Q1 2021 Simpson Manufacturing Co Inc Earnings Call
Greetings and welcome to the Simpson manufacturing Companys first quarter of 2021 earnings Conference call. At this time all participants are in the listen only mode.
The question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad of Roma.
Under this conference is being recorded now I would like to turn the conference over to your host Kim Orlando of <unk> Investor Relations.
Good afternoon, ladies and gentlemen, and welcome to Simpson manufacturing Company first quarter 2021 earnings conference call and.
Any statements made on this call that are not based on historical facts are forward looking statements.
Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.
Actual future results may vary materially from those expressed or implied by the forward looking statements.
And encourage you to read the risks described and the company's public filings and reports, which are available on the SEC or the company's corporate website.
<unk> for the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward looking statements that we make here today, whether as a result of new information future events or otherwise.
Please note that the company's earnings press release was issued today at approximately 415 P M Eastern time the.
The earnings press release is available on the Investor Relations page of the company's website at IR Dot Simpson and that's G dotcom.
Today's call is being webcast and a replay will also be available on the Investor Relations page of the company's website.
Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.
Thanks, Kim and good afternoon, everyone and thank you for joining us today.
I'll begin with the summary of our key first quarter performance drivers and initiatives.
Brian will then walk you through our financials and updated full year 2021 business outlook in greater detail.
Our first quarter consolidated net sales were strong growing 22, 6% year over year to $347.6 million on significantly higher sales volume.
Our gross margin expanded to 46, 7% from 45, 7% and the prior year quarter.
Primarily due to lower labor factory warehouse and shipping costs, which were partially offset by higher material costs.
Our solid gross margin combined with our diligent expense management and reduced costs due to COVID-19.
Julian for a significant year over year increase of 38, 6%.
And our income from operations to $68 $4 million and.
And an increase of 39, 8% and our earnings per diluted share to $1 16.
As a reminder, the home center distribution channel includes both our home center and co op customers and that's where we see much of our repair and remodel business.
We are continuing to see increased activity in the repair and remodel space.
Likely as a result of the ongoing pandemic as consumers continue homeruns of renovations.
Lowe's contributed significantly to the channel growth compared to the first quarter last year due to their return as the home center customer and the second quarter of 2020.
Our sales further benefited from solid trends in U S housing starts.
As we generally experience a multiple month lag and demand from the time of the start and the first quarter. We benefited from strong fourth quarter 2020 housing starts which grew over 10% year over year.
In addition housing search and the markets, where we sell the most content continued to surpass the broader U S housing starts.
Especially in single family space and in the Western and southern regions of the U S.
Well the adverse weather conditions in the month of February resulted in certain supply chain interruptions, most notably in Texas, we have since addressed any backorder demand and did not report of or material impact.
Our first quarter performance.
Now, let's turn to Europe.
Our first quarter sales improved over the prior year on local currency basis, given strong demand trends and our ability to continue meeting our customers' needs due to our solid inventory management practices amid broader supply chain shortages.
As a reminder, net sales and the first quarter of 2020 were negatively affected by weaker conditions in Europe due to COVID-19, when two of our larger European operations in the United Kingdom, and France, where order to cease operations in late March.
As of today, all of our major production and distribution facilities remain open and operational and Europe. So we continue to promote remote work from home where possible such as and our corporate offices to help prevent the spread of COVID-19.
Lastly, I'd like to take a moment to discuss some recent pricing dynamics and the marketplace.
As previously announced in early February we implemented price increases ranging from 5% to 12%.
Depending on the product mix for certain of our wood connectors fasteners and concrete products and the U S and.
And in effort to offset rising material costs.
These price increases went into effect on April 5th following the 60 day notice periods for our customers.
The notification of also included a clause that prohibited significant pre buying ahead of the increases in order for us to properly manage our inventory levels.
As a result, we do not believe we experienced meaningful pre buying activity related to these increases.
More recently, we announced the second price increase ranging from 6% to 12% primarily for our wood connector products and the U S and an effort to further offset rising material costs.
Our customers were notified of this increase on April 16th which will go into effect on June 15th.
We expect the impact of these price increases will help support our ability to maintain strong gross profit margins through the end of the year.
I'd now like to turn to a high level of discussion on our key growth initiatives.
As many of you are aware we.
We held the virtual analyst and Investor day event on March 23rd and which we unveiled several growth initiatives that we believe will help US continue our track record of above market growth through a combination of organic and inorganic opportunities.
Our organic opportunities are focused on expansion into new markets within our core competencies of wood and concrete products.
Our inorganic opportunities, we'll be focused on licensing purchasing and IP and traditional M&A.
As a reminder, our growth initiatives focus on the following markets, which I'll list and no particular order of priority.
OEM for original equipment manufacturers.
Repair remodel the do it yourself market mass timber concrete and structural steel.
In order to appropriately grow and the first three markets that being OEM.
To R&R as well as the DIY and mass timber.
And we aspire to be a leader and engineered load rated construction fastener solutions given that each of these markets have a broader product opportunity within the fastener solutions.
In addition, we're striving to be of stronger leader and customer facing technology, which has been a focus of ours for a number of years.
Here I'm, referring to software that helps our customers better run their business by providing them with the proper tools to design and select and specify the right. The Simpson solutions for the job.
We expect technological advancements will drive enhanced growth and all of our key growth initiatives as well as the cross all of Simpson manufacturing and general.
We believe our business model will support our ability to be successful throughout each of these areas given our engineering expertise our deep rooted relationships with top builders engineers contractors code officials and distributors.
Along with our ongoing commitment to testing research and innovation.
Importantly, we currently have existing products test results and distribution and manufacturing capabilities for all five of our growth initiatives.
This is also important to note that these initiatives are currently and different stages of development.
Our successful growth in these areas will ultimately be a function of expanding our sales and marketing functions to promote our products to different end users and distribution channels.
Expanding our customer base and potentially introducing new products and the future.
We will keep you appraised of significant updates.
And our key growth initiatives as they arise.
I'd also like the highlight our five year company ambitions that we unveiled at our analyst Investor Day.
First of all you want to strengthen our values based culture.
Barclay Simpson founded our company on the nine principal of doing business, which continued to guide our organization today.
Simpson strong tie employees are our most important asset so we spend a significant amount of time communicating with them to ensure a relentless customer focus involving them and leadership programs and instilling of safety first culture.
Second we want to be the partner of choice.
This ambition takes on many meetings. It means we want to be your solution provider for trusted brand and to provide you a solution and quickly get that product out to your job site and we want to make it easy to do business with us.
We aspire to be the partner of choice and all aspects of our business.
Third we strive to be an innovative leader and product categories.
If we can accomplish this and we have no doubt we will be able to accomplish ambition number for which is to continue our above market growth relative to U S housing starts.
Fifth we will continue to expand our operating income margin to remain within the top quartile of our proxy peers and.
And finally, we will continue expanding our return on invested capital to remain and the top quartile of those peers.
After building and our strong foundation through the 2020 plan and we look forward to an even stronger future ahead.
Before I close today I'd like to briefly touch on our capital allocation strategy.
As our business continues to generate strong cash flows we remain focused on appropriately balancing our growth and stockholder return priorities.
We will prioritize investing and our growth initiatives and areas such as engineering.
Talented marketing and sales personnel and testing capabilities.
M&A also remains of cheap focus in order to expand our product lines and develop complete solutions for the markets and which we operate to strengthen our business and improve our market share.
As previously stated we're leveraging venture capital of expertise to help identify potential strategic acquisitions or investments, including innovative technologies of interest and the building space.
In summary, we are thrilled with our strong first quarter performance, despite global macroeconomic turbulence stemming from the ongoing pandemic.
We expect the second quarter of 2021 will reflect ongoing sales momentum with strong Q1 housing starts and the areas, we primarily serve which positions us well to continue to benefit from this unique environment.
I'd like to thank all of our employees for their dedication to operational excellence.
Health and safety, which has enabled our business continue to operate during the pandemic from a position of strength.
Our employees have been thoughtfully engaged with our leadership team as it pertains to our company ambitions and growth initiatives to ensure a collaborative environment and to assist in the execution of our strategy.
We look forward to capitalizing on our growth opportunities in adjacent markets by leveraging our business model built on engineering testing and innovation.
Thank you for your time and attention now I would like to turn the call over to Brian who will discuss our first quarter financial results and our 2021 outlook in greater detail.
Brian.
Thank you Karen and good afternoon, everyone I'm pleased to discuss our first quarter financial results with you today.
Before I begin I'd like to mention the unless otherwise stated all financial measures discussed and my prepared remarks today refer to the first quarter of 2020 one.
And all comparisons will be year over year comparisons.
Versus the first quarter of 2020.
Now turning to our results.
As Karen highlighted our consolidated net sales were strong increasing 22, 6% for $347 $6 million.
Within the North America segment net sales increased 27 per cent to $306 million, primarily due to higher sales volume and our home Center distribution channel, which includes our home center and co op customers.
Sales volume for supported by the return of Loews, along with increased repair and remodel activity.
We also continue the benefit from solid demand trends and other distribution channels, which are experiencing increased demand from new housing starts and repair and remodel activity.
And Europe net sales increased 35, 3% to $44 $3 million, primarily due to higher sales volumes and local currency.
Europe sales also benefited by approximately $3 $6 million of positive foreign currency translations, resulting from from.
Europe currencies strengthening against the United States dollar.
Yeah.
Wood construction products represented 87 per cent of total sales compared to 86 per cent and concrete construction products represented 13% of total sales compared to 14 per cent.
Consolidated gross profit increased by 25, 2% to $162 $3 million, which resulted in a stronger Q1 gross margin of 46, 7% compared to last year.
Gross margin increased by 100 basis points, primarily due to lower labor factory warehouse and shipping costs, which were partially offset by higher material costs.
On a segment basis, our gross margin and North America increased to $48 five per cent compared to 47 seven per cent.
Well in Europe.
Our gross margin increased to $34 four per cent compared to $32 seven per cent.
From a product perspective, our first quarter gross profit margin on wood products was $46 six per cent compared to 45, 4% and the prior year quarter.
And it was 42.5 per cent for concrete products the same as the prior year quarter.
Now turning to our first quarter costs and operating expenses.
Research and development and engineering expenses increased 9.1 per cent for $14 $6 million, primarily due to increases in personnel costs professional fees and patent costs.
Selling expenses increased eight point O per cent to $38 million due to increases and stock based compensation.
Personnel costs and professional fees.
And all set by a decrease and travel related costs.
On the segment basis, selling expenses and North America were up $9 one per cent and in Europe. They were up two eight per cent.
General and administrative expenses increased 26, 2% for $48 $6 million, primarily due to increases and stock based compensation personnel costs and professional fees and.
And amortization and depreciation expense.
Offset by a decrease and travel related costs.
Total operating expenses were $94.0 million and increase of $13 6 million for approximately 16, 9%.
As a percentage of net sales total operating expenses were 27 per cent and improvement of 130 basis points compared to 28, 3%.
Our solid top line performance combined with our stronger Q1 gross margin and diligent expense management helped to drive the 38.6 per cent increase income.
And solidago the income from operations to $68 $4 million compared to 49 point for.
$4 million and North America income from operations increased $29 five per cent to $69 $4 million, primarily due to increased gross profit.
Partly offset by higher operating expenses.
And Europe income from operations increased 35, 3% to $2 $3 million, primarily due to increased gross profit.
On a consolidated basis, our operating income margin of $19 seven per cent increased by approximately 230 basis points.
Our effective tax rate increased to $24 three per cent from 21.3 per cent due to the lower windfall tax credit on the vesting of restricted stock units.
Accordingly, net income totaled $54 million for $1.16 per fully diluted share.
Per the $36 $8 million or 83 cents per fully diluted share.
Now turning to our balance sheet and cash flow.
Our balance sheet remained healthy with ample liquidity to operate our day to day operations.
At March 31, cash and cash equivalents totaled $257 $4 million.
The decrease of $44 $3 million compared to March 31, 2020.
As of March 31, 2021, the full $300 million on our primary line of credit was available for borrowing and we remain debt free with the small portion of capital leases, mostly unchanged from year end.
Our inventory position of $296 8 million at March 31 increased by $13 million from our balance at December 31, as we continue to see higher levels.
Of construction activity and raw material prices.
Long with the unprecedented demand we've experienced throughout the pandemic.
We continue to carefully manage raw material inventory purchases and this environment of rising costs and limited supplies of.
And all while striving to maintain our high levels of customer service and on time delivery standards.
As a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $18 $5 million for the first quarter of 2021 and.
And the increase of $5 $8 million for $45 five per cent.
We used approximately $10 $5 million for capital expenditures during the quarter.
In regard to stockholder returns, we paid $10 million and dividends during the first quarter.
I was at March 31.
2021, we had the full amount of our $100 million share repurchase authorization available, which remains in effect through the end of 2020 one.
Given our confidence and our business and our expectation that our strategic initiatives will continue to drive improved operational performance and of <unk>.
Higher return on invested capital.
We expect will remain both active and opportunistic as it relates to share purchase activity.
Our next board meeting is scheduled to take place in early May where we will review our capital allocation priorities and greater detail.
Yeah.
Before we turn the call over to questions I'd like to discuss our 2021 financial outlook.
Based on business trends and conditions as of today April 26.
We are updating certain elements of our guidance for the full year ending December 31, 2020 one as follows.
We're updating our operating margin outlook to now be and the range of 19.
And a half per cent to 22 per cent compared to our original estimate of 16 and 5% to 18, 5%.
We're increasing the range to reflect the impact of our recent price increase announcements as well as the stronger than anticipated demand trends, we've been experiencing in 2020 one.
While we are very pleased to increase our outlook for operating margins in fiscal 2021 and it's important to note that based on our current expectations, we're anticipating raw material costing pressure and late 2020, one and into fiscal 2020 two.
Our gross margins and the first half of 2021 will reflect and average cost of steel sourced prior to or early into the surging steel market together with steel purchased more recently, that's substantially higher prices.
And as we work through our on hand inventory and continue to buy of raw material. At these higher prices are anticipated cost of goods sold are expected to increase significantly and the latter part of 2020 one.
And 2022.
Even if prices for raw materials begin to decline adversely impacting our margins as the impact from averaging and raw material costs typically legs are of price increases.
However, as and Aster and our recent analyst and Investor day, the key focus of our five year company ambitions will be to expand our operating income margin to remain within the top quartile over of proxy peers, which we plan to achieve through successful execution on our growth initiatives and careful.
Expense management.
In addition, we expect our effective tax rate to be and the range of 25 to 26 per cent.
Including both federal and state income tax rates.
And finally, we are reiterating our capital expenditure outlook to be and the range of $50 million to $55 million include.
Including the approximately 10 million of $15 million, which will be used for safety and maintenance capex.
And it's important to note our elevated capital expenditure spend.
Relative to fiscal 2020 includes carryover projects that we had previously paused due to the pandemic.
Investments and factory equipment to improve service levels as well as for safety and maintenance updates.
At this time only a small amount of our capex spend is related to pursuing our growth initiatives outlined during our investor and analyst day.
In summary, we were very pleased with our strong first quarter financial results and operating performance.
I'd like to once again, thank all of our employees, who are dedicated to working safely and supporting our customers. During these very challenging times.
We believe our significant scale.
Geographic reach and diverse product offerings combined with our strong balance sheet gives us confidence and our ability to maintain operational excellence and support current and future demand trends moving forward.
Thank you for your time and attention today at this time I'd like to open the call for questions.
Operator.
Thank you at the.
It's time and will be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.
Information total indicate your line is and the question queue for.
And I'll start to if he would like to remove the questions on the Q for participants using speaker equipment, and maybe necessary for pickup your handset before pressing and the starches for more.
And please while we poll for questions.
Our first question is from Daniel Moore of CJS Securities. Please proceed.
Karen and Brian Good afternoon.
Hi, Dan.
Thanks for taking the questions and congrats obviously on the very impressive results.
The first question is a clarification of the latest round of price increases of six to 12 per cent going into effect and June that's on top of the price increases that you put in April 5th or is it on a different set of products.
And that's so the first price increases for 5% to 12% and those were on the varying set of products the.
The second set of price increases were 6% to 12% mainly on the wood connector products.
Specifically with the connectors, Okay, that's helpful too and make sure of that.
Perfect and Q1, North America sales up 23 per cent could you give us those kind of approximate breakdown between volume and price.
And Dan it's Brian.
A lot of price and there.
Mostly volume just the raw.
Reminder, we did not have lows and Q1 of 2020, So obviously, we've got that.
Yeah.
And that element there and.
And so mostly volume there were a little little price increase impacts.
And Europe.
Uh huh.
So mostly the volume elements of their I just mentioned.
Yeah, So most of the pricing and better benefit obviously still ahead of us given the timing of those price increases.
Correct Okay.
And then looking at the guidance previously pointed to as you mentioned, Brian and 16 and a half day 18 five per cent operating margins for for for this year.
And I think you know we did say a couple of times not to be picky, but I think we said a few times of 2020 levels for you.
It probably wouldn't be sustainable and now we're looking at least that and and potentially materially higher so just trying to parse it apart and you know how much of the increases this latest round of price increases how much of it is just stronger volume than expected and is there anything else in the and the you know sort of Dell.
And the initial guide and where we are now.
Sure Dan So primarily price as I mentioned and my prepared remarks, it does take a while for.
Current we sourced higher price steel too to make its way into our cost of sales based on.
Weighted average cost of inventory.
However, the price increase.
As is and effect early April or.
The June as we noted earlier, so there's there's that element and just as of while I'm at it just a reminder, that as the weighted average cost of raw material increases.
And we will see that cause the operating margin gross margin to pull back and.
And 2022 again based on information that we have today, so largely due to those are maybe a little bit of volume benefit.
But.
Mostly due to the to the.
Selling price and.
Element that we've noted in the past.
And is there of revenue growth of assumption range, the kind of underpinning those new mortgage margin targets are the dearth of new targeted margin range of it you can share.
Or we're still expecting volume to be.
Mid single digit and we're not necessarily.
The sharing the top line revenue.
Number of the finished number.
For 2021, but yes, there is that element that the the.
The revenue associated with volume.
That is just noted and the and the price increase is.
Influencing that operating margin.
Guide and of course, it's a pretty wide guide right now.
We still think there's a fair amount of.
Uncertainty towards the back half of the year.
Perfect and and lastly for me you know increasing focus of in terms of capital allocation and at least as you've described as potentially as M&A.
And I think you mentioned you brought in some outside consultants et cetera, just and.
Any commentary on what the pipeline looks like.
And how you're looking at kind of smaller tuck ins are used to looking at larger deals is the possibility as well. Thanks.
Yeah, Let me, let me see if I can address that one Dan so as we as we've talked about.
And we've talked many times about opportunities, we'd like to see and the fastener space really being able to control our manufacturing from and onshore standpoint versus buyouts.
But also as you look at our new initiatives and the mid range Juba initiatives. Some things from a software standpoint that might help us with the DIY space. It opens up a few more opportunities for us to look and different areas still obviously and building materials and but it widens the funnel slightly.
For us as we look into those growth initiatives that we're working through.
Alright, very good thanks for the color again, and I'll jump back with any follow ups.
Thanks, Dan Thanks, Dan.
Yeah.
Thank you for the next question is from Tim Weiss of Robert W. Baird. Please proceed.
Hey, everybody nice the nice work congratulations makes it simple.
Maybe my first question just.
I guess, if you look at the you could say, there's a little wider range of fair.
The wide range of the operating margin guidance, what's the what's the primary of kind of toggle points between getting to the lower end of the upper and cause I guess when you guys go out with price I mean, you generally get what you asked for so it seems like there's a decent amount of visibility there. So I guess, what kind of gets you to the lower upper and is it really just volume.
Yeah.
Hey, Tim it's Brian so.
Volume per primarily related to the back half of the year.
And also when we had come out with that guide earlier, we adjust for Mt.
Two of our customers that price increase.
And so the.
And.
As we're looking at that.
But the current guide now.
The elements around volume.
Toward that Q3, Q4 time period or are part of the.
And the Wildcards on that guide.
And did the did the prior guide include any price.
Realization.
It did on the first price increase.
Okay, Gotcha, and and I guess when you look at the.
The supply chain side of things I mean, you know Karen you mentioned some <unk>.
The benefits you saw it sounded like it was mostly in Europe, but if you look at the U S market I guess, how are you handling supply chain issues. I mean, if you had any and have you benefited at all from competitor kind of challenges and the marketplace that you know.
Well and as you know I think almost everybody discovered that resins are used and many many building materials from Oh and speed of cardboard and for us our adhesives and so when we have that freeze and Texas.
There's certainly some supply chain issues being able to get resins, and that's what I mentioned we.
We've been able to take care of any of our customers, but that was certainly something that.
And that we felt.
And for US are the the supply chain issues for wood is obviously not an issue in our manufacturing process and the main thing of course is steel.
And as we've talked about not only the steel pricing, increasing but availability is getting tighter.
We are not seeing the word allocation used at this point, which is great.
And we are continuing to be sure that we have a very tight monitor on our forecast, what we're producing and the steel raw material that we're being able to get from our vendors. So.
And our supply chain is difficult and many many areas within the construction industry.
We're managing it quite well with our bank group that we have as.
Well as how we're.
Working through our manufacturing of our forecasting and working with our customers. So at this point.
And we're in good shape, even from that resin and standpoint, where we're back in good shape with that.
And just add on a little bit there Karen and some of the other challenges would be and in logistics containers.
Bringing product over from our facilities in Asia or items that we buy out there.
And for managing it but it certainly of challenge.
And Tim I think you also asked a little bit about our.
<unk>, we think we are benefiting from our inventory position and Europe being able to supply customers the product versus maybe our competitors, having a little bit more difficulty there.
Okay, Okay, good and and.
And then the last one of the last one for me when you when you think about SG&A.
Relative to maybe where we were two months ago has euro assumption change for S and SG&A spend this year.
Not significantly I mean, we've got of course and new initiative.
Uh huh.
The spend that we're looking out there now and.
And typically as a company and I think you know what we focus on things like testing and code reports.
For product ahead of.
Earlier than than we would when we're bringing on sales folks and alike.
One thing I do want to call out on the SG&A is.
Some of our expense and and the company and it's more heavily weighted in the admin line is the <unk> associated.
Associated with performance.
Share units, so equity compensation tied to future results and a year ago or the.
Forecasts were for much less than they are today, so we had and over a $6 million delta and stock comp expense.
In Q1 relative to Q1 of last year now.
Because the year last year progressed very nicely that a lot of that expense came back but just looking at Q1 versus Q1 and I wanted to highlight that is a little bit of of Delta.
Okay, great. So.
Sounds like the SG&A spending levels are relatively consistent and just have a higher base of sales so okay.
And that's what I've got so all of I hope I can see it thanks guys.
Thank you Tim.
Thank you. Our next question is from Kurt Yinger of D. A Davidson. Please proceed.
Yeah, Good afternoon, Karen and Brian and thanks for taking my questions.
Hi, Kurt.
Maybe Brian just starting with you you know at the Investor event and about a month ago. I think you alluded to kind of of mid teens operating margin kind of before getting back into the high teens again by 2020 five realizing that some of the gross margin pressure is yet to come and given the.
<unk> to the margin outlook for 2020, one is that still the case or does this kind of higher jumping off point change how you're looking at the next couple of years of your expectations around that.
Yeah. Good question, Kurt and I don't think it changes that longer term outlook and it's more of the timing issue within.
2021, and 2022 of it as you see it.
As you've seen and in prior years.
Our cost of sales of legs.
And.
Steel pricing increases and then it goes the other way.
So I would say.
To reiterate what I had mentioned and the in the prepared remarks of 'twenty, one will benefit 'twenty two we'll have a bit of a pullback there due to the.
Gross margin.
And then I think.
If we ever get back to a more normalized steel.
The steel environment of it.
It gets back to that longer range average for gross margin and then we then buildup of ramp up to the.
High teens operating income.
Of all that we expect for.
And in five years or so due to.
The growth initiatives.
Leveraging the the additional revenue there.
Got it got it okay that makes sense Alright, and then you know the home Center channel has been obviously, a really positive contributor to growth. How do you think about that impact kind of lapping the Lowe's win in Q2 of last year and then is there any way you could kind of help us ballpark.
And what that home center channel subset is kind of as of as a percentage of revenue at this stage.
While we don't know.
We're not breaking out.
The the revenues on its own for for those and those customers.
As we noted it's up over 60% year over year, primarily due to the comparable.
That I had mentioned on a on the previous response lows not being and.
Our Q1, 2020 numbers.
And we would expect.
And that's it.
It's a very.
It's been a strong market 2020 was very strong for that category just in general.
And as people were.
Improving.
And their homes and residences and.
And the like.
And we do see.
Our sales are to that and to that channel.
Okay.
He has continued to increase although from a comparable perspective, a home depot did pull back on the product line that we've talked about that's pretty well documented.
And the mechanical anchors, what I'm, referring to there.
So.
And as far as R&R and.
DIY.
We expect it to.
And will continue although the growth rate.
On a on a comparable perspective.
Post.
Load in.
And we would not.
Specced at the seat just because so much of that.
So much for DIY business came in 2020.
Right right, Okay that makes sense and then just last one for me.
Karen you had alluded to being in different stages with them you know the growth initiatives within those different target markets. As we look at the next 12 to 18 months could you just talk about which areas you think could be kind of most impactful to your overall growth trajectory and and where your I guess.
Further down the line as compared to an end in the earlier stages.
Yeah. That's a that's a really good question and I think if we talk about those areas, where our fastener line can have the biggest impact shall we discuss the OEM, the DIY and the R&R market as well as the.
The mass timber and those are opportunities that use a significant amount of fasteners and so theres, some some nice and <unk>.
Growth opportunity there and we have the majority of products needed, obviously still more products always more products and develop but we do have the majority of products needed.
For those areas and.
And we also had you know could the themes behind those areas. So.
And I would see that.
That that market.
And the coffee has the least amount of extra work we have to do I would say again, we we already have distribution lined up.
For those market areas.
The steel market, probably a little bit more work there again, even though we have the product and we have the testing. We have code reports are we have a the.
And the product and the steel design manual are still some work to do there.
And getting that product a visible of a lot of marketing work and a lot of legwork for our sales team and on that particular.
Part of those those growth initiatives, so they're all in various stages and as I mentioned and.
In each case, we have we absolutely have products already do we have the complete line not in some cases, but in many cases.
For the testing literature in some cases more of literature needed and other so that's why I'm, saying there they are in various stages and on.
And that's on those five initiatives.
Okay, Alright, well, great appreciate the color and good luck and here in Q2.
Thanks for thanks for.
Thank you for our next question is from Julio Romero from Sidoti and company. Please proceed.
Hey, good afternoon, and Karen and Brian.
And I believe.
Yeah.
My first question is just on the home center of year over year of growth.
The the portion of that growth, it's it's not driven by Lowe's I understand the growth rate it won't be as robust as you lap the comparables, but the increased the R&R activity. What are you hearing from your customers in terms of the length of the runway that they expect that strength to persist.
Yeah, I think the R&R is going to continue to grow and I think it was even.
Well, it's not putting and the lowest business, we still saw that the Lowe's and home depot had a substantial growth in 2020 and I think probably some of that growth was.
The future growth was pulled forward, but we're hearing that they still think you know there's a lot of home improvement projects that are that are being worked through and so I think it will still be very strong market.
Okay.
And.
On your your weighted average cost of raw material, how long does that.
Does that weighted average cost.
Typically lag a price.
Price increase by how should we think about that.
Yes, good question Julio and that's why I wanted to note the the 2022.
And it could be that long.
Just due to the amount of steel we have on hand, and as we wait as we as we consume and.
And bring bring in.
With purchases.
Got it.
And it could go through the end of the year early into early next year.
And then at that point, assuming prices steel prices stay where they're at and.
And we would expect that that gross margin pullback just because.
And our selling prices fully reflect our increased.
And.
We're fully reflect those increases and the steel prices catch out through cost of sales.
Got it but I think.
Just to clarify does your expectation kind of expect steel the continue to rise.
All of the way through 'twenty two or.
Yeah, I'm, sorry, let me, let me clarify so at current price.
It will it will the.
<unk> average.
Amount of inventory will increase even if prices were to stay flat and the spot market. So.
If we were to continue buying at today's price the weighted average of our inventory will continue the increase because we've got a.
Pretty large amount that we had sourced.
Prior to.
And this this current market environment.
And anything we bring in at the current price will just continue to increase that that weighted average and our cost of sales was based on.
And that weighted average on how we're consuming it and so it's not like of LIFO.
And what we're buying today is getting consumed today. So there is a bit of of lag but.
And as of prices.
Day.
And Uh huh.
And we don't have any commentary on future steel prices at the at this moment, but based on what we see the day, we would see that a gross margin.
And pull back.
And the 2022.
Okay I appreciate the color on that.
And I guess, just you know you touched on this earlier, but on your on your key growth initiatives you talked about you have of product.
And for all of your five growth initiatives, maybe if you could talk about the the concrete Inc.
And can you maybe talk about some of the nascent opportunities within that space and.
And I know you're working to develop some of those markets. There. So I don't know if you could give us any progress update on.
And how to think about those market developments.
Yeah, and the concrete market area, which we've talked about this our carbon fiber product is really the one that's.
Looking to have some growth opportunities as we get a.
And you know repairing for.
We're just building our roadways that sort of thing.
And so as I mentioned, we've got product, we've got testing and we now have code reports and when that carbon fiber product and more work being done with specifier. So that they're aware that the product is available and it can meet the solution that they're looking for when the repair or retrofitting their their structure.
So that's certainly an area in the concrete and the concrete space.
Also expanding I think as we mentioned when we did our 2020 plan, we really focused on six key market areas for our concrete products.
Those were in the residential area.
The wastewater treatment plants.
I'm trying to remember all of them.
But also expanding into into those areas.
Yeah.
Okay, great. Thanks for taking the questions a nice quarter.
Great. Thanks.
Ladies and gentlemen, we have reached the end of the question and answer session and this will end today's conference. Thank you very much for your participation and have a great day.
Okay.