Simpson Manufacturing Co., Inc. (SSD) reported second-quarter 2014 earnings of 42 cents per share on Jul 24, which increased 10.5% year over year from 38 cents. However, the results missed the Zacks Consensus Estimate of 44 cents. Also, its shares dropped around 2.8% and closed at $32.34 on Jul 25.
Operational Update
Total revenue rose 6% to $208 million from $195 million in the year-ago quarter. However revenues lagged the Zacks Consensus Estimate of $215 million. The rise was primarily attributable to increased sales in North America, Europe and Asia/Pacific segments. North America and Europe sales primarily benefited from improved economic activities.
Cost of sales went up 5.5% year over year to $112 million. Gross profit was $95.9 million, up 7.5% from $89 million in the year-ago quarter. Gross margin expanded 50 basis points (bps) to 46.1% from the prior-year quarter.
Research and development and engineering expenses increased 6.4% year over year to $10.1 million. Selling expenses increased to $24 million from $21.7 million in the prior-year quarter. General and administrative expenses went up 4% year over year to $29.5 million. Income from operations improved 8.3% year over year to $32 million.
Segment Performance
Revenues in the North American segment rose 5.5% to $168.6 million from $159.8 million in the year-ago quarter. The growth was led by increased sales volume, partly offset by lower average selling prices and the effects of foreign currency translations. Segment profit increased 2% year over year to $30 million.
Total revenues for the European segment increased 9% year over year to $35 million, primarily attributable to higher sales volumes and the effects of foreign currency translations, partly offset by lower selling prices. The segment’s profit surged 68% year over year to $3.8 million.
Asia/Pacific segment’s total revenues increased 22% to $4.3 million from $3.5 million in the year-ago quarter. The segment reported a loss of $0.50 million narrower than the year ago quarter’s loss of $0.05 million.
Financial Position
As of Jun 30, 2014, Simpson Manufacturing’s cash and cash equivalents were $221 million versus $165 million as of Jun 30, 2013.
Guidance
For 2014, Simpson Manufacturing raised the upper end of its gross margin projection to 44%–46% from its previous range of 44%–45%. The company reiterated effective tax rate between 37% and 39% for 2014. Simpson Manufacturing estimates full year capital expenditure in the range of $20 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 expects 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 #2 (Buy).
Other stocks in the sector worth considering include Quanex Building Products Corporation (NX), United Rentals, Inc. (URI) and The Valspar Corporation (VAL). All these stocks carry a Zacks Rank #2.
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