Simpson Manufacturing Co., Inc. Q4 FY2025 Earnings Call

Greetings, and welcome to the Simpson Manufacturing Co., Inc. Fourth Quarter and Full Year 2025 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, please press 0 on your telephone. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Orlando, Investor Relations. Thank you, Kimberly. You may begin. Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Co., Inc.'s Fourth Quarter and Full Year 2025 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 statement. We encourage you to read the risks described in the company's public filings and reports which are available on the SEC's or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today whether as a result of new information, future events, or otherwise. On this call, we will also refer to non-GAAP measures such as adjusted EBITDA, which is reconciled to the most comparable GAAP measure of net income in the company's earnings press release. Please note that the earnings press release was issued today at approximately 04:15 PM Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Relations page of the company's website. Now I would like to turn the conference over to Michael L. Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kimberly. Good afternoon, everyone. And thank you for joining today's call. I'm joined by Matt Dunn, our Chief Financial Officer. This afternoon, I'll begin with an overview of our 2025 performance, a review of trends across our end markets, and an update on our strategic priorities. Matt will follow with a deeper dive into our financial results and our fiscal 2026 outlook. Before we start, I want to highlight that for the second consecutive year, we achieved a total recordable incident rate of less than 1.0. Our best result in company history. We also saw a meaningful reduction in lost time injuries and a decrease in incident severity. We are extremely proud of our employees for keeping safety at the fore of everything we do. Their commitment demonstrates the values that define Simpson, above all that everybody matters. Now turning to our results. I'm pleased to report full year 2025 net sales of $2.3 billion, up 4.5% from 2024 in a challenging market. As outlined in our investor presentation, approximately 3% of this growth came from pricing, 1% from acquisitions, and 1% from foreign exchange. These gains were partially offset by an approximate 1% decline in volume due to weaker housing starts. Historically, our volume metrics focused on North American unit sales measured in pounds shipped which did not capture the growing contributions from our more premium offerings, including software, services, and equipment. We believe this revenue bridge provides a more complete view of our consolidated business. In North America, full year net sales were $1.8 billion, up 4.5% from the prior year including an approximate $60 million benefit from pricing actions. North American volumes were down year over year, pressured by lower housing starts at a more challenging regional mix with the most pronounced declines in the Southern and Western United States, where our content per unit is typically higher due to stronger building codes. Even with these headwinds, our focus on innovation, customer service, and operational excellence continues to drive solid performance. We continue to win business in soft markets demonstrating the resilience of our portfolio and the value we deliver to our customers. As we look at full year results across North American end markets, performance was mixed by market segment but we saw encouraging developments across several parts of the business. The OEM business delivered a strong year with volume up double digits. We saw particularly strong growth with off-site construction manufacturers and mass timber projects. Where our products and support model are a great fit for complex applications with high-performance requirements. We succeed by combining innovative products that meet demanding load requirements and improved ease of installation with deep technical and field support throughout the project lifecycle. Although OEM remains a smaller part of our business today, we believe we are growing well above market and see substantial runway for continued expansion. The component manufacturing business continues to grow with volumes up in the low single digits driven by new customer acquisitions and expanded capabilities including software. We continue to convert new customers to our software and trust plate solutions with growth supported by our design services and a broader solution set. As a reminder, CS Producer, our cloud-based trust production management software announced last quarter, represents an important milestone in our digital roadmap. Extending our capabilities beyond design into production planning and daily operations. In addition, our Monet Dassault acquisition continues to perform well in a challenging market strengthening our equipment offering, and deepening customer relationships. Together, these capabilities position us well to capitalize on what we view as one of our most attractive long-term growth opportunities. In our commercial business, 2025 volumes were essentially flat year over year in a commercial market that was down mid-single digits. We saw strong growth in cold-form steel and anchoring products, supported by our takeoff service that streamlines design and procurement for customers. We are also seeing increased adoption of our third-generation anchor adhesives, which deliver reliable performance across a wide range of applications and conditions, backed by our testing, code evaluation, and engineering expertise. Our residential business volume declined modestly reflecting continued challenging market conditions, particularly in the West and the South. We continue to expand our digital solutions with LBM and builder customers partnering with them to improve efficiency across estimating design and project workflows. Further reinforcing our value proposition to our customers. We also saw steady growth in our multifamily business supported by increased quoting activity. In single-family, we strengthened our competitive position by securing multiyear renewals and new national contracts with key builders. These wins highlight the strength of our supply chain network, proximity to customers, and the value of our digital and technical capabilities. With programs now in place with 25 of the top 30 U.S. National builders, we are well positioned as the residential market recovers. Our national retail business saw a mid-single-digit decline in shipments versus 2024. While point of sale volume performance declined in the low single digits. This was driven in part by regional differences and a difficult comparison to new product listings and expanded retail space we secured in late 2024. Throughout the year, we focused on bay expansion programs with our largest retail partners. We also expanded our decorative hardware portfolio with the launch of the outdoor accent stage system now testing in select markets. Our emphasis on customer service, disciplined execution, merchandising support, and end market testing continues to strengthen our retail partnerships and positions us well for ongoing growth. In Europe, full year net sales totaled $499.6 million, up 4.3% year over year which was up slightly on a local currency basis. Mines outperformed the market and were slightly higher compared to 2024. Our consolidated gross margin was relatively flat year over year at 45.9%. As previously discussed, our 2025 price increases which we expect will contribute at least $100 million in annualized net sales, helped offset increased costs including those attributed to tariffs. Our 2025 operating margin was 19.6%, up 30 basis points year over year, which included approximately $13.1 million in strategic cost savings initiatives and footprint optimization costs. Our 2025 operating margin also included $12.9 million gain from the sale of our Gallatin, Tennessee facility. Adjusted EBITDA totaled $544.3 million, a 3.3% increase year over year. Next, I'd like to detail the progress we made on our financial ambitions for 2025, which will guide our strategy throughout 2026. First, continuing above-market volume growth relative to U.S. Housing starts. Since roughly half of our business remains tied to U.S. Housing starts, this continues to be the most accurate benchmark for evaluating our volume performance. While the government shutdown delayed the release of official housing starts data from the Census Bureau, we will resume this comparison once it becomes available. That said, we continue to monitor estimates from multiple sources. Based on those benchmarks, we believe our consolidated volumes are down 1% in 2025 slightly outperformed an expected average market decline in the single digits. Second, maintaining an operating income margin at or above 20%. We made good progress in 2025 despite the down market, adding 30 basis points to our operating income margin narrowing the gap to our 20% target, even with housing starts being down approximately 500 basis points versus our initial market forecast. And third, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth. In 2025, EPS growth outpaced revenue by 390 basis points, highlighting the leverage in our model and the durability of our margin profile. In summary, 2025 was a year of strong execution despite continued softness in U.S. and European housing markets. We maintain an exceptional 98% product delivery fill rate and customer satisfaction remained high contributing to eight major awards recognizing our service and product innovation. We made progress by launching new products, bringing new manufacturing capabilities online, expanding our warehouse footprint, and strengthening our digital capabilities. Combined with our pricing actions, cost savings initiatives, and new business wins, we believe we are well positioned for continued success. Looking ahead to 2026, we believe we can continue above-market volume growth relative to U.S. Housing starts, which we expect will be relatively flat year over year with continued challenging regional mix headwinds. In Europe, we expect slight growth in the market in 2026. I'd also like to highlight that 2026 marks a special milestone for Simpson Strong Tie as we celebrate seventy years of growth and innovation. Since our founding in 1956 by Bark Simpson, our company has been defined by a spirit of problem-solving, integrity, and unwavering commitment to building safer, stronger structures. What began with a single joist hanger has grown into a global portfolio of trusted solutions backed by advanced technology, rigorous testing, and a team dedicated to excellence. We're proud to honor the legacy that brought us here and continue to build our future together with our employees, customers, and partners as we break new ground for the next generation. With that, I'd like to turn the call over to Matt, who will discuss our financial results and outlook in greater detail.

Good afternoon, everyone. Thank you for joining us on our earnings call today. Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the 2025 and all comparisons will be year-over-year comparisons versus the 2024. Now turning to our results. Our consolidated net sales increased 4.2% year over year to $539.3 million. Within the North America segment, net sales increased 3% to $416.9 million. In Europe, net sales increased 9.1% to $117.9 million primarily due to the positive effect of approximately $9.1 million in foreign currency translation and a modest improvement in sales volumes and pricing. Globally, construction product sales were up 2.1%, and concrete construction product sales were up 15.3%. As a larger percentage of these products are imported and included in tariff-driven price increases. Consolidated gross profit increased 3.4% to $235.1 million resulting in a gross margin of 43.6%, down 30 basis points from the 2024. On a segment basis, our gross margin in North America was 46.2%, below the 46.9% reported in the prior year reflecting the impact from tariffs and higher factory overhead and labor cost, which were partially offset by lower warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 33.6%, from 32.3% primarily due to lower material and freight costs partly offset by higher factory and overhead, warehouse and labor costs as a percentage of net sales. From a product perspective, our fourth quarter gross margin was 43.5% for Wood Products, compared to 43.4% in the prior year period. For concrete products, gross margin was 46% compared to 45.8% a year ago, with the improvement partly due to the recent pricing actions. Now turning to expenses. While SG and A headcount was down approximately 7% year over year, total Q4 operating expenses increased 8.2% to $161.8 million primarily driven by the timing of higher charitable donations in advance of tax deductibility changes for 2026 variable incentive compensation, and personnel costs, including severance-related costs. For the full year of 2025, total operating expenses were $627 million an increase of 6.5% primarily due to variable incentive costs, personnel costs, including severance-related costs, digital subscription costs, and timing of charitable donations. As a percentage of net sales, total 2025 operating expenses were 26.9% compared to 26.4% last year. Our full year 2025 operating expenses included approximately $8 million in severance-related costs, associated with our strategic cost savings initiatives which we anticipate will deliver annualized cost savings of at least $30 million. To further detail our fourth quarter SG and A, our research and development and engineering expenses decreased by 4.8% to $21.1 million primarily due to the previous reclassification of digital technology from R and D to G and A. Selling expenses increased by 6.3% to $56.1 million primarily due to the higher variable compensation and commissions. On a segment basis, selling expenses in North America were up 5% and in Europe, they were up 10.4% primarily due to foreign exchange. General and administrative expenses increased by 13.5% to $84.7 million due to the timing of charitable donations, the aforementioned reclassification of digital technology from R and D, severance-related costs, and a negative foreign exchange effect. As well as increases in variable compensation and software costs. As a result, our fourth quarter consolidated income from operations to $74.8 million a decrease of 2.7% from $76.9 million. Our consolidated operating income margin was 13.9%, down from 14.9% last year. In North America, income from operations decreased 3.6% to $82.3 million due to higher operating expenses which were partly offset by higher gross profit. Our fourth quarter operating income margin in North America was 19.7% compared to 21.1% last year. In Europe, income from operations increased 260% to $2.8 million due primarily to increased gross profit partly offset by increases in operating expenses due to the negative effect of approximately $2.9 million in foreign currency translation. Income from operations included $4.7 million resulting from our footprint optimization and strategic cost-saving efforts, to enhance our profitability. Our fourth quarter operating income margin in Europe was 2.3% compared to 0.7% last year. Our fourth quarter effective tax rate was 24.8%, approximately 270 basis points below the prior year period. Accordingly, net income totaled $56.2 million or $1.35 per fully diluted share. Compared to $55.5 million or $1.31 per fully diluted share. Adjusted EBITDA for the fourth quarter was $104.7 million a decrease of 0.9% resulting in a margin of 19.8%. Now turning to our balance sheet and liquidity. Late in the quarter, we amended and restated our credit agreement which includes a $600 million revolving credit facility and a $300 million five-year term loan. As of 12/31/2025, we had $74.2 million drawn on the revolver resulting in $525.8 million of remaining availability. Our debt balance was approximately $374.2 million, down $16.9 million from 12/31/2024 and cash and cash equivalents totaled $384.1 million resulting in a net cash position of $9.9 million. Our inventory position as of 12/31/2025 was $594.2 million, which was essentially flat compared to 12/31/2024, and includes an approximately $16 million increase from foreign currency translation. Pounds of inventory on hand in North America were down double digits, with a nearly double-digit increase in cost per pound. We generated strong cash flow from operations of $155.6 million for the fourth quarter and $458.6 million for the full year of 2025. With regard to capital allocation, our strategy remains duly focused on growth and shareholder returns. In 2025, we invested $161.5 million for capital expenditures including our investments for facility upgrades and expansions, $47.6 million in dividends to our stockholders, and $120 million in repurchases of our common stock. As previously announced in October, the Board authorized a new share repurchase program for 2026 to repurchase up to $150 million worth of our shares through the 2026. This reflects our confidence in the long-term prospects of the business and our commitment to returning capital to shareholders. Next, I'll turn to our 2026 financial outlook. Based on business trends and conditions as of today, February 9, our guidance for the full year ending 12/31/2026 is as follows. We expect our consolidated operating margin to be in the range of 19.5% to 20.5%. Additional key assumptions include a slightly lower overall gross based on imposed tariffs and increased depreciation costs, and expected $3 million to $5 million of footprint optimization costs in Europe and a projected $10 to $12 million benefit on the sale of vacant land. Our effective tax rate is estimated to be in the range of 25% to 20% including both federal and state income tax rates based on current tax laws. And finally, our capital expenditures outlook is expected to be in the range of $75 million to $85 million. In summary, we closed out a strong 2025 despite a challenging market environment. And we continue to execute with discipline across the business. Our pricing actions helped offset tariff-related cost pressures, supporting margin resilience even as we navigated higher input costs. Cost savings initiatives implemented in the fall are beginning to take hold and will drive meaningful efficiencies as we move into 2026. As we look ahead, we remain committed to disciplined capital deployment, supported by our expanded share repurchase authorization and our plan to return at least 35% of free cash flow to shareholders. With that, we will now turn the call over to the operator to begin the Q&A session.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be beneficial to pick up your handset before pressing the star key. One moment, please, while we poll for questions.

Hi. This is Will on for Daniel Joseph Moore. Can you talk about the upside and downside cases to your outlook for flat North American housing starts? And can you also add some more color to your expectations for Simpson's growth in that environment?

Hello, Will. Good to talk to you. So Will, as you know, the last couple of years, housing market forecasts have started pretty optimistically and ended, flat to down. So our view, just taking into account, last year as an example, we were coming into 2025. I think it was gonna be up two to three percentage points. We think now based on the consensus, it's gonna be down maybe two to three percentage points. So four to five to six hundred basis point swing. As a result of that, we're really taking a conservative view on the market this year. So our assumptions are basically flattish and we're gonna be pretty careful about how we invest until we really see the market pick up significantly. If you look at how we've done versus the market, and let's use 2020 as kind of the anchor year because 2020 housing starts are roughly the same as 2025. We've outpaced the market from a volume perspective by roughly 300 basis points. That's not always going to be a straight line up. Well, some years may be plus or minus a little bit one way or another. Over the long haul, though, we hope to consistently be at that long-term average.

Will, this is Matt. And if you look at kind of how that impacts our growth, as you asked, on the second part of your question, we expect to continue to outperform the market at some level, consistent with what Michael was saying, the historical average, knowing it's not always a perfect straight line at that historical average. We do have some carryover impact of the pricing that we took in 2025, partly through the year. And then the middle of our guidance of nineteen and a half to twenty and a half percent is that 20% mark that we want to be. So we believe we can get to that 20% in a flattish market. And then if there's upside in the market, that would provide upside. And if the housing starts turn out to be down again, obviously create some risk that we would have to work through, but wanted to capture that in our overall guidance.

Thank you. That's very helpful. And just one more. In Europe, can you add some more color to the outlook for growth entering 2026? And what steps can you take to enhance growth should the overall market remain stagnant?

So first, we're very happy with the progress the European team has made over the last year. We've seen a meaningful improvement in margin. We believe they're also growing above the kind of European market, and it's a mix based on the country and the segments that we're operating in. So they've made some good progress. The indications from a market perspective let me just do market. For Europe, our European footprint is roughly low single digits for this year. So we are seeing a little bit of an uptick there. And the European strategy really is to focus on the markets we're in with the products and solutions that we're in. And the customers we're currently serving to just basically expand share and continue to roll out new innovations across those markets. And with that, we hope to continue to drive above-market growth in Europe as well. As you know, Will, the ambition there is we want to get the European business focused on profitability, and we are targeting 15% in the midterm. We do need a little bit of growth to get us there. So we're being cautious on our investments and over-indexing on profitability in Europe.

Thank you. Our next question comes from the line of Trey Grooms with Stephens. Please proceed.

Hey, Michael and Matt. How are you?

Good, Trey.

Good, Trey. How are you doing?

Doing well. Thanks. So I wanted to maybe stick with the end market kind of outlook. You're talking about flattish on the housing front. And sorry if I missed this, but maybe if you could dive into, you know, kind of any expectations you have around the side or maybe R and R here in the U.S.

Yeah. So if you look at last year, let's start with that. The commercial business that we use a provider Dodge to help us narrow the numbers. When we look at the commercial starts, again relative to our business, we think the market growth was down mid-single digits last year. We're anticipating the market growth in the commercial business to be right around flattish for the year, maybe up 1% or 2%. To be determined, as things develop. If you look at national retail, for 2025, national retail, when we use Cleveland Research, was up low single digits. The market forecast for the national retail business and what I've heard from some of the big box retailers is flat to low single digits going forward. And again, our ambition is overall, we want to grow the company faster than U.S. housing starts, but in each of those individual segments, we want our businesses to outperform those markets as well.

Yep. Got it. Okay. Thank you for that. And then Matt, maybe if we could dive into your comment earlier on gross margin outlook for '26, expecting maybe a slightly lower gross margin percent. And you kind of went through some of the things there, but if you could maybe dive in a little deeper on the puts and takes, you know, you mentioned we're gonna see some carryover pricing benefits. I know there's probably still some negative incremental impacts from tariff costs rolling through, those types of things. If maybe you could help us kind of bridge into the gross margin expectation for slightly lower this year.

Sure. We put a couple of extra slides this time, Trey, in our investor deck to kind of give a bridge or a waterfall on Q4 revenue and then total 25 revenue to back up some of the numbers we're talking here. But let's talk price first. So the price increases that we took during 2025 were one effective late Q2, around the middle of or early June. And then second was October when it went into effect. I know it was quite a bit smaller than the first one on some of our tariff items, but $100 million of annualized pricing, you'll see in those charts that I referenced, that we've realized about $60 million of that during 2025. So an incremental $40 million flowing through essentially in 2026. From a tariff standpoint, we also have about $100 million of annualized tariff cost. And those map a little bit differently when you look at them across fiscal years. Because the tariffs didn't start until partway through the year. Then we also had inventory to cover us for a little bit at the beginning there. And now what you're seeing as we exit Q4 into Q1 is that essentially, all the products that are on their way out the doors are fully tariffed. And so you have the dynamic of at the end of the day, on an annualized basis, about a $100 million in pricing and a $100 million in tariff-related cost increase, which creates some gross margin erosion in and of itself. Just being the same absolute dollars. And then, from a timing standpoint, a little bit more favorable in twenty-five, a little bit less of that favorability in '26. You put the mix between those two buckets shifts a little bit. So put that with a little bit of increased depreciation from our new facilities. Certainly, there were some cost offsets by getting into those new facilities, so that's not a huge driver necessarily. It's really a tariff story. But we're expecting that gross margin to be down a little bit in 2026, and that's assuming no more incremental tariffs and not planning any further price increases. But that's all included in our overall guide to getting to that 20%, which is the midpoint of our operating income guide.

Yep. Got it. Okay. Thank you for that. It was super helpful. And I guess, you know, since the outlook for the EBIT margin, you know, kind of getting into that or operating income margin k I guess, getting to that 20% range at your midpoint as you mentioned. Sounds like there's, you know, the SG and A like, you're gonna see some, you know, some leverage there, I guess, kind of benefiting some of the cost outs and some things like that. Is that the right way to kind of forecast or model in the SG and A?

Yeah. Absolutely. You know, we've referenced the cost savings initiative work that we started earlier this year or sorry, in 2025 during late Q3 or early Q4. We saw a little bit of savings from that in Q4, but it was more than offset by the cost of it. From a severance and restructuring standpoint. We're expecting absolute operating expense dollars to be down in fiscal 2026. Don't know if we sized it, but in the 10 to $15 million range in absolute versus the 2025 endpoint. So certainly gonna get some leverage there as a percentage of net sales.

Got it. Thanks again, for taking my question. Craig, is your Yes. Sorry. Go ahead, Michael.

Yes. Remember, that includes some FX impact that we are also in Europe. Yes. That includes about a $5 million expected FX hurt in OpEx in '26. So even with that, kind of down 10 to 15,000,000, which if you think about it, we sized that $30 million cost savings up or the majority of it is already kind of starting in 2026. Savings from the cost savings initiatives that we took on. We got a little bit of the savings in Q4. A few offsets, exchange rates certainly. As well as other, you know, inflationary costs that go up from a benefit standpoint and things. But even with all of that, expecting total OpEx to be down $10 to $15 million versus 2025, 10 point on dollars.

Great. Thanks, and good afternoon.

Alright. Thanks, Kurt.

Thank you. There are no further questions at this time. With that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.