Simpson Manufacturing Co., Inc. (SSD) reported its third-quarter 2014 results on Oct 23, wherein earnings of 42 cents per share increased 2.4% year over year from 41 cents per share. However, shares of Simpson Manufacturing dropped about 1.6% and closed at $31.58 on Oct 24, as results missed the Zacks Consensus Estimate of 45 cents.
Operational Update
Total revenue rose 7% to $209 million from $196 million in the year-ago quarter. However, revenues lagged the Zacks Consensus Estimate of $215 million. The year-over-year rise was primarily attributable to increased sales in North America and Europe segments. North America sales primarily benefited from improved economic activities.
Cost of sales went up 7.6% year over year to $113.8 million. Gross profit was $95.6 million, up 6.3% from $89.9 million in the year-ago quarter. Gross margin declined 30 basis points (bps) to 45.6% from the prior-year quarter.
Research and development and engineering expenses increased 5.3% year over year to $9.7 million. Selling expenses increased to $23.6 million from $20.6 million in the prior-year quarter. General and administrative expenses went up 3.6% year over year to $29.6 million. Income from operations improved 4.3% year over year to $32 million.
Segment Performance
Revenues in the North American segment rose 9% to $171 million from $157.3 million in the year-ago quarter. The growth was led by increased sales volume, partly offset by effects of foreign currency translations. Segment profit increased 4% year over year to $29.9 million.
Total revenues for the European segment increased 2% year over year to $34.6 million, primarily attributable to higher sales volumes and the effects of foreign currency translations, partly offset by lower selling prices. The segment profit remained flat at $13.8 million in the quarter.
Asia/Pacific segment’s total revenues decreased 19% to $3.6 million from $4.5 million in the year-ago quarter. The segment reported a gain of $0.93 million, increasing 8% year over year from $0.86 million.
Financial Position
As of Sep 30, 2014, Simpson Manufacturing’s cash and cash equivalents were $258 million versus $215.8 million as of Sep 30, 2013.
Guidance
For 2014, Simpson Manufacturing raised the lower end of its gross margin projection which now stands in the 45%–46% range, against 44%–46% expected earlier. The company reiterated effective tax rate between 37% and 39% for 2014. Simpson Manufacturing estimates full-year capital expenditure to be in the range of $21 to $23 million. For 2014 depreciation and amortization is expected to be between $29 million and $30 million.
Our Take
Simpson Manufacturing will benefit from its strategic initiatives, which include a wider offering of concrete construction products, specialty chemicals and wood construction products, particularly truss plate and software offerings. The company’s continued focus on strategic acquisitions to increase product offering and strengthen its position in different geographic regions also bode well. To support these initiatives, the company intends to hire more personnel and provide additional resources in 2014.
Pleasanton, CA-based Simpson Manufacturing is a leading manufacturer of wood construction products, which include connectors, truss plates, fastening systems, fasteners and shear walls. The company, through its subsidiary, Simpson Strong-Tie Company Inc., designs and engineers concrete construction products, comprising adhesives, specialty chemicals, mechanical anchors and powder actuated tools.
At present, Simpson Manufacturing carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector worth considering include PGT, Inc. (PGTI), Boise Cascade Company (BCC) and Vulcan Materials Company (VMC). All these carry a Zacks Rank #1 (Strong Buy).
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