Q4 2022 Simpson Manufacturing Co Inc Earnings Call
Speaker 2: I.
Speaker 3: for more presentation.
Speaker 4: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference has been recorded. It is now my pleasure to introduce your host, Kim Marlinda, with ATO Investor Relations. Thank you, Kim. You may begin.
Speaker 5: Good afternoon ladies and gentlemen and welcome to Simpson Manufacturing Company's fourth quarter and full year 2022 earnings conference call.
Speaker 6: Any statements made on this call that are not statements of historical fact are forward-looking statements.
Speaker 7: Such statements are based on certain estimates and expectations and are subject to a number of risk 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. ...
Speaker 8: 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.
Speaker 9: Please note that the company's earnings press release was issued today at approximately 4.15 PM Eastern Time.
Speaker 10: The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com.
Speaker 11: Today's call is being webcast and a replay will also be available on the investor relations page of the company's website.
Speaker 12: Now, I would like to turn the conference over to Mike Oloski, Simpson's President and Chief Executive Officer.
Speaker 13: Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call.
Speaker 14: Whitney today is Brian Megsdeck, our Chief Financial Officer.
Speaker 15: 2022 marked a year of strong financial and operational performance for Simpson despite a challenging operating environment.
Speaker 16: I'd like to thank our team for their dedication towards our mission of building safer, stronger structures and their commitment to executing on our growth strategy. I'd also like to acknowledge Karen Kolonius for her immense contributions to Simpson during her time as CEO and throughout her 38-year tenure with the company, including laying the foundation for this next chapter of growth.
Speaker 17: I assume the role since its chief executive officer has started a year and I am humbled and excited to lead the team as we continue to focus on our company ambitions.
Speaker 18: I work closely alongside the Simpson management teams we put together these ambitions, which we unveiled in the spring of 2021 and remain committed to achieving these goals.
Speaker 19: As a reminder, our ambitions are to first strengthen our value space culture. Second, be the partner of choice.
Speaker 20: Third, be an innovation leader in the markets we operate.
Speaker 21: Fourth, continue above market growth relative to US housing starts. And fifth, continue expanding our operating income margin and return on invested capital within the top quartile of our proxy peer group. Almost two years in, we are making solid advancements.
Speaker 22: We remain dedicated to being the partner of choice by maintaining our focus on customer service.
Speaker 23: which included a 97% product fulfillment rate in North America in 2022.
Speaker 24: This helped us earn business with new customers in several of our market segments.
Speaker 25: Our commitment to providing invaded solutions recruited the rollout of many new products, and in line with ambition number four, I am pleased to report that we grew our North American volumes above US housing starts in 2022.
Speaker 26: Our progress has been fueled by our key ambitions and has been made possible by our strong business model, which is built on five key foundational elements.
Speaker 27: First, our long-standing reputation, relationships, and engagement with building code committees, engineers, and architects to improve construction practices and specify sense and solutions.
Speaker 28: Second, our commitment to innovation, exceptional service, and education for engineers, builders, and contractors.
Speaker 29: Third, our rapid delivery standards on a very broad product line across multiple channels with delivery to our distribution partners or job sites in typically 24 to 48 hours.
Speaker 30: Fourth, our extensive product engineering testing capabilities at our state-of-the-art labs, and fifth, our increasing diverse portfolio of solutions and products, resulting in a one-stop shop for our customers.
Speaker 31: I will now turn to an overview of our financial results, key growth initiatives, and capital allocation priorities.
Speaker 32: Brian will then walk you through our Q4 financials and fiscal 2023 business outlook in greater detail.
For the following year of 2022, SINCE generated net sales of $2.1 billion in earnings of $7.76 per? resources to the firm.
Our sales results reflect new customer wins.
The impact of product price increases implemented throughout 2021 to offset rising material costs
and $212.6 million contribution from the ATACO group. We are pleased to have delivered these results, which reflect strong execution despite ongoing macroeconomic uncertainty, inflationary pressures, and political unrest in Europe .
In the fourth quarter of 2022, net sales totaled $475.6 million, an increase of 13.6% over the prior year.
In North America, our net sales of $368.1 million decreased 1.4% year over year.
And as a reminder, during the fourth quarter, we fully lap the impact of our product price increases implemented throughout 2021.
In addition, volume in North America was down compared to the prior year quarter due to ongoing macroeconomic challenges.
Looking at our distribution channels in greater detail.
Volume for our contractor distributor and dealer distributor customers was down due to primarily moderating housing starts, which was partially offset by a slight year-over-year improvement in volumes from our home setter channel.
This includes both our home-signering cloth customers and is where we see much of our repair and repair and remodel on DIY business.
Turning to Europe , fourth quarter sales total $103.7 million, which include a $64.9 million dollar contribution from a tanko and a negative impact of the strength of the US dollar.
The balance of our European operations experienced higher selling prices.
partially offset by lower buy-ins resulting from the uncertain macroeconomic climate.
Returning to Etango, we are pleased with the team's 2022 financial performance, which was in line with our expectations.
We continue with our integration efforts, which remain mostly on track, and we look forward to continuing to benefit from our shared learning in the coming year.
We believe we remain well positioned to capture meaningful future gains from our previously identified synergies. However, the persistent macroeconomic climate in Europe will delay some of our offensive synergy opportunities.
Despite macroeconomic headwinds, we are still confident our European business will continue to progress given how we now offer a broader solution set to our customers, along with the ongoing transition to wood construction and regulatory requirements that encourage new construction solutions.
Our consolidated gross margin for the fourth query was 42.2% compared to 47.4% in the prior year period.
Compared to prior year quarter and before considering the addition of a tonko,
Our gross margin declined, as expected, as our average raw material costs increased and also partly due to higher factory overhead and labor costs.
Brian will further elaborate on the key drivers of our margin performance as well as our margin expectations for the upcoming year.
I now like to turn to a discussion on our end-use markets which encompass our key growth initiatives.
We made solid traction throughout the fourth quarter in a challenging economic environment.
Beginning with our commercial market, we awarded a structural steel opportunity for a health care center in which our products will provide a means for both an attachment of glass to sods and temporary guard railings.
As we had mentioned in the past, we anticipate our structural steel initiative will take longer to manifest versus our other initiatives as we continue to build the market.
As part of our progress on this front, we held three large-scale educational webinars during the quarter which reached over 2,300 industry professionals to help increase awareness of our structural steel solutions among the specifying community.
In the OEM market, one of our focus areas is mass timber.
We are pleased to have been awarded a project in Connecticut for a four-story mixed-use building for apartments and retail space.
The building will feature cross laminated timber walls and floors utilizing Simpson Strong-Kai mass timber fasteners and connectors.
Within the national retail space, as part of our commitment to continuous improvement, we work to replace slow moving SKUs with innovative new and existing products in stores, as well as make great strides in our e-commerce initiative.
In building technology, we've made a couple of strategic investments focused on creating solutions to help our customers be more efficient.
These investments are strong additions to our existing portfolio of technology solutions and reinforce our ambition to be the partner of choice by providing solution sets to our customers that help both reduce construction timelines and address skilled labor shortages.
Now turning to capital allocation. In 2022, we invest in the growth of our business including 62.4 million dollars in capital expenditures and returned 36.2% of our free cash flow to stockholders through the payment of 43.9 million dollars in dividends.
and the repurchase of $78.6 million of common stock.
In 2023, our capital allocation priorities will remain unchanged.
We remain focused on organic growth opportunities, returning value to our stockholders via quarterly dividends and opportunistic share repurchases, and paying down the debt we incurred to finance the acquisition of a time goal.
In regard to organic growth, we are focused on key investments to strengthen our business model, including our growth initiatives and the integration of the TACO.
We are also continuing to evaluate expansion opportunities such as our previously announced on how manufacturing and distribution facility.
as well as equipment investments to drive productivity and maintain our best-in-class customer service.
As it pertains to M&A, while the continued integration of Etonco remains our priority, we remain open to potential M&A opportunities that would accelerate our key growth initiatives and strengthen our business model.
In summary, we are pleased with a strong fourth quarter in full year financial and operational performance.
Looking ahead to 2023, in North America, the combination of increasing interest rates, ongoing inflation, labor shortages, and macroeconomic uncertainty has resulted in softer market forecasts for housing.
In addition, while we benefited from the impact of product price increases in fiscal 2022, based on current pricing conditions, we enacted a price decrease on the majority of our products in North America earlier this year. At the same time, we continue to operate in a higher cost environment, including factory, labor and overhead expenses.
As Brian will discuss in more detail, these factors, as well as ongoing integration costs for a tonicle, will continue to pressure our operating margins in the airhead.
So we are expecting our margins will be ahead of the pre-COVID run rate.
Nevertheless, we are committed to ongoing expense management and executing the areas of business that we can control.
While the operating environment will prove challenging, we continue to believe that Sensor remains well positioned for success given our ongoing focus on expansion in your markets.
The majority of which is not directly tied to US housing starts, along with our strong balance sheet, solid market positions, and culture of Simpson colleagues who remain deeply passionate about our mission of providing solutions to help people design and build safer stronger structures.
We are confident in our ability to continue to achieve our company ambitions, including our goal to grow above-market relative U.S. housing starts with profitability in the top quartile of our proxy peer group. Now I'd like to turn the call over to Brian , who will discuss our fourth quarter financial results in 2023 Outlook in greater detail.
Thank you, Mike, 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 2022, and all comparisons will be year-over-year comparisons versus the fourth quarter of 2021.
Now, turning to our fourth quarter results. As Mike highlighted, our consolidated net sales increased 13.6% to $475.6 million.
Within the North America segment, net sales decreased 1.4% to $368.1 million, primarily due to lower sales volumes, partly offset by prior year product price increases. In Europe , net sales increased 150.3%.
to $103.7 million. Primarily from Matonco, which contributed $64.9 million in net sales.
million dollars, primarily from Matonco, which contributed 64.9 million dollars in net sales, along with product price increases.
partly offset by lower volumes and the negative effect of approximately $5.6 million in foreign currency translation.
Wood construction products represented 85% of our total fourth quarter sales, down slightly from 87%.
and concrete construction products were 15% of total sales, up slightly from 13%. Solidated gross profit increased 1.2% to $200.7 million due to a tonco, and our gross margin was 42.2%, compared to 47.4% last year.
offset by prior year product price increases.
Our gross profit dollars in Europe totaled $33.9 million and included $20.9 million from a taco.
which is net of the $1.4 million fair value adjustments for inventory costs as a result of purchase accounting.
From a product perspective, our fourth quarter gross margin on wood products was 41.9% compared to 47.5% in the prior year. Quarter partly due to the addition of a taco and was 42.3% for concrete products compared to 42.7% in the prior year quarter.
Now turning to our fourth quarter costs and operating expenses. Total operating expenses were $119.3 million, an increase of $17.9 million or approximately 17.7%.
Operating expenses included $18 million attributable to a Tonko and another $2.7 million for integration costs.
As a percentage of net sales total operating expenses were 25.1%, the slight increase of approximately 90 basis points compared to 24.2%.
Our fourth quarter research and development and engineering expenses increased 15% to $18.5 million primarily due to increased personal costs and professional fees.
Selling expenses increased 25% to $44.9 million, primarily due to $6.7 million from a Tonko, as well as advertising and trade show, personnel, and travel related expenses.
On a segment basis, selling expenses in North America were up 9% and in Europe they were up 107.1%.
General and administrative expenses increased 13.3% to $56 million, primarily due to $10.5 million from a TONCO, which includes $4.4 million in amortization of the acquired intangible assets, partly offset by lower North America operating expenses.
including stock-based compensation and professional fees. As a result, our consolidated income from operations totaled $78.7 million. A decrease of 18.9% from $97.1 million.
due to higher operating expenses. In North America, interim operations decreased 16.6% to $85.6 million, primarily due to lower gross profit, partly offset by lower operating expenses, including cash profit sharing, sales commissions, and stock-based compensation.
In Europe , income from operations was $0.8 million compared to a loss of $1.5 million, which includes a TONCO's operating income of $0.3 million, which is net of the aforementioned $1.4 million in inventory adjustments.
$4.4 million of amortization expense on acquired intangible assets.
and $2.7 million for integration costs for a total of $8.4 million.
As we continue to integrate a Tonko into our European operations, we expect to incur additional costs in 2023.
On a consolidated basis, our operating income margin was 16.6%.
decrease of approximately 660 basis points from 23.2%.
I will discuss our operating margin outlook for fiscal 2023 shortly.
Our effective tax rate increased to 26.3% from 25%.
Accordingly, net income totaled $57.6 million, or $1.35 per fully diluted share, which is inclusive of $2.7 million of net interest expense.
This compares to $69.8 million or $1.61 cents per fully diluted chair.
Now, turning to our balance sheet and cash flow.
Our balance sheet remained healthy. At December 31, 2022, our balance sheet remained healthy.
Cash and cash equivalents totaled $300.7 million, down $8.5 million from our balance as of September 30th. Our inventory position at December 31st was 556.
$8 million, which was up $16.8 million compared to our balance at September 30, 2022. We'll continue to focus on effective inventory management to ensure we retain our strong levels of customer service and on-time delivery standards, especially given the rapidly changing economic environment.
During the fourth quarter, we generated cash flow from operations of approximately $137 million.
As Mike highlighted earlier, our primary uses of cash will be utilized to support the growth of our business while simultaneously repaying the debt we incurred to finance the acquisition of a Tonko as well as returning value to our stockholders through dividends and share repurchases.
Given our solid balance sheet position and in line with our capital allocation priorities, during the fourth quarter we repaid $100 million worth of the $250 million drawn on our revolving credit facility.
at your end.
or debt balance was approximately $577 million.
And 300 million remained available for borrowing on our primary line of credit.
During the fourth quarter, we invested approximately $20.8 million for capital expenditures.
Paid $11.1 million in dividends to our stockholders.
It repurchased approximately 47,800 shares of our common stock and an average price of $84.95 per share for a total of $4.1 million.
In 2022, we repurchased $78.6 million of our common stock under our $100 million share repurchase authorization, which expired at the end of 2022.
Further, our Board of Directors authorized the repurchase of up to $100 million of our common stock, which went into effect at the start of the year through the end of December 2023.
Additionally, on January 24th, our board of directors declared a quarterly cash dividend of $0.26 per share, which will be payable on April 27th, 2023, to stockholders a record on April 6th, 2023. Next I'd like to discuss our 2023 financial outlook.
Based on business trends and conditions as of today, February 6, we are initiating guidance for the full year ending December 31, 2023 as follows.
We expect our operating income margin to be in the range of 18 to 20 percent.
Key assumptions include some anticipated softness in our top line given slowing housing starts in the US,
The aforementioned price decrease on the majority of our connector products in the US to most of our customers.
Cost of goods sold, which reflect steel costs coming down moderately from our weighted average peak in Q3 2022.
Increased operating expenses we believe are needed to continue to position the company to make meaningful share gains in our markets and growth initiatives not associated with US housing.
and a slightly lower ATONCO operating margin profile than the rest of the company, including intangible amortization as well as
$6 million to $8 million in expected Autonville integration costs.
Next we expect interest expense on the outstanding $150 million revolving credit facility and $433.1 million outstanding term loan to be approximately $9.7 million including the benefit from interest rate and cross currency swaps.
mitigating substantially all the volatility from changes in interest rates.
Our 2023 effective tax rate is expected to be in the range of 25% to 26%, including both federal and state income tax rates.
and assuming no tax law changes are enacted. Lastly, we expect capital expenditures to be in the range of $90 million to $95 million, including approximately
$22 to $25 million to be utilized for the previously discussed Columbus, Ohio facility expansion.
In summary, we were pleased with our strong finish to the year as we continue to integrate Atonco and make progress on our key growth initiatives.
to position Simpson for long-term sustainable growth and to increase stockholder value.
While 2023 will have its challenges, we remain dedicated to our long-term strategy and strategic plan.
With that, I would like to turn the call over to the operator to begin the Q&A session.
We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue.
You may press start 2 if you would like to move your questions from the queue.
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One moment please while we pull for questions.
And our first question is from Daniel Moore with CJS. Please proceed with your question. Thank you.
Thank you. Good afternoon Mike, good afternoon Brian . Thanks for all the
Thank you. Start with North America. Maybe just talk about the volume trends through the quarter, what you saw in terms of sequential cadence and thus far into Q1 and maybe the magnitude some sense of the magnitude of the price.
decline or decrease you implemented in North America earlier in January .
And as we look at how that quarter ended, it was trailing... Let me just second as I get my note on my right number. So pricing was about a 5% offset.
So that 7% decline and as we look at January again, the.
7% decline and as we look at January , then the compared to.
So January of 23 versus 2022, it's got a little bit of price, a little bit of volume in there. So you've got the
in North America approximately 10%.
and maybe talk about your outlook for gross margin and operating income margin and the cadence for the year embedded both for Q1 as well as any cadence in there that's sort of embedded in the school 22-23 guide of 18-20%. Definitely getting better back half of the year on operating margin as we look at that range.
So Q1 continuing to work through that higher price steel that we indicated we think peak in Q3 of last year. So.
We'll see a little bit of impact there, but as we go through the balance of the year, then we get the typical seasonality of a Q1.
and Q4, I would expect that it's
gross margins like we typically see Q2, Q3 definitely better. And then from an operating margin perspective, you know that 18 to 20 percent guide of course we'll tighten that up as we go through the year. Also, anticipate some of that Atonco integration spend that range on
that we gave in the prepared remarks of 6 to 8 million. Gets us into that 18 to 20 percent range.
But as we again looking through the year, they would expect operating margin to improve a sequentially quarter over quarter as we're wrapping up the year.
Makes sense. It is switching to Europe . The organic revenue, if you look at it, Exitanto. It was only down about 6%, compared to a more significant decline last quarter. Just talk about what you're seeing in commercial construction markets.
you know in Europe as a whole as well as specific geographies That are significant for a tonko Italy France etcetera
So, it's my similar to what we see in U.S. It's very much a mixed market.
So we still believe that some of the macro trends around regulatory requirements
related to thermal efficiency gains are gonna be a nice tailwind for us going forward. But right now, we are seeing a little bit more headwind in the Nordic area. We are seeing definitely more headwind in Eastern Europe .
and our Western European business, so Germany and France, we've got an A-Size business, is doing okay, and by that I mean really less negative.
The market forecast for Europe on our flatish this year, so we are optimistic that things are going to start to pick up.
Very helpful. Okay.
And I think that's it for me. I'll jump back with any follow-ups. Thank you.
Thanks, Dan.
Thank you. And our next question is from Kurt Janger with DA Davidson. Please proceed with your question.
Great, thanks and good afternoon everyone.
Hey, you talked about the price decrease on the connector side. Could you talk a little bit about pricing trajectory on fasteners a bit and then what kind of gives you confidence you won't see or need to take?
another step lower on the connector side just given the moderation and steel. And as you know the steel price is at one point more than triple then came back to half and then started to bounce back up again.
And we continue to watch that close because we need to, we believe our products deserve a premium and we, we believe that we need to watch that premium closely though. So when we look going forward, we are, we are actively watching the market, but we are also very much emphasizing innovation.
We're emphasizing service, we're emphasizing generating for our demand partners, and so we're watching that whole equation closely as we go forward.
Okay, all right, that makes sense. And on the faster question, no price change on that.
Okay.
Great. And then Brian , in terms of the operating margin, I'll look you kind of alluded to the expectation for some softening in US housing starts. Is there any way to kind of ballpark what the underlying assumption is there? Well, we still, you know, I'm sorry.
will perform against what is looking like the prognosticators are thinking is gonna be a pretty choppy 2023 from a housing perspective.
I will perform against what is looking like the prognosticators are thinking is going to be a pretty choppy 2023 from a housing perspective. I stable myself every year but I hope I'll start doing it eventually.
not going to give revenue guidance, but we would expect to continue to see a bit of noise in this year's top line impact on housing related business.
Okay. All right. Fair enough. And then in terms of the Tonko, is Backlog something you track and or is kind of significant there? And if so, what type of visibility does that give you into 2023 for that business?
Kurt, so Atanco's business model is very similar to Simpson in that we try to get orders out the same day or next day to the majority of our customers.
So, a time closed business model, very similar to Simpson, and that we try to get orders out the same day or next day to the majority of our customers. So, you know, we are...
I'm going working with the contractors and all the people that are installing the facades and the water grouping systems just to get a general sense of how the business is developing, but we're not getting really longer term orders and we don't really have an open open order book or backlog for that business.
So even though the commercial side is kind of a longer construction process, you don't necessarily have kind of the visibility at the front end.
Not in a way where you could put a KPI around it, no. We're getting a general sense, because we're talking with those guys quite a bit, but not in a hardcore KPI to track, no.
Okay, makes sense. And then my last one, just on Esteframe, I know it wasn't a big deal, but can you maybe talk a bit about that business and how you are thinking about leveraging that with dealers and component manufacturers?
Yeah, so they are really a combination of a saw and a printer combined, and it's a relatively small system that can go to a job site or it can go to a component manufacturer. And the big thing here, Kurt, is that it cuts the lumber to the correct length, and then it basically prints directions.
on the lumber. So the thought process behind that, what we've seen with Esterframe is that it improves the efficiency of the construction site. They can just be faster, less... They need less skilled labor, because it makes it a little bit more plug and play. And that... It also ensures that our products are used correctly, i.e., put the connector here, put the fastener here, or put the anchor here.
Okay, alright. Well, appreciate the color and good luck here in Q1 guys.
Thanks.
As a reminder, it is star 1 to ask a question.
Our next question is from Julia Romero with Sidoti & Company. Please proceed with your question.
Thanks. Hey, good afternoon, Mike and Brian .
If you could talk about what you're seeing on the demand side of North America, I think recently there's been some cautious optimism around new housing in January , given the step down mortgage rates, are you hearing any change in sentiment from your customers at all?
Julio, we were at the builder show last week and I will say the high level big picture we got from our customers in January was more optimistic than it was in the fourth quarter, but it's still very much, again, a mixed picture. So customers that are in the West...
They're seeing a significant headwind. Customers that are around the Florida area, they're seeing some, actually think of flattish to positive growth. We've got some areas around multi-family where we're feeling pretty strong about it. Some of our customers are doing build to rent. They're also feeling strong about it. So.
Again, mixed picture and the upper end of mixed picture really is less negative to flat-ish type of growth, which is better than what we'd seen and heard in the fourth quarter.
Okay, that's very helpful. And you know, on the cost side, just talk through how costs other than steel are trending in terms of other materials, freight, labor, etc.
Moderating maybe a little bit, but it's still pretty challenging from those particular categories, labor still.
It continues to be a challenge.
the availability of things like freight are getting better and cost of...
potentially soften there a little bit. Yeah, the C-container story is a little bit earlier and Julio, we have ongoing productivity improvement plans where we're working hard to try to offset those inflationary pressures as much as we can.
Very helpful. Thanks very much for taking the questions.
Very helpful. Thanks very much for taking the questions. You're welcome.
Thank you. And our next question is from Daniel Moore with CJS. Please proceed with
Thank you again. Thanks for the CapEx guide. What are your expectations for working cattle and free cash flow this year, especially after a really strong cash flow quarter in Q4s? You start to sort of unwind a little bit of that inventory.
Yeah, we would expect.
because we're looking at...
this
Free cash flow ought to be a bit less due to the additional cap-back set we're looking at.
Don't wouldn't expect any significant trends in other working capital items moving in needle significantly from a sanitary term perspective
ESO and DPL perspective.
So.
other than increased capex.
I think the rest of the other elements of free cash flow would.
I would move with the general cyclicality and operations of the business. Nothing unusual, call out.
Okay and maybe in last one is similar to last quarter you said you know you wouldn't be opposed to M&A opportunities should they arise are you seeing more or less or no change in terms of the opportunity set in this environment?
No real change at this point. Again, we're in a very specialized business, so these are pretty unique assets that we'd be considering and there's been really no major change.
All right, appreciate it again. As there are no further questions at this time, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
I.
margin on wood products was 41.9% compared to 47.5% in the prior year, quarter partly due to the addition of a Tonko, and was 42.3% for concrete products compared to 42.7% in the prior year quarter. Now turning to our fourth quarter costs and operating expenses. Total operating expenses were $119.3 million, an increase of $17.9 million or approximately 17.7%. Operating expenses included $18 million attributable to a Tonko and another $2.7 million for integration costs. As a percentage of net sales, total operating expenses were 25.1%, a slight increase of approximately 90 basis points compared to 24.2%. Our fourth quarter research and development and engineering expenses increased 15% to $18.5 million, primarily due to increased personnel costs and professional fees. Selling expenses increased 25% to $44.9 million, primarily due to $6.7 million from a Tonko, as well as advertising and trade show, personnel, and travel related expenses. On a segment basis, selling expenses in North America were up 9%, and in Europe they were up 107.1%. General and administrative expenses increased 13.3% to $56 million, primarily due to $10.5 million from a Tonko, which includes $4.4 million in amortization of the acquired intangible assets, partly offset by lower North America operating expenses, including stock-based compensation and professional fees. As a result, our consolidated income from operations totaled $78.7 million, a decrease of 18.9% from $97.1 million due to higher operating expenses. In North America, income from operations decreased 16.6% to $85.6 million, primarily due to lower gross profit, partly offset by lower operating expenses, including cash profit sharing, sales commissions, and stock-based compensation. In Europe , income from operations was $0.8 million, compared to a loss of $1.5 million, which includes a Tonko's operating income of $0.3 million, which is net of the aforementioned $1.4 million in inventory adjustments, $4.4 million of amortization expense on acquired intangible assets, and $2.7 million for integration costs, for a total of $8.4 million.