Q3 2024 Simpson Manufacturing Co Inc Earnings Call
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Speaker Change: Greetings. I welcome to the Cincinnati Manufacturing Company 3rd Quarter, 2024, and a conference call. At this time, I'll participate on an onus anomaly mode. I question an ASUS session with all the formal presentation. And if anyone wants to require an offer you assist us during the conference, please press star zero on your health on feedback. As a reminder, this conference is being recorded.
Speaker Change: is not my pleasure to hand the call over to Kim Orlando with Adder Investor Relations. Please go ahead.
Speaker Change: Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's third quarter, 2024 earnings conference call. Any statements made on this call that are not statements of historical fact are forward-looking statements.
Speaker Change: 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 applied by the forward-looking statements.
Speaker Change: We encourage you to read the rest described in the company's public filings and reports, which are available on the SEC's or the company's corporate website.
Speaker Change: Accept to the extent required by applicable security's 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.
Speaker Change: On this call, we will also refer to non-gap measures such as adjusted EBITDA, which is reconciled to the most comparable gap measure of net income and the company's earnings press release.
Speaker Change: Please note that the earnings press release was issued today at Approximately 415 p.m. Eastern Time.
Speaker Change: The earnings press release is available on the Investor Relations page of the company's website at IR.sincemmfg.com
Speaker Change: 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 Michael Olosky, Princess President and Chief Executive Officer.
Michael Olosky: Thanks Kim, good afternoon everyone and thank you for joining today's call. With me today is Brian Magstadt, our Chief Financial Officer.
Michael Olosky: My remarks today will provide an overview of our third quarter performance and updates on our end markets.
Speaker Change: Brian will then walk you through our third quarter financials and physical 2024 outlook in greater detail. Before we jump in, I'd like to take a moment to share our deepest condolences with all of those who are impacted by Hurricane Helene and Hurricane Milton this past month.
Speaker Change: It's unfortunate circumstances such as these that inspire our mission to provide solutions that help people design and build safer stronger structures.
Speaker Change: In staying true to our Founders Corps values, we are pleased to be in the position to assist with the recovery efforts through donations to both the American right cross and Samaritan's purse to help the effective communities recover and rebuild.
Speaker Change: While the storms are impacting our sales in the Southeast region, I'm pleased to report that not of our employees were injured in the storms and that our facilities did not sustain any damage.
Speaker Change: Our thoughts continue to be with all of those that were affected by these tragic events.
Speaker Change: Now, turning to our results. Our third quarter net sales total $587.2 million, which was above the prior quarter despite the housing markets in both the US and Europe remaining under pressure.
Speaker Change: Importantly, we continue to outperform the U.S. housing market. Our trailing 12 months North American volume growth exceeded U.S. housing starts by approximately 500 basis points as result of our growth strategy.
Speaker Change: North American volumes for third quarter were relatively flat with last year, which led to net sales of $460, $1.4 million versus $456.8 million in the third quarter of 2023. This includes a small benefit from our recent acquisitions.
Speaker Change: While product mix drove a higher average sales price per pound on the quarter, customer mix resulted in greater volume discounts applied.
Speaker Change: To further breakdown our North American volume performance, the National Retail Markets saw high single-digit improvements due to our home center merchandising, additional shelf space and customer sales force education efforts.
Speaker Change: We saw component manufacturer volumes improve modestly over last year as we have continued to increase our market share by onboarding multiple trust component manufacturers.
Speaker Change: Our commercial and residential markets both experience low single digit declines due to difficult market conditions.
Speaker Change: We achieved mid-team's volume growth year over year in the OEM market as we have continued the game market share, so it remains a relatively small contributor to our revenues today.
Speaker Change: Turning to Europe, our third quarter net sales of $121.2 million increased by 1.8% or 1% on a local currency basis year over year.
Speaker Change: Our European business also outperform the local market as we've benefited from new customer wins and product applications.
Speaker Change: On a consolidated basis, our third quarter gross margin declined to 46.8% from 48.8% in the third quarter of last year. We'll remain approximately 160 basis points above the pre-COVID run rate.
Speaker Change: We continue to make investments in our people, engineering, equipment, software, and other capabilities to provide even better support to our customers in anticipation of an acceleration housing starts in the midterm.
Speaker Change: While our result in operating margin to climb by approximately 290 basis points to 21.3% versus last year, it remained approximately 500 basis points above the pre-COVID run rate.
Speaker Change: and regard to future SGNA investments we will continue to monitor the market and control cost accordingly.
Speaker Change: Consolidated adjusted EBITDA total 148.3 million dollars to the quarter at a kind of 6.6% year-over-year.
Speaker Change: Now turning to our growth initiatives, which are underscored by our company ambitions, including strengthening our values-based culture.
Speaker Change: Being the business partner of choice, striving to be an innovative leader in the markets we operate, continuing a above market growth, well at a US housing start, returning to the top quartile of our proxy per groups for operating income margin, and longer term, returning to the top quartile of our proxy per groups for return on a vested capital.
Speaker Change: As a reminder, our market focus approach enables us to better serve our customers and identify new product and application opportunities.
Speaker Change: I'd now like to highlight some of these new business wins within our five-end use markets during the quarter, which are direct results of the investments we've been making in our business to drive above market performance.
Speaker Change: Beginning with the National Retail Space, our home center customers are increasing their shelf space of sensitive product to better serve their end customer. We expanded our off-shelf merchandising efforts resulting in new cards for anchors and fasteners in hundreds of additional store locations.
Speaker Change: and the component manufacturer market we are committed to ongoing investment and growing our offering in this space to bring a more comprehensive set of solutions to the market.
Speaker Change: This was evident with the expansion of our equipment offering through the acquisition of Monet de Sao and our continued investment in software solutions.
Speaker Change: Lorna Dissau is a leading manufacturer of large saws using the fabrication of trusses within the US and Canada. Much like Simpson, Lorna Dissau provides customers with the latest technology and that quality products with fast and reliable sport and the federal maintenance.
Speaker Change: By acquiring Monet, we expand our trust business by offering quality saws and proprietary saws, interface software directly to our existing component manufacturing customers.
Speaker Change: Roné also gives us an entry point to new customers.
Speaker Change: and as discussed in our last call, our acquisition of CSD further enables us to offer a more complete suite of software solutions for our customers.
Speaker Change: In the residential market, we continue to gain market share in the Northwest by partnering with a large pro dealer customer. This benefit is not only our connector business, but also our anchoring fastener products, in each location, helping us increase our catchment rates.
Speaker Change: Additionally, we hosted first-thing teams and leaders from several national customers or a health and tendency facility to discuss opportunities for innovative fastening solutions to our production plan and perform hands-on demonstrations.
Speaker Change: Each event included a visit to our future galvan, facility job site, driving home our commitment to investing in future growth and manufacturing in the USA.
Speaker Change: Our dedication to relentless customer service was recognized as several supplier awards announced in the third quarter, including awards from Duke Bass, Southern Carlson, and David Weekly Holmes.
Speaker Change: In the commercial market, our field support and dedication to educating engineers, distributors, and contractors continues to earn specifications and generate demand in the field. Some recent examples include product specifications for a casino, a peer project, and several structural steel buildings.
Speaker Change: I recently during the quarter week acquired quick frames USA, the leader in engineered structural roof frames within the US, Canada, Mexico, which provide top quality steel connection products to commercial contractors.
Speaker Change: And finally, in the OEM market, we developed a national relationship with a leading building products manufacturer to provide connectors and fasteners for their off-site construction solutions.
Speaker Change: We also saw continued growth in mass timber providing connections solutions on several projects, including our newly offered temporary bracing for mass timber.
Speaker Change: The M&A pipeline remains active as we continue to evaluate tucking opportunities within our core competency that help us accelerate traction on our key growth initiatives.
Speaker Change: In regard to our facility investments, the expansion of our Columbus Ohio facility remains on track to become fully operational in early 2025. The completion of our newly constructed fastener facility in Galton, Tennessee will follow in late 2025.
Speaker Change: Before I conclude, I'd like to highlight a few important corporate developments. As many of you know, our CFO Brian Magstadt announces attention to retire effective at the end of the year 2024. Brian joined Simpson in 2004 and has been an integral part of the company for the past 20 years and helped champion our strong culture.
Speaker Change: On behalf of the entire Simpson team, I'd like to thank Brian for his invaluable contributions at the company that have resulted in extraordinary growth, improved profitability and increased ourholder value. We wish him all the best in his retirement.
Speaker Change: Our comprehensive search for a new chief financial officer continues and we hope to add some positive news to share with you in the near future.
Speaker Change: Lastly, we are pleased to commemorate our 30th anniversary as a publicly traded company by ring the NYNC closing balance of timbers.
Speaker Change: Since we went public back in May of 1994, we have evolved from it approximately $150 million in annual sales to a world leader in structural solutions with greater than 2 billion in annual sales and a total compounded annual growth rate in our stack of approximately 15%.
Speaker Change: I'm incredibly proud of all that since then has accomplished and want to express my gratitude to our team members, faculty, customers, suppliers and staff holders for all their contributions to our success over the years.
Speaker Change: In summary, despite near-term economic challenges, we remain optimistic in our ability to outperform US housing starch between now expected to climb in the low single-digit range from 2023 and grow in the low single-digit range in 2025.
Speaker Change: QRP and housing starts our expected decline in the high single digits compared to 2023 with meaningful growth pushed out further into 2026 in the end.
Speaker Change: As usual, we'll provide our 2025 outlook on our Q4 Results Call and Fairboring. With that, I'd like to turn the call over to Brian, who will discuss our third quarter financial results in greater detail.
Brian Magstadt: Thanks, Mike, and good afternoon, everyone. Thank you for joining us on our third quarter earnings call today.
Brian Magstadt: Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed. In my prepared remarks referred to the third quarter of 2024, in all comparisons will be year over year comparisons, versus the third quarter of 2023.
Brian Magstadt: and Mike, I appreciate your comments as it's been a pleasure to serve as the Company CFO since 2012.
Speaker Change: I made the choice to retire from the company at the end of this year, concluding a rewarding 20-year career at Simpson. Working for Simpson has been one of the true successes and joys of my life. Simpson's employees.
Brian Magstadt: are some of the best people I have ever known. For out my tenure, I've seen the company experience tremendous growth in all aspects.
Brian Magstadt: I cannot be more proud of all that Simpson has achieved and of our adherence to barks principles which continue to guide us this day.
Brian Magstadt: Although I will be retiring, I intend to remain as long as necessary to bring my successor up to speed and will remain as your holder.
Speaker Change: Now turning to our third quarter results.
Speaker Change: Our consolidated net sales increased modestly to 587.2 million dollars.
Speaker Change: Within the North America segment, net sales increased by 1% to $461.4 million.
Speaker Change: Wood construction products sales were up 0.6% in concrete construction products sales were up 3.1%.
Speaker Change: In Europe, net sales increased 1.8% to $121.2 million. Primarily, due to higher sales volumes, and the positive effect of $1.5 million in foreign currency translation. Which was partially offset by price decreases in some regions.
Speaker Change: Consolidated gross profit decreased to $2.8% to $275 million, resulting in a gross margin of 46.8%.
Speaker Change: Compared to 48.8% do primarily the changes in product mix, investments to help us provide better support to our customers in higher factory overhead and labor costs.
Speaker Change: On a segment basis, our gross margin in North America decreased to 49.5% compared to 51.8% primarily due to higher factory overhead and warehouse costs as a percentage in net sales, which were partially offset by efficiency gains.
Speaker Change: Our gross margin in Europe decreased to 36.6% from 37.9%. Primarily due to higher labor, factory and overhead, warehouse and freight costs, as a percentage in itself, which were partly offset by lower material costs.
Speaker Change: I'll speak to our European aspirations shortly.
Speaker Change: From a product perspective, our third-quarter gross margin on wood products was 46.3% compared to 48.1%. The most 48% for concrete products compared to 47%.
Speaker Change: Now, turning to our operating expenses.
Speaker Change: In the last 12 months, the majority of the employees we've added are in sales, engineering, engineering services, and digital solutions. And we've increased investment and professional services, which are intended to drive forward our growth initiatives.
Speaker Change: Specifically, total operating expenses were $148.9 million in increase of...
Speaker Change: 7 million dollars or 4.9% primarily due to increased personal costs, higher professional fees, greater advertising and trade show costs, which were partially offset by a reduction in variable incentive compensation and travel expenses.
Speaker Change: As a percentage in that sales, total operating expenses were 25.4% compared to 24.5%.
Speaker Change: To further detail our SGA, our third quarter research and development in engineering expenses.
Speaker Change: He creased to $4.3 to $23.7 million, primarily due to lower variable incentive compensation costs and lower professional fees.
Speaker Change: Partially offset by an increase in personnel costs.
Speaker Change: So any expenses increased 4.2% to 54.6 million dollars, primarily due to the higher personal cost.
Speaker Change: On a segment basis, selling expenses in North America were up 4.3% and in Europe, they were up 3.1%.
Speaker Change: General and Administrative expenses increased 9% to $70.6 million, primarily due to increased personal costs and higher professional fees.
Speaker Change: Particularly, in our digital solutions space, in addition to higher amortization expense, personally offset by lower variable incentive compensation costs.
Speaker Change: Lee's investments are intended to bring innovative solutions to our various customer markets.
Speaker Change: As a result, or consolidated income from operations totaled $124.9 million, a decline of 11% from $140.2 million.
Speaker Change: Our consolidated operating income margin was 21.3% down from 24.2%.
Speaker Change: In North America, income from operations decreased 9.1% to 123.3 million dollars, primarily due to a reduced gross profit, along with higher operating expenses from personal costs.
Speaker Change: law for licensing and IT costs, professional fees.
Speaker Change: Intensible amortization expense, and advertising and trade show costs.
Speaker Change: Partially offset by lower variable incentive compensation.
Speaker Change: In Europe, income from operations decreased 18.2% to 12.6 million dollars due to lower gross profit, along with higher personnel and depreciation costs.
Speaker Change: As previously mentioned, we have been incurring costs this year to support the optimization of the European footprint, including the realization of defensive synergies from a taco, which has resulted in some margin compression over last year.
Speaker Change: Our midterm target of 15% operating income margin in Europe remains unchanged.
Speaker Change: Assumptions include improved economic conditions, the anticipated realization of our offensive synergies, and broader secular trends, including the growing use of wood construction, and increasingly stringent environmental regulations that drive new applications.
Speaker Change: Our effective tax rate was 26.1%, approximately 20 basis points higher than the prior year period.
Speaker Change: Accordingly, net income totaled $94 million for $2.21 per fully diluted chair compared to $104 million or $2.43 per fully diluted chair.
Speaker Change: from the third quarter, adjusted EBITDA of $148.3 million to $16.6%.
Speaker Change: Now, turning to our balance sheet and cash flow.
Speaker Change: Our balance sheet remained healthy with cash and cash equivalence totaling 339.4 million dollars at September 30, 2024 down 15.4 million dollars from our balance at June 30, 2024 to primarily to our recent acquisitions as well as changes in working capital primarily raw material purchases.
Speaker Change: Our debt balance was approximately $465.4 million, net of capitalized finance costs, and our net debt position was $126 million.
Speaker Change: We have $375 million remaining available for borrowing on our primary land credit.
Speaker Change: Our inventory position, as of September 30, 2024, was $583.4 million, which was up $49.8 million, compared to our balance as of June 30, 2024 on higher pounds.
Speaker Change: While finished goods inventory is slightly elevated, we are working to reduce those levels in the fourth quarter while maintaining our high service levels.
Speaker Change: During the third quarter, we generated cash flow from operations and approximately 102.6 million dollars compared to 200.9 million dollars.
Speaker Change: We invested $106.5 million for capital expenditures, including our facility investments, as well as acquisitions, and paid $11.8 million in dividends to our stockholders.
Speaker Change: While we did not repurchase shares during the quarter, approximately $50 million remained available from our $100 million share repurchase authorization as of September 30.
Speaker Change: Now I'll turn to our updated 2024 Financial Outlook.
Speaker Change: Based on business trends and conditions, as of today, October 21st, our guidance for the full year ending December 31, 2024 is his follows.
Speaker Change: We now expect our operating margin to be in the range of 19 to 19 and a half percent.
Speaker Change: Although it is still well above our pre-COVID average, this is below our expectation and ambition.
Speaker Change: We invested in a market environment that hasn't grown and has lagged or anticipated volume expectations.
Speaker Change: We are working to get our caution lined with the market and improve our overall profitability.
Speaker Change: Additional key assumptions include
Speaker Change: It revised expectation for U.S. housing starts to be down from 2023 levels.
Speaker Change: Dr. Sales, do the slowing construction activity in the wake of storms in the southeast.
Speaker Change: A lower overall gross margin based on the addition of new warehouses and increases in labor and factoring tooling as a percentage in itself.
Speaker Change: 4 million to 5 million in expected total cost to pursue defensive synergies in Europe, as well as other acquisition opportunities.
Speaker Change: and in the current challenging housing market, we are working to balance our growth-focused investments while ensuring we deliver a strong operating income margin.
Speaker Change: Next into six months on the Outstanding Revolving Credit Facility in Term Loans, which had borrowings of $75 million and $431 million.
Speaker Change: As of September 30 of 2024, respectively, is expected to be approximately $4.9 million, including the benefit from interest rate and cross-currency swaps, mitigating substantially all of the volatility from changes it interest rates.
Speaker Change: Interest on our cash and money markets is expected off-set this expense.
Speaker Change: Our effective tax rate is estimated to be in the range of 25.3% to 25.8% including both federal and stating some tax rates based on current tax laws.
Speaker Change: And finally, our capital expenditures are estimated to be in the range of $175 million to $185 million. Which includes $90 million to $100 million for the Columbus facility expansion and the new Gallatin Fassner facility construction. With the remaining spend carrying over into 2025.
Speaker Change: In summary, while a third quarter result reflected a challenging environment, we have outperformed U.S. housing starts by approximately 500 basis points on a trailing 12-month basis, as we've invested in improving the customer experience and expanding our offerings.
Speaker Change: While our solid balance sheet and cash generation support ongoing investments in growth, that position as well to benefit from a recovery in U.S. housing starts. We are focused on balancing our costs in the short term with our growth strategy until we see a rebound in housing starts growth.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin to take a question and answer session. If you would like to ask a question, please press star 1 on your telephone feedback and a confirmation tone will indicate your line is in the question too.
Speaker Change: You may press start, too, if you would like to remove the question from the deal.
Speaker Change: Hope participants using speaker equipment and may be necessary to pick up your handset before
Speaker Change: And our first question will come from the line of Daniel Moore with CJS Securities. Please proceed.
Daniel Moore: Good afternoon, like Brian. Thank you for checking questions.
Daniel Moore: Hello Dan, I'm Dan.
Daniel Moore: and just let me start quickly. Brian first congrats to you. Thanks for all your help over the last ten plus years. It's been greatly appreciate it and wish you all the best.
Daniel Moore: I hope the chance to chat one or two more times officially at least.
Brian Magstadt: Thank you, Dan. Let me say that. Absolutely. Let me start with what's, you know, just kind of cue for in the outlook. How much of an impact do you expect the hurricanes to have on your cue for sales and up income as it relates to the revised guidance?
Michael Olosky: So Dan, it's Mike, so we've certainly seen our customers have some real slowdowns in the southeast from both of her teens. We've got some customers that have had some of their facility, significant impact.
Michael Olosky: As the hurricanes were coming in, we saw a lot of slowdown before and then it's a bit of a slowdown afterwards, there's also a little bit of concern.
Michael Olosky: That the storms are going to take labor that would normally go to new housing starts and take that to the repair and renovation piece. So, we haven't really dialed in the specific guidance and how that's going to impact us, but for our business at operates in that area, the forecast for fourth quarter is definitely lower than we thought it was going to be.
Brian Magstadt: and Dan and it's Brian, so as we think about the fourth quarter.
Daniel Moore: I would expect a gross margin pretty comparable, maybe slightly up from 24 of 2023 and you know a resulting operating margin.
Daniel Moore: Bill, a little better than Q4 of 2023 to get us into that, 19 and 19 and a half percent.
Daniel Moore: Ovalorol 2024 operating margin.
Speaker Change: I understood, helpful, and maybe turning to the outlook that you provided start with.
Speaker Change: The expectation of low single digit growth in U.S. housing starts as we think about 25. Maybe, you know, just talk about the key assumptions underlying that view.
Speaker Change: and your longer term target is to outpace by 250 basis points. You've obviously been doing better than that. So how do we think about your kind of expectations for growth above and beyond the market over the next 12 months or so?
Speaker Change: So Dan, we're getting input from our customers and then all the various forecasters we use one group in particular because
Speaker Change: They can break down the market by regions, which so aligns with how we're on the business and the feeling that we're getting is going to be in a 3% to 4% housing start market next year in the US.
Speaker Change: You're a pro-laby low single digits, one or two percent of the numbers that we're seeing from most of the four castors. I mean there's still a lot of uncertainty. I think the general consensus is second half's going to be better in the first half.
Speaker Change: But as we've seen over the last six quarters, there's a lot of variability in how those housing starts ramp up and then ultimately so down a little bit. I think the key point you want to emphasize is we as a team are not happy with our guidance below 20% from an operating income perspective.
Speaker Change: We view 20% as the floor, we're going to do everything we can to get back there next year.
Speaker Change: That's really helpful, Mike, and then I think you answer my next question about Europe.
Speaker Change: You and David didn't expect meaningful growth to come back until 26, but it doesn't sound like that next year being down significantly either just flat to up slightly, in the way that you're kind of near-term view.
Speaker Change: Yeah, so the governments in Europe and the Central Bank over there, they have started a lower interest rates.
Speaker Change: Housing starts across Europe. It's probably going to be down high single digits this year.
Speaker Change: So I'll bounce back to 1.2% growth would be a good thing. We are starting to see some increased activity just from a coding perspective over there that we're feeling a little better on.
Speaker Change: The target there really though Dan is, is make sure that we hit that 15% operating income in the midterm and then really control costs until we see a significant jump up in the market over there.
Daniel Moore: Got it, and then it's been two or three quarters of modest retrenchment in terms of margins in Europe. It would you expect to start to see some improvement next year based on that forecast.
Daniel Moore: While a big part of that day and we're working on our defensive synergies over there and right-sizing our footprint.
Speaker Change: So Brian touched on some of those costs, you know, those obviously won't repeat so we think that will help us they do a better growth margin in your iPhone 4
Speaker Change: Perfect, very helpful. Maybe just quickly to talk a little bit more about the acquisitions. I think it's my native saw and quick frames, and in terms of what they bring to the table. And then, you know, any trail-in-tooled month revenue EBITDA for years to give us a sense from a modeling perspective. Thanks again.
Speaker Change: Yes, so if you look at Monet, Monet helps us offer complete solution to component manufacturers and we had...
Speaker Change: a big presence at the DCM's. See show a couple of weeks ago that's the...
Speaker Change: the large trade show for trust manufacturers.
Speaker Change: We had a lot of really good feedback from...
Speaker Change: Customers of Monet that are not yet our current customers, and we had a lot of feedback from our current customers. Happy that we continue to expand our equipment offering, so we're pretty excited about that going forward. I think that's the fantastic company in Kevin who built that. It's done a wonderful job and by the way, still with us.
Speaker Change: If you look at the combined revenue that we've had from those acquisitions in the US, here in the US, it's less than $5.00 in the quarter-day.
Speaker Change: and then I would say on a go-forward basis.
Speaker Change: and I would expect...
Speaker Change: Now, for at least how we're looking through the balance of 2024, a little less than 10 million in total revenue on...
Speaker Change: And those?
Speaker Change: Gordon, we're not just going to work, we're not going to work, we're not going to work.
Speaker Change: for the acquisition.
Speaker Change: and that's for the total 24 impact to your P&Ls as opposed to Q4, is that right?
Speaker Change: No, no, that would be for the fourth quarter, the amount we're modeling for.
Speaker Change: for our numbers so that we get to the operating income guidance based on current expectations.
Speaker Change: Okay, combine revenue from both less than 10 million for Q4.
Speaker Change: Wait.
Speaker Change: All right, okay, I'll operate our next question.
Speaker Change: The next question, come from the line of Clint White's with beard. Please proceed.
Speaker Change: Hey guys, good afternoon.
Speaker Change: Hello, I'm Michael my comments. I'm Brian. Thanks for all the help. So we'll still talk about it's one that I acknowledge that maybe just the first the first piece. So on the margin comments, I mean.
Speaker Change: I guess Mike kind of outlining that 20% margin is kind of a floor on an e-bit basis. I guess A is that new because I want to see you set high teams in the past and then.
Speaker Change: Secondly, how do you get there next year? Do you just kind of throttle back some of the investments and invest in a slower rate relative to the updated view on starts to get some benefits from raw materials or you're actually going to cut investments? Just how do you kind of, I guess, adjust to this kind of lower level of market activity?
Speaker Change: Good question. So as you know, Tim, one of our financial ambitions is to be in the top court child or a proxy peer group. We think that the 21-ish percent is right at that kind of...
Speaker Change: Top Quartel Range and again our view is 20% max. I mean, we've got a great team, we've got a great business model. We need to be able to translate that into good profitability and 20% is good profitability. So, anything below that, we are going to work to improve on.
Speaker Change: So the question then is how do we get there? So as you've seen from our S.G.A. investment, so last couple of quarters, that's been well below our S.G.A. growth rates.
Speaker Change: She's probably the last 18 months.
Speaker Change: So we will continue to dial that in. We're going to be even more selective on where we make investments.
Speaker Change: and where we add both on the SGA side and on the Costa Good side. The balance here is we want to provide great support to our customers as you know that's all part of being the their supplier of choice and to do that is to people intense the business model. So we need the investment and the Costa Goods and we need it in the SGA because they are for the most part single sourcing us. We just need to be more selective about making those investments in.
Speaker Change: okay
Speaker Change: Okay. Okay. So it's not necessarily a cutting of the base. It's just being more selective relative to the growth rate is the way that's more selective. Yes. Okay. Gotcha. Okay. And then second, just Brian , can can you help me with like the how to think about the gross margins sequentially because if I if I heard you right, it sounds like gross margins should be kind of flatish to maybe up slightly sequentially. I guess you have, you know, a lower revenue quarter and it sounds like you want to take some inventory down in the fourth quarter. So kind of what's the piece on this in there.
Brian Magstadt: Yeah, so when we look at the annual to get into that operating income guide, we would assume flatish to, you know, just slightly up gross margin from last year, so last year 43.9% for quarter gross margin. We've, we've,
Brian Magstadt: We've got some, you know, as a percent of revenue, you know, modeling out slightly higher factoring tooling, as a percent of revenue, not kind of warehouse, as a percent relatively flat, potentially benefiting a little bit on the freight line and then...
Brian Magstadt: We think we're in a really good position from a material perspective and there might be a little health there but all in it's a pretty close to those are the puts and takes to get us to.
Brian Magstadt: again a flat-ish.
Brian Magstadt: Gross Margin in the fourth quarter of 24 versus 23.
Speaker Change: Okay, okay, okay, okay, I'm just gonna put a little bit of that. Okay, and then what was in North America? What was the price mix?
Speaker Change: Kind of contribution and aggregate. Was it about flat?
Speaker Change: in total.
Speaker Change: Yeah, so we had a couple of things there, so as...
Speaker Change: We look at, you know, one of our key metrics that we follow as, you know, is this pound shift. That's how we measure our volume increases, but not every.
Speaker Change: Every pound ship is worth the same dollars, so as we compared this year, third quarter to last year, third quarter. You know, just the slight change in the mix of products that went out the door, you know, slight, you know, little higher.
Speaker Change: Dollar per pound ship. There was a bit of an offset there, was the...
Speaker Change: The bigger builders are getting bigger, same thing with some of our distribution partners in consolidation, and as more sales go into those larger customers as a percent of the total, you know, a little bit higher of a rebate paid relative to if you know more college smaller customers were.
Speaker Change: or a bigger piece of the pie. So those were the two that...
Speaker Change: and nearly offset.
Speaker Change: Okay, okay, all right, capture. And then I guess the last one I just have is on as you kind of bring on like
Speaker Change: the Columbus Ohio facility. Is there a way to kind of talk about what the start-up costs for that might be, or if there's going to be start-up costs with, I guess that both coming online and then kind of Gallatin coming online later into 25.
Speaker Change: Sure, I think we'll be out of our 2024 guy, sorry, our 2025 guy that will come out with.
Speaker Change: with the fourth quarter will provide some additional details on how all that's going to impact.
Speaker Change: You know, that year's operating income.
Speaker Change: from my Ohio perspective, we're adding to the existing footprint there. So it's...
Speaker Change: I'm not sure that there would be a significant amount of opx.
Speaker Change: Okay, we're moving, we're adding on additional space under roof on our existing spot. Gallatin a little bit different.
Speaker Change: Spot that's across town. I would anticipate some...
Speaker Change: some moving costs and the light so, but right now.
Speaker Change: will provide that little more granularity on that in February.
Speaker Change: Okay, understood. Oh, I think you, thanks everybody.
Speaker Change: And the next question comes from the line of courteeeringer with the aid aid it's a fluency.
Speaker Change: Great, thanks and good afternoon everyone.
Speaker Change: Michael, I heard what?
Speaker Change: I'm just wanted to start off on steel and maybe take it from two sides. The first is, I mean, just given what we've seen kind of on a year-to-date basis, maybe just talk about how that has impacted.
Speaker Change: You know, you're maybe a initial views on what gross margin could look like next year as we've gone through the last six months or so. And then on the other side, maybe more of a pricing conversation, have you seen any more kind of competitive actions out there, maybe it's on the faster side where the competitors that's a little bit more fragmented or anything that would suggest that.
Speaker Change: you know, pricing and any declines there could be a conversation going in the next year.
Speaker Change: So from a steel perspective, Kurt, you know, we're out of to keep him.
Speaker Change: Coast track on that and we're feeling pretty comfortable with where we are, cost-wise in that area. We are certainly seeing a lot of other costs go up to maybe counterbalance some of the stuff that you've seen from the steel market lately, but bottom line is...
Speaker Change: We feel for the most part the materials are going to our cost of goods.
Speaker Change: We're in a good shape on going forward. And then from a pricing perspective, again, we're selling the value. We're less than 1% of the dollar material. We're bringing a ton of innovation, we're providing a ton of support to our customers.
Speaker Change: and so the emphasis is really on service. Of course, we get asked a lot about pricing and we try to emphasize the value that we're bringing to the table. At this point, we haven't really seen any significant moves from any of our competitors in this area from a pricing perspective. No, the last six to 12 months.
Speaker Change: Okay, that's helpful. And then just going back to the commentary around operating margins in the 20% floor.
Speaker Change: I guess...
Speaker Change: Considering the level of investment that we've seen, and kind of the starts assumption for 2025, is there a good framework to think about, you know, if starts are up low single digits, you expect to outperform that on my top line, that you think you can leverage operating expenses still, or I guess how would you have a strain in that?
Speaker Change: So if you go back a little bit, fourth quarter, 2023, housing starts throughout 4%.
Speaker Change: We go into the first quarter, we've got the big builder shell, everybody's pretty optimistic, all the big builders are feeling really optimistic.
Speaker Change: Still a slight increase, 2% and then all of a sudden second quarter the housing starts kind of fell through the floor of collective better word and they were down seven so you know when we were going in this year we were certainly assuming a lot better market scenario and we just kept assuming it was going to pick up based off a lot of feedback from our customers frankly and you see the big builders do well but it's smaller builders in the mall factory family that are not doing well. [inaudible]
Speaker Change: So when we look into next year we are really trying to, and we're not going to give guidance now, but we're really trying to make sure that we're at that 20% mark from an operating income level. And we're still working through the details and more to come when we announce our fourth quarter results.
Speaker Change: Okay, and then just lastly, if there's any implications, risks or opportunities around the true value bankruptcy filing and any exposer you might have there.
Speaker Change: Curtis Brian, so we have sold to true value in the past and we're evaluating.
Speaker Change: the potential buyer that they've announced, the poo we sell to you and have a really good relationship with. Of course, you need to see that transaction come to fruition. The revenue to true value itself.
Speaker Change: Not a material amount for Simpson, but they have been one of our co-op customers in the past.
Speaker Change: So...
Speaker Change: and what we'll continue to evaluate how that news is.
Speaker Change: Tom and out.
Speaker Change: as far as...
Speaker Change: Do we, do we, do we extend credit? Do we, you know, how are we selling to them? And those are those are conversations we're having right now.
Speaker Change: Makes sense. Okay, appreciate the color guys, thank you.
Speaker Change: Thanks for, thanks for, thanks for, thanks for