



$

833,200



10%


Percentage of total net sales

84

%


84

%




85

%


85

%




Concrete Construction

39,470



37,317



6%


165,317



143,102



16%


Percentage of total net sales

16

%


16

%




15

%


15

%




Other

52



371



N/M


290



723



N/M



Total

$

241,845



$

231,681



4%


$

1,078,809



$

977,025



10%

Gross Profit by Reporting Segment













North America

$

86,556



$

88,292



(2)%


$

422,053



$

383,282



10%


North America gross profit margin

42

%


46

%




46

%


48

%




Europe

11,070



13,041



(15)%


56,152



58,973



(5)%


Europe gross profit margin

32

%


34

%




35

%


36

%




Asia/Pacific

661



307



N/M


2,085



971



N/M


Administrative and all other

149



263



N/M


229



155



N/M



Total

$

98,436



$

101,903



(3)%


$

480,519



$

443,381



8%

Income (Loss) from Operations













North America

$

18,907



$

21,995



(14)%


$

168,323



$

132,995



27%


North America operating profit margin

9

%


12

%




18

%


17

%




Europe

(8,779)



(3,298)



(166)%


(3,026)



2,724



N/M


Europe operating profit margin

(25)

%


(9)

%




(2)

%


2

%




Asia/Pacific

313



1,600



N/M


2,040



1,296



N/M


Administrative and all other

12,300



4,066



N/M


8,865



901



N/M



Total

$

22,741



$

24,363



(7)%


$

176,202



$

137,916



28%





*

Unfavorable percentage changes are presented in parentheses.


**

The Company manages its business by geographic segment but is presenting sales by product group as additional information.


N/M

Statistic is not material or not meaningful.

CONTACT: 
Addo Investor Relations
investor.relations@strongtie.com 
(310) 829-5400

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