Simpson Manufacturing Co., Inc. — Q3 2023 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2023. Simpson manufactures building construction products and reports North America, Europe and Asia/Pacific segments. Wood construction products generated about 85% of nine-month sales; concrete products generated about 14%.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $580.1 million (+4.8%) | $553.7 million | $1,712.1 million (+4.4%) | $1,640.5 million |
| Gross profit / margin | $282.9 million / 48.8% | $244.5 million / 44.2% | $823.3 million / 48.1% | $740.6 million / 45.1% |
| Income from operations | $140.2 million | $122.8 million | $403.6 million | $380.3 million |
| Net income | $104.0 million (+17.9%) | $88.2 million | $299.2 million (+8.2%) | $276.4 million |
| Diluted EPS | $2.43 | $2.06 | $6.98 | $6.40 |
Cash flow and liquidity. Nine-month operating cash flow was $398.2 million, compared with $263.4 million in 2022. Investing used $66.6 million, including $57.5 million of capital expenditures; financing used $58.2 million. Cash and equivalents were $571.0 million at quarter-end, versus $300.7 million at December 31, 2022. Working capital excluding cash was $479.6 million.
Debt. Debt under the credit facility was $566.3 million, excluding deferred financing costs, at September 30, 2023; the company reported $300.0 million available under its revolving facility and compliance with financial covenants. The balance sheet shows $561.6 million of debt, net of issuance costs. Variable-rate exposure is managed with interest-rate swaps.
Material changes and management commentary
- Q3 sales growth reflected higher North American volumes and favorable European currency translation, partly offset by earlier 2023 price reductions. Gross margin improved primarily with lower raw-material costs and improved ETANCO gross margin.
- For the first nine months, North American sales declined 0.3%, while Europe sales increased 25.1%. The comparison is affected by ETANCO: 2023 includes three quarters of its results, versus two quarters in 2022.
- Operating expenses rose, including research and development, selling, and general and administrative costs. Management cited personnel, variable compensation and investment in strategic growth initiatives among the drivers.
- The 2022 comparison included a $12.8 million ETANCO inventory fair-value step-up charge, with no such charge in 2023. ETANCO also contributed to higher amortization and ongoing integration costs.
Outlook, risks and other items
- For fiscal 2023, management estimated an operating margin of 22.0%–22.5%, an effective tax rate of 25%–26%, and capital expenditures of approximately $100 million. Management expected a flat-to-slight increase in operating margin versus 2022 and continuing ETANCO integration costs.
- Key exposures include housing and construction cyclicality, higher interest rates and inflation, steel-price volatility, labor and supply conditions, foreign exchange, and the ability to offset input-cost changes through pricing. Results are seasonal and can be affected by weather.
- Cash and operating cash flows were described as sufficient for expected needs, including debt repayments. No off-balance-sheet arrangements were reported. Management said pending or threatened proceedings were not expected to have a material adverse effect; outcomes remain uncertain.
- After quarter-end, the company repurchased $46.1 million of shares through November 6, 2023 and announced a new $100 million repurchase authorization for 2024. The board also declared a $0.27-per-share quarterly dividend.
- Management reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter. No material changes to the previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether sales and margins remain resilient if housing demand weakens or steel and other input costs rise.
- How much reported growth and profitability depend on ETANCO, including integration costs and acquired-intangible amortization.
- Cash generation, debt repayment capacity, variable-rate exposure and the effect of hedging.
- Delivery against the 2023 operating-margin and capital-expenditure outlook, and progress on planned facility investments.
- The pace and price of share repurchases and their interaction with dividends, capital spending and debt reduction.