Q4 2021 Simpson Manufacturing Co Inc Earnings Call
Reading welcome to the Simpson manufacturing company fourth 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.
Note. This conference is being recorded.
Now I'll turn the conference over to your host Kim Orlando with Auto Investor Relations. Thank you you may begin.
Good afternoon, ladies and gentlemen, and welcome to Simpson manufacturing Companys fourth quarter and full year 2021 earnings conference call.
Any statements made on this call that are not statements of historical fact 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 Companys 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 may 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 at IR Dot Simpson F. 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, Simpson's Chief Executive Officer.
Thanks, Kim and good afternoon, everyone and thank you for joining us today.
I'll begin with a summary of our full year 2021 results before turning to a discussion of our fourth quarter performance drivers key growth initiatives and capital allocation priorities.
Bryan will then walk you through our financials in fiscal 2022 business outlook in greater detail.
I'm extremely pleased with our financial and operational performance in 2020 one in.
In a year burdened by a challenging macro economic landscape due to ongoing supply chain constraints increase.
Increasing steel costs and availability as well as a tight labor market. We continued to deliver on the key elements of our business model to ensure we met the needs of our customers by providing them with our trusted product and solutions.
We experienced solid business momentum with sales growth supported by the implementation of four price increases throughout the year to help offset our rising material costs.
As a result, we generated strong full year net sales of $1.57 billion and earnings of $6.12 per diluted share.
In addition in March of 2021 we unveiled new five year company ambitions for Simpson.
Along with strategic growth initiatives, which we believe will promote continued growth in our business and create incremental value for all key Simpson stakeholders.
Our performance would not have been possible without our valued employees I'd like to thank all of them for their hard work and dedication as they strive to achieve our five year ambitions as well as their commitment to operating in a safe environment.
Turning to the fourth quarter net sales of $418 $6 million were once again very strong and increased 42, 4% over the prior year period.
Sales growth was primarily driven by the implementation of four price increases in April June .
August and October of 2021.
These price increases ranged from mid single digits to mid teens, depending on the product mix of our wood connectors fasteners and concrete products in the U S market.
Our sales were further supported by mild winter weather conditions and higher sales volumes throughout our various distribution channels.
Specifically sales volumes in our home Center channel began to normalize in the fourth quarter as we lapped the difficult year over year comparison with the return of Lowe's as a home center customer in 2020, which drove high volumes associated with our product loaded.
As a reminder, the home center channels include both our home Center and co op customers and is where we see much of our repair and remodel and DIY business.
We also experienced solid volume growth in our other distribution channels to contractors and lumberyards.
Our consolidated net sales in Europe for the fourth quarter decreased slightly year over year, primarily due to foreign currency translation.
We experienced another quarter of strong gross margins supported by our product price increases.
Our consolidated gross margin increased 530 basis points to 47, 4% compared to 42, 1% in a year ago period.
As a result, we grew our income from operations to $97 $1 million, resulting in a strong fourth quarter earnings per diluted share of $1 61.
After building a strong foundation for our company through the execution of our 'twenty 'twenty plan, which was comprised of aggressive three year financial targets to help maximize operating inefficiencies.
We unveiled new five year company ambitions for Simpson last March which are as follows.
Strengthen our values based culture.
Be the partner of choice.
Be an innovative leader in the markets we operate in.
Continue our above market growth relative to U S housing starts.
Expand our operating income margin to remain within the top quartile of our proxy peers.
And expand our return on invested capital to remain within the top quartile of our proxy peers.
We also announced five key markets, which we believe will help us achieve ambition number four continuing our track record of above market growth relative U S housing starts.
Through a combination of organic and inorganic opportunities.
We are focused on drawing it in the OEM.
R&R in DIY as well as mass timber markets, where we are striving to be a leader in engineered little granted construction fastening solutions.
Given that each of these markets have a broader product opportunity within fastening solutions.
We're also focused on building out our presence in our concrete construction as well as structural steel.
That's a new market for Simpson.
And finally, we're working to become a leader in building technology space, which hits upon all of our key growth initiatives.
Today, each of our key growth initiatives remains in different phases of implementation.
Well, we have existing products testing results.
Distribution and manufacturing capabilities in place for all of these initiatives, we have been taking advantage of organic opportunities through expansion into new markets within our core competencies of wood and concrete products as.
As well as inorganic opportunities to licensing purchasing IP and traditional M&A.
It'll be a multiyear endeavor to ensure we have all the proper testing validation and product lines in place.
We are pleased with our progress in 2021.
Notably our efforts to expand our sales and marketing functions to promote our products to different end users and distribution channels.
Recent developments in our growth initiatives include the acquisition of a product line, Jay edge, which will promote expansion in our structural steel business.
For mass timber we are securing additional business opportunities for example.
Shipping warehouse that will utilize our fastener products and.
And in concrete we formed a strategic alliance with structural technologies design and installation company that will utilize Simpsons products.
We will continue to provide updates on our progress in future quarters.
Today I'm very pleased to note we remain on track to achieve our company ambitions and strategic growth initiatives by 2025.
In late December we announced another growth driver for Simpson the acquisition of the Taco group, a leading designer manufacturer and distributor of fixing and fastening solutions for the building construction market throughout Europe .
For approximately 818 million U S dollars.
The tacos business model and core product offering aligned perfectly with Simpson and will support continued growth in our European business, including expansion into geographies.
Channels and commercial building offerings.
Last week, we announced the Securities purchase agreement was signed.
We expect this acquisition to close on April 1st 2022, and our integration activities are already underway.
For additional details regarding the Taco acquisition I encourage you to read the press release and supplemental presentation that we issued on December 29, 2021, as well as listen to the conference call. We held on Tuesday January 4th 2022.
All of which are available on the Investor Relations page of our company website.
Turning now to capital allocation, our strong earnings and effective working capital management has enabled us to continue generating strong cash flows to fuel our growth.
And stockholder return priorities in 2020 , one we returned 61% of free cash flow to stockholders through the payment of $41 $6 million in dividends.
And the repurchase of $24 $1 million of common stock.
Well exceeding our capital return target of 50% of free cash flow.
We plan to reevaluate our 50% target once the Taco acquisition is closed.
Our capital allocation priorities in 2022 will focus on organic growth.
Returning value to stockholders in the form of quarterly dividends.
Debt repayment.
To maintain our conservative leverage profile and selectively repurchasing our shares.
In regard to growth, we remain dual focused on both organic growth and M&A opportunities.
To facilitate growth organically, we are investing in areas such as engineering.
Marketing and sales personnel and testing capabilities across all areas of our business.
As originally noted on our analyst and Investor Day last year, we also plan to invest in facility expansions to support our growth.
In regard to M&A, where most broadly focused on product line expansion in order to develop a complete solution for the markets in which we operate this.
This may also include opportunities in areas that support our key growth initiatives. So we will stay hyper focused on integrating at Taco.
Before I conclude I'd like to take a moment to congratulate Michael Lawsky, Our chief operating officer on his recent promotion to president and CEO of the company.
I will continue to serve as CEO of Simpson, Mike has been a true asset to Simpson since joining the company in late 2020, and helping to shape our growth strategies.
His responsibilities remain the same as he continues to lead our market segment initiatives to expand our product portfolio and brand presence globally.
In summary.
We are very pleased with our strong 2021 results both financially and operationally.
Aside from headwinds that May result from tightening labor and supply chain conditions, we believe underlying demand should remain strong in the first half of 2022 .
Supported by strong U S housing starts which increased 15% year over year in 2021.
I'd like to recognize all the Simpson strong tie employees for their commitment to health safety and outstanding customer service to ensure we provide our customers with the highest quality solution set to build a safer stronger structures.
I'd also like to thank our customers suppliers and stockholders for your continued support of Simpson.
Now I'd like to turn the call over to Brian who will discuss our fourth quarter financial results and 2022 outlook in greater detail.
Thank you Karen and good afternoon, everyone I'm pleased to discuss our fourth 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 fourth quarter of 2021 and all comparisons will be year over year comparisons versus the fourth quarter of 2020.
Now turning to our fourth quarter results.
As Karen highlighted our consolidated net sales increased 42, 4% to 418.
$6 million.
Within the North America segment, net sales increased 49, 8% to $373 $2 million primarily due to.
For price increases that took effect in 2021 to offset rising material costs, along with higher sales volumes.
Canada's net sales also increased primarily due to higher sales volumes and were positively impacted by foreign currency translation.
In Europe , net sales decreased 1% to $41 $4 million.
Primarily due to lower sales volumes and were negatively affected by approximately $1 million and foreign currency translation related to Europe's currencies weakening against the United States dollar.
Wood construction products represented 87% of total sales compared to 85% in.
In concrete construction products represented 13% of total sales compared to 15%.
Consolidated gross profit increased by 63% to $198 $3 million, which resulted in another strong gross margin quarter at 47, 4%.
Gross margin increased by 530 basis points, primarily due to the aforementioned price increases which were partially offset by higher material costs.
When compared to the third quarter of 2021 or can so our consolidated gross margin declined by approximately 250 basis points as our average inventory costs are beginning to more accurately reflect the cost of higher priced raw material as well as increased labor and overhead costs.
On a segment basis, our gross margin in North America increased to 49, 3% compared to 43, 2%.
However in Europe , our gross margin declined to 31, 2% compared to 35, 3% largely due to higher material labor and factory and tooling costs.
From a product perspective, our fourth quarter gross margin on wood products was 47, 5% compared to 41, 8% in the prior year quarter.
It was 42, 7% for concrete products compared to 39, 6% in the prior year quarter.
Now turning to our fourth 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.
Total operating expenses were $101 $4 million, an increase of $17 $1 million or approximately 23%.
As a percentage of net sales total operating expenses were 24, 2%.
An improvement of approximately 450 basis points.
Compared to 28, 7%, primarily due to the increased spend relative to the price increased revenues.
For the full year of 2021 total operating expenses as a percent of net sales improved by approximately 100 basis points over 'twenty 'twenty to 'twenty four 6%.
Our fourth quarter research and development and engineering expenses increased 24% to $16 $1 million.
Primarily due to cash profit sharing incentives and personnel expense on higher head counts.
Selling expenses increased 29, 5% to 36 million.
Dollars due to commissions personnel expenses on higher head counts and travel and entertainment expenses.
On a segment basis selling expenses in North America were up 18% and in Europe . They were up nine 7%.
General and administrative expenses increased 13, 2% to $49 $4 million, primarily due to consulting and other professional fees.
Support costs and bad debt reserve cost.
Our interest expense and other expenses for the quarter of $4 million included approximately $2 $3 million of professional fees associated with our pending acquisition of.
Taco.
Our solid topline performance combined with our stronger Q4 gross margin helped drive a 146% increase in consolidated income from operations to $97 $1 million compared to $39 $5 million.
And in North America, the increase was 174% to $97 $7 million.
Primarily due to the increase in gross profit, partly offset by higher operating expenses, including cash profit sharing sales commissions and stock based compensation expense, resulting from favorable operating performance in the fourth quarter.
Europe reported a loss from operations of $1 $5 million compared to income from operations of $1 $3 million, primarily due to the lower gross profit.
On a consolidated basis, our operating income margin of 23, 2% increased by approximately 980 basis points from 13, 4%.
Our effective tax rate decreased to 25% from 25, 6% due to the release of foreign valuation allowances in 2020 one.
Accordingly, net income totaled $69 $8 million.
Or $1 61 per fully diluted share compared to $29 $6 million or <unk> 68 cents per fully diluted share.
Now turning to our balance sheet and cash flow.
Our balance sheet remained healthy at.
At December 31, cash and cash equivalents totaled $301 $2 million, an increase of $26 $5 million compared to December 31 2020.
As a reminder, we intend to fund the acquisition of the Taco was a combination of $100 million of existing cash.
And knew that by increasing our existing revolving credit facility from $300 million to $450 million. In addition to a commitment for a $450 million unsecured term loan.
As of December 31, 2021, all $300 million on our primary credit line was available for borrowing.
Our inventory position of $443 $7 million at December 31 increased $58 $2 million from our balance at September 30th.
The vast majority of which was related to higher pricing.
We continue to be selective in regard to inventory purchases through careful management.
Purchasing practices.
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.
Which are key cornerstones of our value proposition.
As a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $29 $2 million for the fourth 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.
We invested $12 $5 million for capital expenditures during the quarter as well as paid $10 $8 million in dividends.
We did not repurchase shares of our common stock during the quarter.
Yeah.
Okay.
On January 20.
2022, our board of directors declared a quarterly cash dividend of <unk> 25 cents per share the dividend will be payable on April 28, 2022 to stockholders of record as of April seven 2022.
The board authorized a new $100 million share repurchase authorization through the end of 2020 to replacing the prior authorization, which expired at the end of 2021 .
We may make opportunistic share repurchases in 2022.
Finally, I'd like to discuss our 2022 financial outlook. Please note that this guidance currently excludes.
The acquisition of the Taco was it which is expected to be completed.
On April one 2022.
Based on business trends and conditions as of today February 7th.
We are initiating guidance for the full year ending December 31, 2022 as follows.
Operating margin is estimated to be in the range of 17, 5% to 19%.
The effective tax rate is estimated to be in the range of 25, and a half to 26, 5%, including both federal and state income tax rates and assuming no tax law changes are enacted.
And capital expenditures are estimated to be in the range of 65 million to $70 million.
In regard to our 2022 operating margin outlook, we are anticipating continued and escalating raw material cost pressure on our cost of goods sold throughout the year.
As we work through our on hand inventory and continue to buy raw material prices higher than our historical averages are anticipated cost of goods sold are expected to increase significantly.
Especially in the second half of the year, even as prices for raw materials to begin to decline, which will adversely affect our margins.
This is because of the impact from averaging raw material costs, typically lags, our price increases, which we enacted throughout 2021.
We began to see the sequential margin deceleration occurred during the fourth quarter with gross margin declining by roughly 250 basis points Q3 to Q4.
As such we continue to expect our operating margin for the full year of 2022 will decline by approximately 500 basis points from 2021.
Despite this short term macroeconomic headwind we continue to believe we can maintain an industry leading operating margin in the high teens range annually long term, which is a key objective of our five year company ambitions.
Further we expect to incur costs associated with the Taco acquisition and we'll report those throughout 2022.
Some of those costs will be reported in the interest expense and other expenses line, along with interest and financing costs associated with our borrowings to fund the acquisition.
In regard to our 2022 capital expenditures outlook, we estimate roughly 20% will be dedicated to maintenance capital expenditures.
Our growth investments will be primarily focused on purchases of new equipment to support increased productivity and efficiencies.
Enhancements to our existing facilities to expand our manufacturing footprint in line with increasing customer needs.
As well as investments for Adjacencies and key growth initiatives.
We look forward to providing additional details as the.
The year progresses.
In summary, we were very pleased with our financial and operational performance in 2021, despite the turbulent macroeconomic landscape.
As meeting and exceeding our customers' needs remains paramount to our success, we look forward to expanding the breadth of our product and service offerings through our key growth initiatives and the pending acquisition of a taco in Europe , which were made possible by our strong balance sheet.
We believe our tremendous efforts in executing the 2020 plan and unveiling the five year ambitions for 2025 help lay the proper foundation for continued growth and success in our business.
And position us well to maintain and enhance our industry leading position in the building product space.
With that I'd like to turn the call over to the operator to begin the Q&A session.
Thank you at this time well be conducting a question and answer session.
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 or.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please poll for questions.
Our first question is from Daniel Moore of CJS Securities. Please proceed with your question.
Thank you good afternoon, Karen and Brian and Mike if you're on and congratulations as well maybe start with obviously you saw as you know significant tremendous growth really with with pricing, but it sounds like volume picked up as well any more specificity in terms of price versus volume specifically in north.
America in Q4.
Sure Dan Thanks, and.
The growth was about.
About.
For the total of about 87% of that was price so little less than $110 million in the quarter.
And volume.
So there was a little bit of FX impact, but so volume about five 5%.
Attributed.
Volume attributed in about five minutes.
That's total company on North America.
Total company and perfect bulk of that of course is North America, yeah, absolutely and and for each of those price increases I think Karen you you've referenced mid single digits to mid teens, that's for each of the the the price increases not a cumulative number for the year correct.
Yeah that is correct and it and the size of that price increase really is a function of.
Which of our products right.
I'll be more steel obviously, we're more impacted by the raw material price increases so it vary depending on the type of product line.
Yep understood.
And it sounds like the outlook for 2022, you've talked about the margin pressure a lot, but on volume still sounds very healthy referenced the strong housing starts in 'twenty one.
Obviously, the last two years have been noisy with the sell in to Lowe's last year and then the tough comp. This year any factors you know entering 'twenty two that we should be thinking about beyond sort of overall market growth in and hopefully a little bit better than that that might impact your growth either H, one or full year and 'twenty two.
Well, we certainly think the first half of the year looks very promising certainly what we're hearing from our customers.
As you know high.
High demand.
We still run into some headwinds when it comes to supply chain.
And obviously labor and I think there's some anticipation that will run into a little bit of affordability headwinds as we see interest rates start to spike up.
But from the customer standpoint, I'm, feeling pretty comfortable about the first half of the year certainly a little cloudy as we get to the second half.
If I can add so some of the trends that we're seeing so January .
Numbers are looking good there obviously still early in the quarter, but.
This January versus last year January we've got the full impact of the price increase.
But we're seeing.
Some.
Some volume increase there as well relative again January to January .
Perfect and then lastly for me you gave obviously great you know a lot of good color about the cadence of margins in and specifically Cogs and how that might impact. Your I guess do you see it as more of a step function down H, one to H, two or just a kind of a gradual compression.
Over the course of the year, Thanks again for the color.
It's probably a bit more of the former there the.
The step down of course it'll.
It'll.
It'll trend there, but as we.
Use up more of the steel and bring in.
Steel at today's prices, which we.
We feel are about 225 times, where they were.
At the end of 2020.
We'll experience that back half of the year margin compression margin pressure.
Very good I'll jump back with any follow ups. Thanks.
Yes.
Our next question is from Josh Chan of Robert W. Baird. Please proceed with your question.
Hi, good afternoon, Karen like Brian Congrats on a strong quarter in the year.
Thank you.
I guess my question is on the gross margin comment following up on the last question could you kind of talk through how can they take a long for that cost to work all the way through the P&L is that just because that's how long it takes to average its way through your your inventory and.
And if so could you kind of give us a sense of maybe.
Where gross margin trough just on a ballpark basis in the second half of next year or this year.
Hey, Josh so to answer the first part of the question because we carry a fair.
Fairly large amount of inventory.
In order to meet our customer needs and then.
Provide that exceptional customer service.
It does take a long time for current <unk>.
<unk>.
To average up the cost.
Cost of of steel in our inventory.
Although we don't break out the steel is up.
Percent of.
Our revenues are of our Cogs and I can tell you that Q4.
Q3, it was a higher percentage.
And much higher a bit higher than Q4 of last year. So oh as a percent of revenue. So we are seeing that impact.
Starting to flow through but as I mentioned on the prior.
But to Dan's question, a moment ago, we would expect that to be more to really impact in second half of 2022.
Alright, that's fair thanks, Dave Thanks for the color there and then they ask about from an operational perspective, how how big of an impact on longhorn.
He is or was in your factory and then also in the operations of your customers like that you can talk about that impact plus a little bit.
Sure.
I think you know.
All of our factories it as we've mentioned on a really nice job.
In safety precautions in place.
But on the Crown just as how it's impacted everybody else's, obviously impacted Simpson.
We.
Currently have all of our factories running.
And most shifts filled but there's a sort of a a revolving door. If you will on this omicron.
Sure.
Covid pandemic. So we have not had problems meeting our customer needs.
And but it has certainly been difficult as we had some employees who are sick with this.
For example, it.
It's as Karen noted certain areas in the operation, we don't necessarily believe it's.
Being passed within our operations, but.
We did see a bit of a impact into our shipping departments, that's creating a bit of that.
Headwind, if you will but for the most part we're back to normal.
Right now the thing.
Thanks for the color and thanks for your time.
Thanks, Jeff.
Our next question is from Kurt Yinger D. A Davidson. Please proceed with your question.
Great. Thanks, and good afternoon, everyone.
I think you started off good morning.
On the supply chain I mean, how are you guys feeling about overall steel availability and lead times on some of your outsourced products and any impact that might have on your own volume trends and then I guess within the Capex budget any notable projects there to call out in terms of.
Building out capacity in the system.
Well, let me let me take the first half of the question then I'll turn capex over to Brian .
From a supply chain you know there are still.
Some constraints.
I think it's easing slightly but we are certainly still seeing constraints, but as as we've talked about from the standpoint of what we do at Simpson as we want to ensure that we don't run out of our steel raw material and we want to ensure that we can meet our customer needs so well.
We're in good shape as far as our particular still that we have and having it produce to meet our customer needs.
We're still seeing some.
Slowness in product coming out of some of our sourcing offices, particularly the Taiwan sourcing office, we are products from Taiwan, we still see that as a pretty slow.
Products coming in and then we still have a little bit of supply chain constraints when it comes to.
Some of our raw materials used for adhesives.
It's easing a little bit it's it's far from not being a a.
Daily problem, but it is easing a bit.
Those supply chain issues out of Taiwan, Karen just mentioned and is primarily fasteners.
Looking at Capex. So the second part of your question there.
We are so supply chain is impacting that as well it takes.
Much longer too.
Get ita.
Items for our Capex projects for example, forklifts and other equipments used to be.
Few months lead time now we're here in 12 to 18 months. So our capex spend in 2021 was lower than what we originally.
Planned for this time last year, so 2021, capex about $44 million.
The original plan.
Was $55 million to $60 million, so a bit of carryover there into 2022.
Some of the Capex is a lot of that Capex is for capacity.
Improvements in our COO.
And then just replacing equipment.
So as our volumes have increased over the last few years, ensuring that our manufacturing sites have.
Equipment.
In order to meet those customer needs has been.
An area of focus and investment for us.
Got it Okay. That's all Super helpful. And then just on the margin side I mean.
You guys have been kind of consistently outpacing the outlook here in 2021, so congrats on that but I mean, even exiting the year still well ahead of 20% on the operating margin side I guess first what would you kind of call out as the biggest drivers of upside here in the last couple of quarters or what maybe surprised you.
And then you know as you look ahead to 2022 outlook.
What are you kind of think of as the biggest variables in terms of potential upside or downside risk.
Rich there kind of excluding what we might see on the steel side.
Yes, you hit it they're big and they're curbed steel that is going to be a big.
Driver one of the things that we've noticed.
Notice, but as a result of.
The top line price increases the leverage on operating expense spend.
<unk> has certainly benefited operating margin.
So operating expenses.
In dollars.
<unk> are expected to increase a little bit in 2022 versus 2021, but as a percent of revenue.
It will be down just because of the.
That dynamic of the price increase in the revenue.
Relative to be Opex spend.
And what we look out there from an opex spend perspective is <unk>.
Investing in those projects in areas that helped drive those key initiatives.
And.
So those key market.
Areas that we laid out about a year ago. So.
That's been one of the dynamics, but I think to the to the beginning point, there that that steel dynamic and how it rolls through our cost of sales.
We'll be a big driver going forward.
Got it okay, well I appreciate all the color and good luck here in the new year.
Kurt.
Our next question is from Julio Romero of Sidoti <unk> Company. Please proceed with your question.
Hey, good afternoon, Karen and Brian Thanks for taking the questions.
Afternoon, Hulu Hulu.
So you mentioned that you saw your north American volumes benefit from better home center sales better contractor and lumber yard sales and mild weather among other things can you just.
Go through each of these and maybe discuss the momentum for each of those drivers in <unk>.
Yes, minus minus the weather and how sustainable those are as we go into 'twenty two.
Okay.
Well coming out of Q excuse me Q3 talking about home centers.
Uh huh.
Yeah.
Okay.
Sorry about that I'm talking about the home centers. We are we noted in Q3.
They had paused.
A bit early in that quarter, and then towards the end of the <unk>.
Third quarter.
And September got back to a more normal.
Run rate, we certainly experienced that in.
Q4, the growth in home centers.
Mostly price based but there was some volume there again price space due to the significantly higher inputs steel costs that we were experiencing.
From a.
From some of the other channels.
I think certainly as we talked about housing starts we had some pretty strong housing starts in the back half of the year because weather was.
Fairly mild that's certainly helps us when we think about how that's growing and we're also starting to see.
Sure.
Some nice inroads in some of our adjacency markets kind of specifically like the OEM basis, where we're making.
Some nice inroads there so I think just a combination of.
Those are the starts obviously as Brian mentioned and then the DIY type of business fairly flat quarter for Europe . So most of that growth was coming out of the U S or North America.
Okay got it and I guess my second question is on <unk>.
The steel headwind that should eventually flow through the P&L you mentioned that you should really see that.
From an earlier question.
You expect that to really hit in the second half of 'twenty two.
And when that steel headwind does hit the P&L to the extent that it should how long do you expect to work through those elevated Cogs do you expect.
Okay.
I don't know like a six month period.
Nine months period, any any help on how long those elevated cogs should last through the P&L.
That's a really really good question Julio.
Part of that is tough to answer right now.
Right now it's.
With steel prices.
It is moderating off their highs just a little bit.
And holding steady we'll have to see what.
We're expecting additional steel.
Production volume to come online here in 2022.
Uh huh.
And the tariff changes in Europe should should help there a little bit but.
That was a really tough one to answer.
It's taken longer on a hidden up direction.
So.
I don't think we have a really good answer for you right now.
If steel we're just remained flat where it is today.
Obviously, it'll continue to hold steady.
For that long period so.
It really just depends I wish I had a better answer for you there.
No that's helpful I mean, even the.
Even the uncertainty as to how long that even in fact, there is uncertainty as to how long it should last US helpful. I think.
And I guess.
I guess just one last one for me just one clarification about Taco.
You know one of your longer term targets is to improve.
The your EU segments, EBIT margins by 500 basis points.
Are you using.
2025% EBIT.
EBIT margins for the segment are or 2021 seven.
7% EBIT margin does the base for that improvement.
I believe we were looking at the trailing 12 months.
Through 930.
As the metric and it's a combination.
The combined.
Combined entities.
Number.
Relative to Simpson strong tie Europe's number there is that.
The metric in the Delta.
Okay got it thanks very much for taking the questions and best of luck in 'twenty two.
Thanks Julio.
Our next question is from Daniel Moore of CJS Securities. Please proceed with your question.
Thank you again, just wanted to pull on one the strength of one of the comments earlier that you mentioned you might revisit the 50% of operating cash flow target returning cash to shareholders. After a taco closes I'm wondering if you'd just Mike maybe expand on that your balance sheet is obviously exceptionally strong even after.
That deal considering lowering the target or is there more often eight M&A opportunity opening up.
I'm just you know how do you weigh that versus opportunities like the market sort of giving us a with this equity market pullback too to be more aggressive so any thoughts on that where you might go with that would be helpful.
Yeah Yeah.
Yeah, I mean, I would start off standby same we'll certainly be discussing this with the board in our in our upcoming April board meetings, but we will always focus on that cash to grow the business.
Continue that dividend, which will be something again will be discussed typically we do that with the board in the April timeframe.
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Paying back the loan from the Taco stand point and then as we mentioned we have some pretty significant capex projects that we have in place relate to help US continue our growth. So well have to just look at all those factors and see what we come up with as to what that percent return will be.
And to the extent that there are opportunistic.
Share repurchases.
It will take a look at that and we'll evaluate that.
We certainly have the balance.
Balance sheet firepower and cash flow firepower to do it thanks for the color again.
Youre welcome one thing I wanted to add on that relative to.
2022 to 2021, one of the areas that gives us.
Some some comfort there are the price increases in 2000, and the price increases that were put into effect in 2021 relative to our expectations in 2022, and we know that in 2021. They were all phased in and they're all here now and having.
Robley around $300 million of price increase over 2021 space then.
It gives us that comfort that are using.
Using that strong balance sheet.
We have reached the end of the question and answer session. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great evening.
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