Q3 2021 Simpson Manufacturing Co Inc Earnings Call
Greetings welcome to the Simpson manufacturing Co Inc. Third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
A 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. Please note that this conference is being recorded.
I will now turn the conference over to Madeline Crane Investor Relations you may begin.
Good afternoon, ladies and gentlemen, and welcome to Simpson manufacturing Companys third quarter 2021 earnings Conference call.
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.
We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC's or the company's corporate website.
Except to 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 earnings press release is available on the Investor Relations page of the company's website IR Dot since then and that's G dot com.
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.
President and Chief Executive Officer.
Thanks Madeleine good.
Good afternoon, everyone and thank you all for joining us today.
I'd like to provide a high level overview of our third quarter financial results and the associated performance drivers.
And then wrap up by summarizing our key growth initiatives.
Bryan will then walk you through our financials and full year 2021 business outlook in greater detail.
Yeah.
Our third quarter net sales of $396 $7 million or once again, very strong and increased eight 9% over the prior year period.
Sales growth was primarily driven by product price increases to offset rising raw material costs.
While the macroeconomic landscape remained challenged throughout the third quarter due to ongoing global supply chain constraints.
Limited steel availability.
In a tight labor market, we continued to deliver on the key elements of our business model to ensure our customers' needs were met.
This includes but is not limited to ensuring availability of our trusted product solutions typically within 48 hours or less.
To date, we have implemented four price increases in 2021.
In early April.
Mid June.
Mid August and our fourth price increase in mid October.
These price increases ranged from mid single digits to mid teens, depending on the product mix.
For certain of our wood connector.
Passengers and concrete products in the United States.
Looking at our sales results in greater detail, although third quarter net sales benefited primarily from a full quarter of the first two price increases.
Our topline moderately declined by three 3% compared to the second quarter of 2021.
Predominantly due to decreases in sales volumes from our home Center channel, which I'll discuss in more detail shortly.
These price increases were primary contributor to another quarter of strong gross margins, which increased to 49, 9% from 47, 9% in the prior quarter.
And 47, 6% in the year ago period.
As a result, our income from operations improved to $100.6 million and led to strong earnings per diluted share of $1 70.
As we highlighted on our last call. We currently anticipate significant gross margin compression beginning in fiscal 2022 as we continue to acquire higher priced raw material, thereby raising our average cost of steel on hand.
Brian will discuss this impact in more detail during his remarks.
Turning back to our sales performance, we experienced declining sales volume during the third quarter throughout the various forms of distribution channels, we serve including our home center channel and other distribution channels to contractors and lumberyards.
As a reminder, the home center channel includes both our home center and co op customers and it's where we see much of our repair and remodel and DIY business.
We experienced a slowdown in this channel during the third quarter as we believe there may be a re leveling of the inventory for our customers.
Additionally, our sales reflected and as expected declined year over year related to the return of blows as a home center customer.
As you May recall, we experienced elevated volume in both Q2 and Q3 of 2020 as we loaded in our products at the Lewis locations, resulting in a difficult comp in both quarter, two and quarter three of this year.
We expect volumes levels in the home center channels began normalizing in the fourth quarter as demand increases and we pass the elevated volumes from last year's product rolling into Lowe's.
Similar to the home Center channel, we experienced modest volume decline in our other distribution channels to contractors on lumberyards during the quarter.
We are confident this decline in volume is not due to a loss of customer or market share and attribute this primarily to customers adopting a more cautious stance in regards to their inventory levels, given tightening labor and supply chain conditions and the potential impact on the building industry.
With that said U S housing starts continued to show promise improving by 19, 5% during the first nine months of 2021 versus comparable period last year.
And finally in Europe, our third quarter sales improved over the prior year on a local currency basis, primarily from strengthening demand compared to the prior year, where we experienced government mandated COVID-19 related closures and to a lesser extent from price increases.
Sales in Europe also improved from our ability to continue meeting our customers' needs due to our solid inventory management practices amid broader supply chain shortage.
I'll now turn to a high level discussion on our key growth initiatives, which.
Which we first unveiled in late March of this year.
We are focused on growing in the OEM repair remodel DIY and mass timber markets, where we are striving to be a leader in engineered load rated construction fastening solutions given that each of these markets have a broader product opportunity within the fastening solutions.
We're also focused on building our presence in concrete construction as well as structural steel, which is a new market for Simpson.
Well, we are looking to grow our presence in each of these key growth areas.
As important to realize that we already have existing product.
Testing result.
Distribution and manufacturing capacities in place for all five of these initiatives.
To bolster our growth we remain focused on organic opportunities through expansion into new markets within our core competencies of wood and concrete products.
As well as inorganic opportunities through licensing purchasing IP and traditional M&A.
While we are pleased that we are continuing to build out these product line and.
And inherit new customer wins to improve our market share. We recognize this will be a multi year endeavor to ensure we have the proper testing the validation of our product lines and to ensure we provide our customers with the highest quality solution set to build a safer stronger structures.
Currently each of our key growth initiatives remains in different phases of implementation.
However, we believe that these are the right areas to pursue to position Simpson for above market growth based on our ability to execute given the core tenets of our business model.
That includes our strong long standing relationship with top builders and.
Engineers contractors code officials and distributors as well as our significant engineering expertise and our ongoing commitment to testing research and innovation.
Finally, we are working to become a leader in building technology space, which hits upon all of our key growth initiatives.
As we continue to develop innovative new tools and solutions for our customers to help with design and options management.
We'll also be able to easily specify the right Simpson solution for the job.
Helping to drive enhanced growth across our business.
Our strong earnings and effective working capital management have enabled us to continue generating strong cash flow to fuel our growth and stockholder return priorities.
In regard to growth we are dual focus on both organic growth and M&A opportunities.
Facilitate growth organically, we're investing in areas such as engineering.
Marketing.
And sales personnel as well as testing capability across all areas of our business, including the afore mentioned five adjacencies, where we're looking to expand.
We may also invest in facility expansion to support our growth.
In regards to M&A, we are more broadly focused on product line expansion in order to develop a complete solution for the markets in which we operate.
This may also include opportunities in areas that support our key growth initiatives.
In summary, despite broader market challenges, we are very pleased with our continued strong results both financially and operationally for the third quarter.
I wanted to say, thank you to all our Simpson strong tie employees for their commitment to help.
Safety and outstanding customer service.
Successful manage through the broader supply chain constraints and keep our customers.
And running.
Thank you for your time and attention and now I'd like to turn the call over to Brian who will discuss our third quarter financial results and our 2021 outlook in greater detail.
Brian.
Thank you Karen and good afternoon, everyone I'm pleased to discuss our third quarter financial results with you today.
Before I begin I'd like to mention that unless otherwise stated all financial measures discussed in my prepared remarks today refer to the third quarter of 2021.
And all comparisons will be year over year comparisons versus the third quarter of 2020.
Now turning to our results.
As Karen highlighted our consolidated net sales increased eight 9% to $396 $7 million within the North America segment net sales increased six 8% to $338 $6 million, primarily due to product price increases that took effect through the third.
Quarter of 'twenty, 'twenty, one and an effort to address rising material costs and were partially offset by a decline in sales volumes, primarily in our home Center channel.
In Europe net sales increased 22, 5% to $54 $8 million, primarily due to higher sales volumes compared to last year's COVID-19 related slowdown.
Europe Europe's sales also benefited by approximately.
$900000 of positive foreign currency translations, resulting from Europe currencies strengthening against the United States dollar.
Wood construction products remained consistent at 85% of total sales and concrete construction products also remained consistent at 15% of total sales.
Consolidated gross profit increased by 14, 3% to $198 million.
Which resulted in another strong gross margin quarter at 49, 9%.
Gross margin increased by 230 basis points, primarily due to the aforementioned price increases which were partially offset by higher material costs.
On a segment basis, our gross margin in North America increased to 52, 1% compared to $48 nine.
9%, while in Europe, our gross margin declined slightly to 37, 7% compared to 37, 9%.
Yeah.
From a product perspective, our third quarter gross margin on wood products was 52% compared to 48% in the prior year quarter.
And was 44, 6% for concrete products compared to 42, 1% in the prior year quarter.
Now turning to our third quarter costs and operating expenses.
As a reminder, last year, we implemented various cost saving and other measures in light of the uncertainty surrounding the impact of the COVID-19 pandemic.
As a result total operating expenses were $97 $4 million, an increase of $15.4 million.
Or approximately 18.8%.
A percentage of net sales total operating expenses were 24, 6% compared to 22, 5%.
Research and development and engineering expenses increased 18, 5% to $14 $6 million.
Primarily due to increased salaries and expenses on patents.
Selling expenses increased 19, 3% to $35 $1 million due to increased salaries commissions and travel expenses.
On a segment basis selling expenses in North America were up 18, 9% and in Europe. They were up 22, 4%.
General and administrative expenses increased 18, 6% to $47 $8 million, primarily due to increased salaries very.
Compensation and travel expenses.
Our solid topline performance combined with our stronger Q3 gross margin helped drive a 10, 2% increase in consolidated income from operations to $100.
$6 million compared to $91.3 million.
In North America income from operations increased 11% to $97 million, primarily due to the increase in gross profit, partly offset by higher operating expenses.
In Europe income from operations increased 23, 8% to $7.5 million, primarily due to the increase in sales volumes and gross profit.
On a consolidated basis, our operating income margin of 25, 4% increased by approximately 30 basis points from 25, 1%.
Our effective tax rate decreased slightly to 26, 1% from 26, 2%.
Accordingly, net income totaled $73 $8 million or $1.70 per fully diluted share.
Compared to $67 $1 million or $1.54 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 September 30th cash and cash equivalents totaled $294 $2 million a.
A decrease of $17 $3 million compared to September 32020.
And as of September 32021, the full $300 million on our primary credit line was available for borrowing and we remained debt free.
Our inventory position of $385 $5 million at September 30th increased by $75 $3 million from our balance at June 30th.
Primarily due to the increases we saw in steel prices.
For the first nine months of the year.
We continue to be highly selective in regard to inventory purchases through careful management and purchasing practices while.
While at the same time, ensuring we maintain ample product availability in order to provide our customers continued high levels of customer service and on time delivery standards.
Our key cornerstones to our value proposition.
As a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $40.
$5 million for the third quarter of 2021.
Turning to capital allocation, we remain dedicated to supporting the growth of our business as well as providing strong capital returns to our stockholders through both dividends and share repurchases.
Our strong cash generation enabled us to invest $12 million for capital expenditures during the quarter as well as pay $10 $9 million in dividends.
And repurchased 222060 shares of our common stock at an average price of.
$108.64 per share for a total of $24 $1 million.
On October 19, 2021, our board of directors declared a quarterly cash dividend of 25 cents per share.
The dividend will be payable on January 27th 2022 to stockholders of record.
The January six 2022.
And as of September 30th 'twenty, 'twenty, one we had $75 $9 million of our share repurchase authorization available, which remains in effect through the end of 2021.
Given our confidence in our business and our expectation that our strategic initiatives will continue to drive improved operational performance.
And a higher return on invested capital.
We expect will remain both active and opportunistic as it relates to share repurchase activity.
Finally, I'd like to discuss our 2021 financial outlook.
Based on business trends and conditions as of today October 25th we are updating certain elements of our guidance for the full year ending December 31, 2021 as follows.
We are updating our operating margin outlook to be in the range of 20% to 22% from our previous estimate of 19, 5% to 21%.
Our current outlook reflects three quarters of actual results as well as our latest expectations regarding demand trends.
Raw material input costs and operating expenses.
We are reiterating the remaining elements of our outlook for fiscal 2021 as follows.
We continue to expect our effective tax rate to be in the range of 25% to 26%, including both federal and state income tax rates.
And our capital expenditures.
Work remains in the range of $55 million to $60 million.
Including approximately $15 million to $20 million that would be used for safety and maintenance capex.
At this time only a small amount of our capex spend is related to implementing our key growth initiatives.
Further I'd like to provide some additional color on our margin expectations for fiscal 2022.
Based on our current expectations. We are anticipating continued raw material cost pressure for the remainder of 2021 and into fiscal 2022.
For gross margins, thus far in 2020, one reflect an average cost of steel sourced prior to and during the increasing steel price market.
As we work through our our on hand inventory and continue to buy raw material with these much higher prices.
Our anticipated cost of goods sold are expected to increase significantly in late 'twenty, 'twenty, one and into 2020 two.
Even if prices for raw material begin to decline, which will adversely affect our margins as the impact from averaging raw material costs typically lags our price increases.
As a result and based on our updated fiscal 2021 operating margin outlook. We currently expect our operating margin for the full year of 2022 will decline by approximately 400 to 500 basis points year over year.
However, despite near term macroeconomic pressures we continue to believe we can maintain an industry leading operating margin in the high teens range annually in the long term the key goal of our five year company ambitions.
In summary, we were pleased with our strong third quarter financial results and remain focused on executing against our strategic operational and financial initiatives.
We believe our industry, leading position geographic reach and diverse product offerings.
With our strong balance sheet and liquidity position.
Gives us confidence in our ability to maintain operational excellence to support current and future demand trends.
We look forward to updating you on our progress in the coming quarters.
With that I'd like to turn the call back to Karen for some closing remarks.
Thanks, Brian.
Again, we are very pleased with our third quarter financial and operational results that we've achieved despite ongoing macroeconomic challenges.
While we cannot control elements of the economy, we are dedicated to managing the key areas of our business that we can control and we remain confident in our ability to execute on our five year company ambitions.
These include strengthening our values based culture.
The partner of choice in all aspects of our business.
In an innovative leader in our product categories.
To continue our above market growth relative to U S housing starts.
And maintaining an operating income margin and return on invested capital target within the top quartile of our proxy peers.
I want to thank you again and thank all our employees customers suppliers and stockholders for your continued support of Simpson strong tie.
With that I'd like to open up the call for questions.
Operator.
Thank you.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from the line of Tim Weiss with Baird. Please proceed with your question.
Hey, everybody good afternoon.
Tim.
Maybe just to start if if you know in North America. If you could maybe true up a couple of numbers for me.
I guess the first pieces is what was the contribution from pricing in the quarter.
That was give me just a second here.
Yeah.
About $75 million Tim.
Okay.
And is that it.
If you kind of look at the four price increases that you've implemented what would you what would you think run rate kind of pricing should be on a quarterly basis. Once everything is fully effective.
Yeah. Good question, because the the third price increase that took.
The effect was halfway through the quarter and of course, we've got the fourth one that's just.
Just very recently took effect.
I would say.
About $100 million.
Now.
Of course.
Comparing it to.
Prior to any price increase so as we start lapping quarters here, we're going to start lapping quarters with price increases in them, but.
Mm 100 million.
All in versus no price increase does that makes sense. Okay. No that makes sense. That's helpful. Thank you and then Glenn.
Go ahead.
That's it.
And then on the and then I guess on the home Center business is there a way.
To kind of indicate how much that business was down in dollars.
So we had a pretty there was a from a comparability perspective.
It was it was a pretty good amount part of it was due to the load in last year as noted, but also part of it was due to we believe they were the home center customers were doing some inventory leveling during.
Early.
Like July August of the quarter.
Because they had.
That had a pretty good inventory position.
Leading up through the end of Q2.
Don't have a dollar amount that we're going to share with you but.
A big portion of that was.
The volume decline in the quarter was related to the home Center channel.
Again tough comparable because last year heavy DIY projects. In addition to the load in.
But also the.
Inventory.
We believe what's taking place for the end of the quarter, we feel that more normal buying patterns are.
Our in existence, probably throughs.
In September.
On a go forward basis, we would expect more of the normal.
Patterns of purchases.
Through the home centers.
Okay, and then what about kind of I guess, if you look at like October did.
Did you if you're if you kind of look at your volume numbers you can look at it total or by home center and by kind of legacy distribution, but.
October see improvement because it sounds like the core distribution channel was down a little bit in the third quarter.
Has that started to kind of grow again as you as you've gotten into the fourth quarter.
Yeah Jim.
We're seeing.
Some nice growth in early obviously, we're early in the fourth quarter, but as Brian mentioned.
We saw the home center business kind of pick up a little bit to become more normal buying in September and continuing through October.
And as we also mentioned or other means of distribution really contractor distributors lumberyards. They were also pretty slow in the first couple of months.
Q3, we're seeing that pick up again.
No.
Gotcha, Okay. Okay, and then just the last question I had on lead times.
Where are your lead times today, you know in terms of you know when customers order and how quickly youre able to.
Fulfill those orders and how has it changed over the last six to nine months has there been a lot of ups and downs or you've been pretty consistent on lead times.
Yeah as you know we think.
Our availability of product and lead time is it.
Very large differentiator for us.
So we're still north of 97% on lead times on on the majority of our product that a customer would order. It doesn't mean that if there was especially something that it might take a little bit longer, but we're still running a little north of 97% in that 24 to 48 hour at lead time.
And that's that's the differentiator.
Yeah. So basically you would would you agree with the statement that your customers don't necessarily feel the need to over order or stock in the sense that they know your lead times are pretty good and so they're not a.
A lot of their orders are actually reflective of end market demand for any sort of inventory build.
Yeah, I mean, we've we've done a really good job.
Probably ever since the 2008 downturn I would say [laughter] being able to I would save our customers feel comfortable that they don't need a lot of product in their inventory because we can fill their orders in an expedited manner. So we haven't really seen that change like we're not seeing a lot of customers.
And extra inventory and again I think that's just a credit to what we've been able to do with our lean manufacturing and being able to meet those customer needs and fill those orders in that are you know 40.
48 hour time frame it at that 90, 798% right.
Okay, Okay, good well pass it on thanks, So I. Thank you for the time.
Okay. Thanks, Tim.
Yeah.
Thank you. Our next question comes from Daniel Moore with CJS Securities. You May proceed with your question.
Good afternoon, Karen and Brian Thanks for taking the questions Yeah, Hi, Dan.
I'm just wondering obviously, we're in our fourth round of price increases are you seeing it doesn't sound like it given the pick up in the band and in October or September October, but are you seeing any any signs at all of your customers' customers.
Demand being impacted after you know multiple rounds of pretty significant price increases over the last.
Six to 12 months.
Yeah, I think you know again, it's those price increases we're seeing in all construction materials and of course, we focus.
On anything associated with steel so.
As they see price increases with anything really associated I always refer to garage doors and appliances, you know obviously our products.
And what's really been.
The huge driver for us has been the availability of product and we mentioned we think we've we've heard from our customers that we've been one of their best suppliers and this really tight market from a supply chain standpoint.
We've heard from some of our competitors customers that they're having.
I could get some product from us So I think we do.
Just a little bit of market share, especially in our European market by being able to meet those needs and have that inventory, but it's really been a supply issue.
Rather than focus so much on pricing not not to say from.
From our sales spend standpoint that it's easy to get a price increase through its always a difficult thing, but it's so highly publicized in the market space that our customers understand why we're having to have these price increases.
Helpful and I think you've mentioned this in the prepared remarks, but to your increased inventory levels how.
How much does that reflect just pricing versus quantity and at this stage do you feel pretty comfortable about your ability to procure. So you don't need to strategically continue to build inventories in terms of actual volumes any commentary there.
And then significant the majority of the increase was price related on the inventory.
And.
Yeah.
I'd say from the steel again.
Our our purchasing group has done an excellent job of making sure that we've got still to be able to meet our customer needs, but as you pointed out it's about snacked right now.
Ensuring that we have steel that we can continue those fill rates, but then not having too much steel if we have any pricing decrease that we see right now we still see the steel industry is.
I would say, it's maybe it slowed a little bit it hasn't come down but price increasing has slowed a little bit. So we'll just see how that continues.
I think most.
Most people most industries, we think that there is some new volume for steel mills coming online. It was supposed to come online in fourth quarter now it's anticipated late first quarter I think that will help.
And we'll see how things go from there, but we are very cautiously trying to balance customer needs to ensure we have that product for them as well as.
Steel inventories.
Perfect, maybe just one more kind of high level just as you look around the country are you seeing any changes in building codes and standards and any particular areas that.
Could potentially impact you know your revenue or competitive positioning over the coming years.
We actually and I think this is kind of early on but this.
Uh huh.
Build to rent concept.
We have had some of those.
Owners of those buildings contact us about building to our resiliency standards versus a life safety standard.
Resiliency, meaning that they're going to hold on to that building for quite a long time as they continue to rent it and so they they want the building to be.
Well to be occupied after any sort of natural disasters. So.
It's just starting but that's quite interesting for us because it means typically you would put more of our content into a house built from a resiliency standpoint versus the house built from a life safety standpoint, and just on the tip of the iceberg I've seen what happens with this.
Alright look forward to seeing it appreciate the color once again.
Thanks, Dan.
Okay.
Thank you. Our next question comes from the line of Kurt Yinger with D. A Davidson you May proceed with your question.
Great, Thanks, and good afternoon, Karen and Brian.
Look Kurt Hi, just starting off when we think about the increase in the operating margin outlook kind of back to the prior range. After the strong Q3, just curious you know what would the biggest upside surprises in terms of the performance in the quarter relative to your expectations because it sounds it.
We used like volume.
It was pretty challenging and you hadn't.
Kinda yet benefited from the fourth price increase so just curious you know what.
What was better than expected there.
Yes part of it is the the price increase relative to the use of the associated inventory.
The timing of that and then.
The.
I think we may have saw a little bit more strength and.
European margin.
And then also the trajectory of expenses through the balance of the year.
What projects would would.
Start in <unk>.
Continue through the balance of the year so.
The six month, Mark we were making some estimates.
Obviously with an additional three months under our belt.
And just.
Three months left in the year give us a little bit more of that insight into.
Bring that operating margin back up.
At the high end there.
Low end and high end.
Got it Okay and then you know historically Simpson has had you know.
Our premium price position relative to peers and it would seem that the value proposition is as they're currently perhaps even more so than it's been in the past is where your pricing today.
Is that consistent with where you've been historically, how does kind of competitive positioning factor into your decision making process around price at a time when you know inputs are rising so meaningfully.
And I think Curt E.
You mentioned, a key point to us.
From the standpoint of the services that we provide for our product as.
As we talked about this on time delivery, we talked about a large SKU mix.
Our customer service both inside.
And our outside sales team as well as our engineering that.
We really pride ourselves again, as we talked about we don't want to sell on price we want to sell on all the services and that's really where you see that pricing premium.
I would say today, we still probably have that pricing differential in place.
And as I mentioned, what's key to our customers is the availability of the product, we we never want to be.
The vendor that shuts the job site down because we didn't have product available for those customers and I think it's been really well appreciated as we're in times of tight supply chain.
Right right makes sense, Okay, and then just last one for me I didn't hear it in the prepared remarks, but I'm just curious whether.
Sourcing from overseas has been a challenge for you guys at least in the last few years I think North America.
<unk> production capabilities have been something that's been of interest given everything that's going on is that still a priority and is that something where you would look to M&A or something you could maybe build out organically.
Yeah, It's a it's a great question as we've mentioned our.
Our fastener business is one of our fastest growing has been for probably the last three to four years, we domestically manufactured a simpson facility about 35% of our fasteners and we buy the other 65% offshore basically in Taiwan.
A typical lead time.
For this year would have been maybe.
Three to six months to get a profit.
We are now running about 10% 2014 months lead time on those products out of Taiwan and that certainly makes it very difficult. When we think about forecasting and also having that inventory on hand, so as we've talked about in the past.
We're very interested in trying to grow through either acquisition or organically more control of our capabilities have been manufacturing that product on a little less dependent on buying out of that product. So certainly it's on our radar and something that we're constantly looking for.
And do you have I guess extra space at the existing facility or would that be something where.
You know if you were to do it organically it would need to be.
A greenfield location.
Well a lot of that.
Curt has the additional manufacturing for the <unk>.
Local manufacturing that Karen had mentioned we have.
Well stood that up over the last number of years.
Within an existing factory.
Here locally in the U S.
As we move things around and utilized space, we've been able to bring that.
Production in house.
Uh huh.
A lot of things that we also do from a lean perspective.
Try to.
Take advantage of that to the best that we can but.
We're getting to the point to the point, where it may hit an inflection and we may need to add some.
Some facility footprint.
Into that into those locations that we're doing that and so.
You've always heard us talk about we like local production to be able to respond quicker to customer needs and this has been the buildup of that but.
We will.
If we continue to significantly grow the amount of local production.
We would we would need to make some investments in facility.
Got it okay, well I appreciate all the color and good luck here in Q4 guys. Thanks.
Thanks Richard.
Thank you. Our next question comes from the line of Julio Romero with Sidoti <unk> Company. You May proceed with your question.
Hey, good afternoon, Karen and Brian.
I really don't how are you Hello video.
I'm. Good. Thanks, So I wanted to dig a little more into the channels in North America other than the home centers. Thank you mentioned, the volume headwinds and contractors and lumberyards. There may have been some different drivers.
Now that drove the decline on those channels than what happened in the home centers.
I believe you mentioned more of a cautious stance because of their own labor and supply constraints. So I was hoping you could speak a little more to that and if you've seen and have those labor and supply issues alleviated in those channels at all.
Yeah, It's a great great question and we certainly.
Saw and heard from some of our customers kind of a <unk>.
Slow down on that new construction standpoint.
Just because you know one pricing of lumber, which has now gone down but pricing November was very high unable to complete structures because of.
Supply chain issues again, whether that be doors or windows appliances, faucet sinks, it didn't really matter, but unable to complete the structure and so we definitely saw that.
A slowdown in that space.
We have now seen as we kind of came out of third quarter in September and as we're looking at fourth quarter with where we are so far in early October.
An uptick in those markets just as we've seen an uptick in that home center by also.
Great and would you say that the uptake is.
As you know to the same extent that you've seen in home centers.
Either you know I guess on a percentage basis or.
However, you want to take that.
Yeah, I mean, I think as as we know the cyclicality of our market is is pretty well defined and also when you think from the home Center standpoint, So I would say, where we're seeing the aim.
What I would call a normalized if there is such a thing a normalized uptick.
In both what we see from our contractor distributor lumber yards as well as the home centers. So nothing no unusual anomalies at least in the last Ah <unk>.
60 days or so and that's a cute.
Relative to the prior year same period right relative to Q4.
Yes, absolutely.
Hey, great. Thanks for taking the questions and best of luck in the fourth quarter.
Great. Thanks Julia.
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This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Yeah.