Delaware | 1-13429 | 94-3196943 | ||
(State or other jurisdiction of incorporation) | (Commission file number) | (I.R.S. Employer Identification No.) |
Securities registered pursuant to Section 12(b) of the Act: | ||
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 per share | SSD | New York Stock Exchange |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-2) | |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240. 13e-4(c)) |
Exhibit No. | Description | |
99.1 | ||
Simpson Manufacturing Co., Inc. | ||||
(Registrant) | ||||
DATE: | July 29, 2019 | By | /s/ Brian J. Magstadt | |
Brian J. Magstadt | ||||
Chief Financial Officer |
Updating “2020 Plan” targets primarily due to rising raw material costs and slower U.S. housing starts | |
l Declared a $0.23 per share cash dividend |
• | Consolidated net sales of $304.9 million decreased 1.0% from $308.0 million. |
◦ | North America net sales of $259.1 million decreased 0.3% from $259.8 million, primarily due to lower sales volume, partly offset by higher average product prices. Canada's net sales were negatively affected by foreign currency translation. |
◦ | Europe net sales of $43.6 million decreased 4.7% from $45.8 million, primarily due to approximately $2.8 million of negative foreign currency translations resulting from some Europe currencies weakening against the United States dollar. In local currency, Europe net sales increased primarily due to increases in average product prices. |
• | Consolidated gross profit of $134.2 million decreased 4.5% from $140.6 million. Gross margin decreased to 44.0% from 45.6%. |
◦ | North America gross margin decreased to 45.1% from 47.6%, primarily due to increases in material costs, factory and overhead costs (on lower production) and labor costs, each as a percentage of net sales. |
◦ | Europe gross margin decreased to 37.0% from 38.2%, primarily due to increases in factory and overhead costs and material costs, each as a percentage of net sales. Europe gross profit was also negatively affected by foreign currency translation. |
• | Consolidated income from operations of $53.7 million decreased 12.7% from $61.4 million. The decrease in income from operations was primarily due to the reduction in gross profit and increased general and administrative expenses, including $5.4 million in higher consulting and professional fees, partially offset by $2.8 million in lower cash profit sharing and personnel expense. Consolidated income from operations for the second quarter of 2019 included a $0.4 million gain on sale as a result of the consolidation of two of the Company’s operating facilities into a single location. Consolidated operating margin decreased to 17.6% from 19.9%. |
◦ | North America income from operations of $50.1 million decreased 16.5% from $60.0 million, primarily due to the reduction in gross profit and increased general and administrative costs. |
◦ | Europe income from operations of $4.7 million increased from $3.7 million, primarily due to lower operating expenses such as severance costs recorded in 2018, which were not repeated in 2019. |
• | The Company's effective income tax rate decreased to 26.4% from 27.2%. |
• | Consolidated net income was $39.6 million, or $0.88 per diluted share of the Company's common stock, compared to net income of $44.1 million, or $0.94 per diluted share. |
• | Consolidated net sales of $564.1 million increased 2.0% from $552.8 million. |
◦ | North America net sales of $480.5 million increased 3.1% from $466.0 million primarily due to increased average product prices, partly offset by lower sales volumes. Canada's net sales were negatively affected by approximately $1.0 million due to foreign currency translation. In local currency, Canada net sales increased primarily due to increases in average product prices. |
◦ | Europe net sales of $79.4 million decreased 3.2% from $82.1 million, primarily due to approximately $5.8 million of negative foreign currency translations resulting from some Europe currencies weakening against the United States dollar. In local currency, Europe net sales increased primarily due to increases in average product prices. |
• | Consolidated gross profit of $244.4 million decreased 1.5% from $248.2 million. Gross margin decreased to 43.3% from 44.9%. |
◦ | North America gross margin decreased to 44.8% from 47.3%, primarily due to increases in material costs, labor costs and factory and overhead costs (on lower production), each as a percentage of net sales. |
◦ | Europe gross margin decreased slightly to 34.9% from 35.4%, primarily due to an increase in material costs as a percentage of net sales. Europe gross profit was negatively affected by foreign currency translation. |
• | Consolidated income from operations of $83.7 million decreased 11.1% from $94.1 million. The decrease in income from operations was primarily due to increased general and administrative expenses, including $5.8 million in increased consulting and professional fees as well as a reduction in gross profit. Consolidated operating margin decreased to 14.8% from 17.0%. |
◦ | North America income from operations of $82.9 million decreased 14.1% from $96.4 million, primarily due to the reduction in gross profit and increased general and administrative costs. |
◦ | Europe income from operations of $4.3 million increased from $2.1 million, primarily due to lower operating expenses such as severance costs recorded in 2018, which were not repeated in 2019. |
• | The Company's effective income tax rate decreased to 25.1% from 25.4%. |
• | Consolidated net income was $62.2 million, or $1.38 per diluted share of the Company's common stock, compared to net income of $69.5 million, or $1.48 per diluted share. |
• | Cash flow provided by operating activities decreased approximately $1.8 million to $53.6 million from $55.4 million. |
• | Cash flow used in investing activities decreased approximately $0.8 million to $16.3 million from $17.0 million. Capital expenditures were approximately $15.3 million compared to $19.0 million. |
• | The Company expects its consolidated operating margin to be in the range of 16% to 17% by fiscal 2020 from 16.4% in 2016. This is a downward revision from its prior 2020 target for consolidated operating margin of approximately 21% to 22%. Importantly, Simpson’s success in rationalizing its cost structure has helped mitigate further downward pressure on this target. |
• | Due to a combination of rising raw material costs and then soon-to-be tariffed finished goods from China, the Company pro-actively built up its anchor inventory, bought an additional allotment of steel (in late 2018) in order to mitigate the potential impact of product availability and built-up inventory to ensure customer needs are met during the SAP roll-out. As a result, the Company no longer believes it can double its inventory turns from 2x in 2016 to 4x by fiscal 2020. The Company continues to focus on reducing its total SKU count and continues to implement Lean principles in all factories to improve working capital management. |
• | The Company now expects to achieve a return on invested capital (1) target within the range of 15% to 16% by the end of 2020 from 10.5% in 2016. |
• | The Company expects to achieve organically a net sales compound annual growth rate of approximately 8% from $860.7 million reported in fiscal 2016 through fiscal 2020. |
• | The Company seeks to reduce its total operating expenses as a percent of net sales from 31.8% in fiscal 2016 to a range of 26.0% to 27.0% through fiscal 2020. |
• | The Company remains committed to continue returning 50% of its cash flow from operations in the form of both dividends and share repurchases to its shareholders through fiscal 2020. |
• | On July 25, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per share. The dividend will be payable on October 24, 2019 to the Company's stockholders of record as of October 3, 2019. |
• | 2019 full-year gross margin is estimated to be in the range of approximately 43.5% to 44.0%, lower than our previous estimate of 44.5% to 45.5%. |
• | 2019 full-year operating expenses, as a percentage of net sales, is estimated to be between approximately 27.5% and 28.5%. |
• | 2019 full-year effective tax rate is estimated to be between approximately 25% to 27%, including both federal and state income tax rates. |
(1 | ) | When referred to above, the Company’s return on invested capital (“ROIC”) for a fiscal period is calculated based on (i) the net income of the last four quarters as presented in the Company’s condensed consolidated statements of operations prepared pursuant to generally accepted accounting principles in the U.S. (“GAAP”), as divided by (ii) the average of the sum of the total stockholders’ equity and the total long-term liabilities at the beginning of and at the end of such period, as presented in the Company’s consolidated balance sheets prepared pursuant to GAAP for that applicable year. For the purposes of comparability in this calculation, total long-term liabilities excludes long-term finance lease liabilities, which were recognized as of June 30, 2019 as a result of the January 1, 2019 adoption of ASU 2016-02. As such, the Company’s ROIC, a ratio or statistical measure, is calculated using exclusively financial measures presented in accordance with GAAP. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(Amounts in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net sales | $ | 304,853 | $ | 308,007 | $ | 564,097 | $ | 552,786 | |||||||
Cost of sales | 170,674 | 167,442 | 319,664 | 304,599 | |||||||||||
Gross profit | 134,179 | 140,565 | 244,433 | 248,187 | |||||||||||
Research and development and engineering expense | 11,055 | 11,249 | 23,316 | 22,399 | |||||||||||
Selling expense | 28,687 | 29,201 | 56,799 | 56,774 | |||||||||||
General and administrative expense | 41,345 | 38,807 | 80,893 | 76,206 | |||||||||||
Total operating expenses | 81,087 | 79,257 | 161,008 | 155,379 | |||||||||||
Gain on disposal of assets | (561 | ) | (125 | ) | (251 | ) | (1,309 | ) | |||||||
Income from operations | 53,653 | 61,433 | 83,676 | 94,117 | |||||||||||
Interest expense, net and other | 147 | (871 | ) | (616 | ) | (873 | ) | ||||||||
Income before taxes | 53,800 | 60,562 | 83,060 | 93,244 | |||||||||||
Provision for income taxes | 14,223 | 16,476 | 20,821 | 23,729 | |||||||||||
Net income | $ | 39,577 | $ | 44,086 | $ | 62,239 | $ | 69,515 | |||||||
Earnings per common share: | |||||||||||||||
Basic | $ | 0.89 | $ | 0.95 | $ | 1.39 | $ | 1.50 | |||||||
Diluted | $ | 0.88 | $ | 0.94 | $ | 1.38 | $ | 1.48 | |||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 44,671 | 46,323 | 44,772 | 46,468 | |||||||||||
Diluted | 44,972 | 46,677 | 45,089 | 46,842 | |||||||||||
Cash dividend declared per common share | $ | 0.23 | $ | 0.22 | $ | 0.45 | $ | 0.43 | |||||||
Other data: | |||||||||||||||
Depreciation and amortization | $ | 9,757 | $ | 9,945 | $ | 19,515 | $ | 19,633 | |||||||
Pre-tax equity-based compensation expense | $ | 2,494 | $ | 2,904 | $ | 6,600 | $ | 6,020 | |||||||
June 30, | December 31, | |||||||||||
(Amounts in thousands) | 2019 | 2018 | 2018 | |||||||||
Cash and cash equivalents | $ | 141,731 | $ | 155,035 | $ | 160,180 | ||||||
Trade accounts receivable, net | 191,282 | 211,179 | 146,052 | |||||||||
Inventories | 266,142 | 258,180 | 276,088 | |||||||||
Other current assets | 14,795 | 15,772 | 17,209 | |||||||||
Total current assets | 613,950 | 640,166 | 599,529 | |||||||||
Property, plant and equipment, net | 252,710 | 269,127 | 254,597 | |||||||||
Operating lease right-of-use assets | 35,111 | — | — | |||||||||
Goodwill | 132,312 | 136,398 | 130,250 | |||||||||
Other noncurrent assets | 35,835 | 40,196 | 37,287 | |||||||||
Total assets | $ | 1,069,918 | $ | 1,085,887 | $ | 1,021,663 | ||||||
Trade accounts payable | $ | 39,241 | $ | 47,985 | $ | 34,361 | ||||||
Accrued liabilities and other current liabilities | 117,600 | 120,007 | 117,219 | |||||||||
Total current liabilities | 156,841 | 167,992 | 151,580 | |||||||||
Operating lease liabilities | 28,164 | — | — | |||||||||
Deferred income tax and other long-term liabilities | 16,092 | 14,093 | 14,569 | |||||||||
Stockholders' equity | 868,821 | 903,802 | 855,514 | |||||||||
Total liabilities and stockholders' equity | $ | 1,069,918 | $ | 1,085,887 | $ | 1,021,663 |
Three Months Ended | Six Months Ended | |||||||||||||||||||
June 30, | % | June 30, | % | |||||||||||||||||
(Amounts in thousands) | 2019 | 2018 | change* | 2019 | 2018 | change* | ||||||||||||||
Net Sales by Reporting Segment | ||||||||||||||||||||
North America | $ | 259,073 | $ | 259,822 | (0.3)% | $ | 480,504 | $ | 466,034 | 3.1% | ||||||||||
Percentage of total net sales | 85.0 | % | 84.4 | % | 85.2 | % | 84.3 | % | ||||||||||||
Europe | 43,648 | 45,784 | (4.7)% | 79,428 | 82,077 | (3.2)% | ||||||||||||||
Percentage of total net sales | 14.3 | % | 14.9 | % | 14.1 | % | 14.8 | % | ||||||||||||
Asia/Pacific | 2,132 | 2,401 | (11.2)% | 4,165 | 4,675 | (10.9)% | ||||||||||||||
$ | 304,853 | $ | 308,007 | (1.0)% | $ | 564,097 | $ | 552,786 | 2.0% | |||||||||||
Net Sales by Product Group** | ||||||||||||||||||||
Wood Construction | $ | 258,416 | $ | 260,103 | (0.6)% | $ | 476,029 | $ | 472,650 | 0.7% | ||||||||||
Percentage of total net sales | 85 | % | 84 | % | 84 | % | 86 | % | ||||||||||||
Concrete Construction | 46,360 | 47,859 | (3.1)% | 87,936 | 80,015 | 9.9% | ||||||||||||||
Percentage of total net sales | 15 | % | 16 | % | 16 | % | 14 | % | ||||||||||||
Other | 77 | 45 | N/M | 132 | 121 | N/M | ||||||||||||||
$ | 304,853 | $ | 308,007 | (1.0)% | $ | 564,097 | $ | 552,786 | 2.0% | |||||||||||
Gross Profit (Loss) by Reporting Segment | ||||||||||||||||||||
North America | $ | 116,906 | $ | 123,639 | (5.4)% | $ | 215,303 | $ | 220,377 | (2.3)% | ||||||||||
North America gross margin | 45.1 | % | 47.6 | % | 44.8 | % | 47.3 | % | ||||||||||||
Europe | 16,142 | 17,480 | (7.7)% | 27,697 | 29,048 | (4.7)% | ||||||||||||||
Europe gross margin | 37.0 | % | 38.2 | % | 34.9 | % | 35.4 | % | ||||||||||||
Asia/Pacific | 1,154 | 343 | N/M | 1,473 | 530 | N/M | ||||||||||||||
Administrative and all other | (23 | ) | (897 | ) | —% | (40 | ) | (1,768 | ) | —% | ||||||||||
$ | 134,179 | $ | 140,565 | (4.5)% | $ | 244,433 | $ | 248,187 | (1.5)% | |||||||||||
Income (Loss) from Operations*** | ||||||||||||||||||||
North America | $ | 50,100 | $ | 59,991 | (16.5)% | $ | 82,864 | $ | 96,444 | (14.1)% | ||||||||||
North America operating margin | 19.3 | % | 23.1 | % | 17.2 | % | 20.7 | % | ||||||||||||
Europe | 4,725 | 3,688 | 28.1% | 4,341 | 2,099 | 106.8% | ||||||||||||||
Europe operating margin | 10.8 | % | 8.1 | % | 5.5 | % | 2.6 | % | ||||||||||||
Asia/Pacific | 248 | (673 | ) | N/M | (294 | ) | (1,663 | ) | N/M | |||||||||||
Administrative and all other | (1,420 | ) | (1,572 | ) | N/M | (3,235 | ) | (2,763 | ) | N/M | ||||||||||
$ | 53,653 | $ | 61,434 | (12.7)% | $ | 83,676 | $ | 94,117 | (11.1)% |
* | Unfavorable percentage changes are presented in parentheses, if any. | |
** | The Company manages its business by geographic segment but is presenting sales by product group as additional information. | |
*** | Beginning in the first quarter of 2019, income from inter-segment sales, previously included in income from operations for segment reporting, is now presented below income from operations. Income from inter-segment sales eliminates in consolidation but was an expense in the North America and Europe segment and income in the Asia/Pacific segment. | |
N/M | Statistic is not material or not meaningful. |