Simpson Manufacturing Co., Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Simpson designs, manufactures and sells wood- and concrete-construction products through North America, Europe and Asia/Pacific. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $597.6 | $593.2 | $1,132.0 | $1,086.8 |
| Gross profit / margin | $287.5 / 48.1% | $259.3 / 43.7% | $540.3 / 47.7% | $496.1 / 45.6% |
| Operating income | $145.0 | $133.1 | $263.4 | $257.5 |
| Net income | $107.2 | $93.6 | $195.2 | $188.1 |
| Diluted EPS | $2.50 | $2.16 | $4.55 | $4.34 |
| Operating cash flow | — | $197.2 | $138.5 |
Q2 sales increased 0.7%; gross profit rose 10.8% and net income rose 14.6%. For the first half, sales increased 4.2%, gross profit 8.9%, and net income 3.7%. Q2 operating expenses rose to $140.7 million from $120.4 million, partly offset by lower acquisition and integration costs. The effective tax rate was 25.9% in Q2 and 25.5% year to date.
Cash and cash equivalents were $408.0 million at June 30, 2023, versus $300.7 million at year-end 2022. Total current assets were $1,372.8 million and current liabilities $396.9 million. Debt under the credit facility was $571.9 million, down from $583.2 million at year-end; $300.0 million of revolving capacity remained available. The company reported compliance with financial covenants. Six-month investing cash outflow was $48.0 million, including $37.9 million of capital expenditures; financing cash outflow was $41.0 million.
Material changes and operating drivers
- North America Q2 sales grew 2.0%, while Europe sales declined 4.1% on lower volumes. First-half North America sales declined 2.6%; Europe sales increased 36.5%, substantially reflecting two quarters of ETANCO sales in 2023 versus one in 2022.
- Higher gross margins reflected lower raw-material costs and the absence of the $9.2 million ETANCO acquired-inventory fair-value charge recorded in 2022. ETANCO’s Q2 gross margin also improved to 38.1% from 23.9% in the prior-year quarter, which included that charge.
- Operating expenses increased, including personnel, variable compensation, engineering, software and amortization costs. ETANCO-related acquisition and integration costs declined year over year.
- ETANCO, acquired in April 2022, contributed to European scale and was described as accretive to first-half 2023 earnings. Reported year-to-date comparisons are affected by the acquisition timing.
Outlook, risks and other items
Management’s updated full-year 2023 outlook is operating margin of 20.5%–21.5%, an effective tax rate of 25%–26%, and capital expenditures of $105–$115 million. The capital spending estimate increased from $85–$95 million, primarily for a planned Gallatin, Tennessee facility replacement. Management expects additional ETANCO integration costs in 2023 and says macroeconomic conditions may delay some synergy benefits. It anticipates flat to slightly compressed 2023 operating margin versus 2022.
Management cited housing-market cyclicality, rising interest rates and inflation, labor and supply constraints, construction demand, raw-material and steel-price volatility, foreign-exchange movements, and ETANCO integration as risks. The company does not hedge steel-price exposure and may not be able to fully offset future cost increases through pricing. It reported no off-balance-sheet arrangements, no material changes to previously disclosed risk factors, and no legal proceedings currently expected to have a material adverse effect, while noting potential product-related claims and litigation uncertainty. Disclosure controls were assessed as effective. A $0.27-per-share dividend was declared after quarter-end, payable October 26, 2023.
Important facts for investors to verify
- Whether housing and construction demand, particularly North American volumes, supports the projected full-year margin range.
- How pricing reductions, steel and other input costs, and operating-expense growth affect margins in the second half.
- ETANCO’s underlying sales, profitability, integration spending and realized synergies, accounting for the uneven year-over-year comparison.
- Execution and funding of the $105–$115 million capital expenditure plan, including the Gallatin project, alongside debt repayment and dividends.
- Debt interest-rate exposure, hedge coverage and available borrowing capacity, as well as any developments in product-related claims or litigation.