Simpson Manufacturing Co., Inc. (SSD) Earnings Call Transcript & Summary

Greetings. Welcome to the Simpson Manufacturing Co., Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Kim Orlando with Investor Relations. Thank you. You may begin.

Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Company's Second Quarter 2026 Earnings Conference Call. Any statements made on this call that are not statements of historical facts are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC's or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise. 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 4:15 p.m. 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 Investor Relations page of the company's website. Now I would like to turn the conference over to Michael Olosky, Simpson's President and Chief Executive Officer.

Thanks, Kim. Good afternoon, everyone, and welcome to today's call. With me is Matt Dunn, our Chief Financial Officer. Before turning to the quarter, I'd like to briefly discuss our results in the context of the strategic priorities that continue to guide our decisions and shape the way we manage the business. Across the organization, we remain focused on deepening our position as a partner of choice for our customers, driving innovations in the markets we serve and strengthening our values-based culture, all while continuing to deliver solid financial results. Despite ongoing market challenges, we are making solid progress advancing our strategic priorities. One of the defining strengths of our culture is the experience and long-term commitment of our people. As we mark our 70th anniversary, that continuity is especially meaningful. It speaks to a company that has evolved and performed through multiple cycles while staying grounded in a consistent set of values. Throughout the year, we'll continue recognizing employees whose careers reflect that legacy. I'd like to take a moment to highlight a few of them. First is Dean Pickrell, a project manager for our Southeast operations, celebrating 40 years with Simpson. Dean began his career as a fabrication operator at our McKinney, Texas manufacturing facility and has held a variety of roles across manufacturing and operations. Today, he is a trusted subject matter expert supporting product launches, training programs and key operational initiatives. His deep experience and institutional knowledge continue to play an important role in ensuring consistency, quality and execution across our business. Next, I'd like to recognize Gwen Silva, an inside sales representative for our Northwest operations, celebrating 47 years of service. Gwen began her career in 1979 mailing catalogs and has spent nearly 5 decades serving our customers across inside sales and customer support. Her tenure reflects not only a deep understanding of our business and customers, but also the resilience, commitment and adaptability that have remained essential as our company has evolved over time. Finally, I'd like to recognize Bill McGahan, a regional sales manager for our National Retail market segment in the Northeast, celebrating 42 years with the company. Bill was the first employee hired when our Columbus facility opened and has served in a variety of sales and sales leadership roles throughout his career. He is known not only for his passion for our customers and our people, but also for the countless employees he has encouraged, mentored and championed along the way. As he prepares for his retirement in October, we recognized the lasting impact he has had on our growth and his steadfast commitment to the values that continue to guide our company today. These are just a few examples of the many employees whose experience, leadership and commitment continue to shape our performance, and we appreciate the contributions they make every day. Now turning to our financial results. We delivered net sales of $671.1 million, up 6.3% from the prior year quarter. As outlined in our investor presentation, net sales growth was primarily driven by our 2025 pricing actions, which contributed approximately 5% of the increase. Sales mix and foreign exchange each provided an additional 1%. These gains were partially offset by an approximate 1% decline in volume resulting from a softer market. Over the last 12 months, our global volumes declined by 1.6%, 100 basis points below the 0.6% decline in U.S. housing starts. Of note, we exited some business in 2025, which negatively impacted our global year-over-year volume comparisons by 30 basis points on a trailing 12-month basis and 70 basis points in Q2 2026. In North America, net sales were $522.3 million, up 6% from the prior year quarter, including an approximate $30 million benefit from pricing actions. Results across North America varied by market segment and region, consistent with the broader construction trends. We saw encouraging results in key strategic growth areas, underscoring the strength of our business model, innovative solutions and trusted customer partnerships. The component manufacturer business delivered a solid quarter with volumes mid-single digits year-over-year. Growth was primarily driven by continued new customer wins and capturing a greater share of the total connector spend from existing customers. We secured meaningful conversions during the quarter with encouraging interest in new equipment. Customers continue to prioritize labor efficiency, throughput and operational visibility, underscoring the value of our integrated platform of software, plates, equipment and design services. While activity remains uneven in certain markets and customers tied more closely to single-family starts remain cautious, adoption of our solutions continue to advance, further strengthening our position as a strategic partner to component manufacturers. The OEM business delivered another strong quarter with volumes up high single digits year-over-year. Growth was supported by continued momentum in material handling, anchoring solutions, engineered applications and expanding customer relationships. We also continue to strengthen our mass timber opportunity pipeline through project specifications, project wins and target investments in resources that support our long-term growth objectives. While mass timber project timing can vary, customer engagement remains high. Our ability to combine innovative products with deep engineering expertise, testing capabilities and field support remains a key differentiator as customers pursue increasingly complex performance-driven projects. Our residential business volumes were down modestly year-over-year, reflecting continued softness in housing activity as a result of persistent affordability pressures. Despite these conditions, we saw areas of relative strength in multifamily, fire rebuild activity, selected regional markets and new product adoption. Our teams continue to engage customers through builder and distributor training, job site events, product campaigns and customer conversions while increasing cross-selling across our portfolio of connectors, fasteners, anchoring solutions and value-added services. Builders remain focused on cost control, cycle time reduction and inventory management, and we are supporting them with high service levels in the industry's deepest portfolio of engineered solutions. Our national retail business delivered a slight increase in volume year-over-year. The retail environment remains competitive and continues to reflect selective consumer spending, inventory discipline and mixed point-of-sale trends across the home center channel. Our teams remain focused on in-store execution, merchandising excellence, training and close collaboration with our retail partners. During the quarter, we advanced several important initiatives, including bay optimization with creative display solutions, continued Outdoor Accents expansion and a successful fastener merchandising pilot that is expected to expand later this year. While uneven demand remains a near-term headwind, our focus on service, reliability and retail execution continues to strengthen our customer relationships and support future growth. In our commercial business, second quarter volumes were down modestly year-over-year, reflecting mixed construction activity across segments and geographies. We remain optimistic on our ability to capitalize on opportunities in data centers, education, retrofit work, cold-formed steel, QuickFrame and anchoring applications. Through specification activity, takeoff services, project coordination and cross-selling efforts, our teams continue to help customers manage complexity, improve productivity and execute large projects more effectively. While the broader environment remains uneven and customers remain cautious amid inflation and project timing uncertainty, our technical expertise, code compliance solutions and field support provide a strong foundation for future growth. In Europe, second quarter net sales totaled $143.5 million, up 7.6% year-over-year, driven by an approximate 3% year-over-year increase in volumes, price increases and foreign currency translation. On a local currency basis, net sales were up 4.9%. Customer engagement remains healthy, and we secured several meaningful wins during the quarter, including multiple mass timber projects. Our consolidated gross margin improved 100 basis points year-over-year to 47.4%, driven by our 2025 price increases, which contributed approximately $34 million in net sales in the quarter. This was partially offset by higher factory and overhead costs as a percentage of net sales, including approximately $1.5 million or 20 basis points of Q2 start-up costs from the ongoing ramp-up of our Gallatin facility, which we opened late last year. While start-up costs associated with the Gallatin ramp-up continued to impact gross margin in the second quarter, we saw improvement versus the impact in the first quarter. Our operating margin was 25.2%, up 300 basis points year-over-year, which included a 100 basis point benefit from a $5.5 million eminent domain settlement, partially offset by onetime costs in Q2 2026 of $0.5 million related to our strategic cost savings initiatives. Adjusted EBITDA totaled $196.1 million, a 22.6% increase year-over-year. In summary, our second quarter results demonstrated disciplined pricing and effective cost management underpinned by solid execution and a clear commitment to supporting our customers. Our financial ambitions remain: one, driving above-market volume growth relative to U.S. housing starts; two, maintaining an operating income margin at or above 20%; and three, consistently driving EPS growth ahead of net sales growth. As for our outlook on the markets, we continue to expect 2026 U.S. housing starts to be down low single digits compared to 2025. In Europe, we expect flat to modest market growth in 2026. As we look ahead, we remain confident in the long-term potential of our core growth drivers and customer engagement with our value-added offerings remain strong. At the same time, mix headwinds and rising steel costs are creating a more challenging backdrop, particularly as we move through the back half of 2026. As such, we do not expect to maintain the same rate of revenue growth and profitability in the second half of the year as we will have fully lapped the majority of the pricing actions we implemented last year. We continue to approach pricing with discipline and a long-term perspective. Given ongoing housing affordability concerns, customer response and competitive dynamics have varied across markets and channels. The market for steel remains volatile with rising steel prices and increasing availability constraints. Maintaining dependable product supply and providing reliable service remain top priorities for Simpson. Our approach remains grounded in value-based pricing, supported by detailed product and market level evaluations that consider input costs, value, mix, margins and long-term customer relationships. 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. Mike spoke earlier about our 70th anniversary and some of the employees who have been part of that journey. I'd like to add my thanks to them and to all of our employees for their dedication and commitment. I'd also like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the second quarter of 2026, and all comparisons will be year-over-year comparisons versus the second quarter of 2025. Now turning to our results. Consolidated net sales grew 6.3% to $671.1 million. In the North America segment, net sales rose 6% to $522.3 million driven by pricing and favorable mix, which were partially offset by lower sales volumes. Europe delivered a 7.6% increase in net sales to $143.5 million, driven by both higher volumes and price increases as well as the positive effect of approximately $3.7 million in favorable foreign currency translation. Globally, wood construction products sales were up 6.1% and concrete construction products sales were up 7.4%. Consolidated gross profit increased 8.6% to $318.2 million, resulting in a gross margin of 47.4%, up 100 basis points from last year. In North America, gross margin was 50.2%, up from 49.5% reported in the prior year, reflecting the impact from our 2025 price increases and our prior year strategic cost savings effort. As a reminder, we continue to have start-up costs in our Gallatin facility, which improved but still represented an approximate 20 basis point headwind to our second quarter gross margin. We expect this will continue to moderate as we progress through the year. In Europe, gross margin increased to 38.2% from 36.2%, primarily driven by better absorption of overhead costs through volume gains, pricing and our prior footprint optimization work as a percentage of net sales. From a product perspective, our gross margin for Wood products was 47.3% compared to 47.1% a year ago. For Concrete products, gross margin was 48.3% compared to 45% a year ago, reflecting lower material costs as a percentage of net sales as well as price increases. Now turning to expenses. As a percentage of net sales, second quarter operating expenses were 23%, an improvement from 24.2% last year. SG&A headcount was down approximately 8% year-over-year, which reduced personnel-related costs. In total, operating expenses increased 1% to $154.4 million, impacted by an increase of approximately $3 million from our nonqualified deferred compensation program driven by the quarter ending stock price. Incentive-based compensation also drove an approximate $2 million increase in operating expenses in the quarter. To further detail our SG&A, our research and development and engineering expenses decreased by 13.3% or $2.8 million to $18 million. Approximately $700,000 of patent filing-related costs were reclassified to G&A. The decrease was also driven by lower headcount, reduced professional fees as well as cost reductions from optimizing our footprint initiatives. Selling expenses were down 6.4% to $52.8 million as a result of reduced travel and entertainment expenses and lower advertising expenses. On a segment basis, selling expenses in North America were down 10% and in Europe, they were up 4.2%. General and administrative expenses increased by 10.5% to $83.6 million, primarily driven by a $3 million increase in our nonqualified deferred compensation program, reflecting the impact of quarter end stock price as well as a $2 million increase in incentive-based compensation and higher professional fees. As a result, our consolidated income from operations totaled $169.1 million, an increase of 20.6% from $140.2 million. Our consolidated operating income margin was 25.2%, up from 22.2% last year. The increase was partially driven by the previously mentioned $5.5 million gain from an eminent domain settlement and leverage from roughly flat operating expenses versus the prior year. In North America, income from operations increased 15.8% to $158 million due to higher net sales on reduced operating expenses, including lower personnel costs and software licensing fees as well as a reduction in travel and entertainment spend. Our operating income margin in North America was 30.2% compared to 27.7% last year. In Europe, income from operations increased 25.7% to $19.7 million, primarily due to higher gross profit and continued strong cost control. Our operating income margin in Europe was a record 13.7% compared to 11.7% last year, another step forward in our progress toward our 15% operating income margin goal while continuing to optimize our European footprint. Our effective tax rate was 25.7%, approximately 10 basis points below the prior year period. Accordingly, net income totaled $127 million or $3.09 per fully diluted share compared to $103.5 million or $2.47 per fully diluted share. Adjusted EBITDA was $196.1 million, an increase of 22.6%, resulting in a margin of 29.2%. Now turning to our balance sheet and liquidity. As of June 30, 2026, our debt balance was $336.7 million, down $33.8 million from March 31, 2026, with $555.8 million remaining available on our revolver. Cash and cash equivalents totaled $450.5 million, resulting in a net cash position of $113.8 million. Our inventory position as of June 30, 2026, was $513.5 million, which was down $80.7 million compared to December 31, 2025, driven by approximately $46 million in lower raw material inventory levels on hand and a $35 million reduction in finished goods, including $20 million from ongoing inventory optimization initiatives. North America inventory pounds on hand are down 27.4% since December 31, 2025. We generated strong cash flows from operations of $250.6 million in 2026. Our capital allocation strategy remains focused on supporting growth while delivering meaningful returns to our stockholders. Year-to-date, we invested $33.7 million in capital expenditures, reinsuring $23.9 million in dividends to our stockholders, repurchased $98.7 million of our common stock and repaid $30 million towards the revolver. Subsequent to quarter end, we repurchased 127,132 shares of common stock through July 22 for a total of $24.5 million. Additionally, on July 23, our Board of Directors increased our 2026 share repurchase authorization by $50 million to $200 million, leaving $76.8 million available for repurchases through year-end as of July 23. This action reflects our confidence in the long-term prospects of the business and our continued commitment to returning capital to stockholders. Next, I'll turn to our 2026 financial outlook. Based on business trends and conditions as of today, July 27, 2026, our guidance for the full year ending December 31, 2026, is as follows: we are narrowing our expected range for consolidated operating margin to 19.7% to 20.5%. Additional key assumptions include our outlook for U.S. housing starts to be down in the low single-digit range, a lower overall gross margin based on rising raw material costs, imposed tariffs and increased depreciation costs, an expected $2 million to $4 million of footprint optimization costs in Europe and an expected $10 million to $12 million gain on the sale of vacant land in the back half of 2026. Our effective tax rate is estimated to be in the range of 25% to 26%, including both federal and state income tax rates based on current tax laws. And finally, our capital expenditures outlook is now expected to be in the range of $80 million to $90 million, which includes efforts to optimize our footprint to improve operational efficiency. In summary, we are highly focused on the elements we can control, and we executed well, which allowed us to deliver a strong quarter despite ongoing pressures in the broader market. Pricing actions continue to contribute as expected, though we do not anticipate maintaining the same rate of revenue growth through the back half of 2026 as we fully lap last year's increases and navigate mix and steel cost headwinds. Despite these dynamics, we remain focused on disciplined capital deployment and our commitment to returning at least 35% of free cash flow to shareholders. With that, I will now turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question is from Trey Grooms with Stephens.

Mike and Matt, this is Ethan on for Trey. I wanted to dive a little bit more into the margin performance in the quarter. So both gross margin and operating expenses outperformed. I know there was a settlement benefit helping some in addition to lower material costs and expenses, and that was despite some start-up costs from the Gallatin facility and higher incentive comp. So -- but just any more detail on what drove the better margin performance in the quarter relative to perhaps your initial expectations would be great.

Ethan, this is Matt. The quarterly operating margin was up 300 basis points. I'd basically categorize that into 3 buckets, roughly 100 basis points from the gain on the eminent domain settlement in Texas. Roughly $100 million from -- sorry, 100 basis points from the gross margin, call it, absorption and efficiency and having the better volumes, a little bit better volume than maybe what we had last quarter and being roughly flat on volume. And then the last 100 is really leverage on keeping OpEx essentially flat in the quarter and then getting the revenue growth primarily behind the pricing. So those 3 really drove the 300 basis points. The gross margin, we've been -- we had some of the strategic cost savings we did last fall were targeted at items that hit COGS. So that helped improve the gross margin a little bit. And then just a little bit of mix help in the quarter as well.

No, that's all very helpful. And then if we could extrapolate that to the second half margins, I think guidance at this point implies maybe a year-over-year decline in the second half. And in the prepared remarks, it was clear that there was some mix headwinds in the rising steel costs having an impact and also some D&A. So just any more color here on the second half margins would be great.

Sure. Yes. And if you look at gross margin year-to-date, Ethan, we're down about 10 basis points versus last year through the front half, so year-to-date, year-to-date. We've said we expect the gross margin to be down slightly for the full year, so fairly consistent with where we were, although Q2 was a little bit better as we talked on gross margin. From an overall standpoint, we are seeing the cost pressures start to go up on steel. The pricing that we took largely was in late Q2 of last year. So we've essentially anniversaried the majority of that. There is still some that was in October last year, and we've taken a little bit more in pricing. And then typically, Q4 for us is a tougher comparison from a market standpoint, meaning like it's lower volume, and so our margins are typically lower in the fourth quarter. But yes, there definitely is expected to be some lower margins in the back half, and that's really driven by the revenue profile. So if you look at kind of where we've been on volume year-to-date, roughly flat, and we get the benefit from pricing and exchange rate, which has provided some leverage. That pricing benefit goes significantly down as you look in the back half from something like 5 or 6 points to 1 point, something like that, which creates more difficulty in growing revenue and it's really based on volume. So I think our volume trajectory is going to look similar to what we've seen year-to-date, but we're going to not have as much revenue growth because the pricing was in the base.

Our next question is from Tim Wojs with Baird.

Maybe just a follow up on the last question. Has your gross margin guidance changed at all? Because I think you did kind of expect it to be down slightly. So I guess is -- has anything changed there? Or I mean, because steel has kind of been up all year. So I'm just kind of curious if you had baked that into the prior guidance or if there's kind of an incremental headwind?

Yes. No change in our expectation that gross margin when you look at the whole year is going to be down in '26 versus 2025. So Q1 was down a little bit more. Q2 is actually up a little bit, and then we see that pressure in the back half, but that was all baked in before. So nothing new there.

And Tim, just kind of real quick on gross margin in general. I mean we're committed to maintaining a good gross margin level. That does include pricing, productivity, footprint optimization to try to make sure that we're maintaining our costs and watching the pricing level. And that good gross margin enables us to really reinvest back into the business to continue to provide that service and support that our customers are used to from us.

Okay. Okay. That's helpful. And then, I guess, how would you guys kind of characterize just the kind of volume environment if you think about today versus you got back to last year kind of early this year. I mean I think it's still pretty tough out there. Has there -- has anything gotten worse in kind of the starts environment? Anything gotten better? Or is it kind of bumping along at the same pace?

So roughly kind of bumping along the same pace, Tim, is the short answer. So when we were coming into 2026, so late 2025, we were based off all the feedback we're getting from the market forecasters that we work with expecting a flattish to up slight -- up slightly market in 2026, and we did anticipate continued mix headwinds. So after the first quarter, we said we expect it to be down low single digits. We continue to think that it's going to be down low single digits. When you look at the housing starts data, and there is a lot of volatility there, especially on the multifamily part so single-family starts are down pretty -- forecasted to be down pretty significantly for the year. Multifamily forecasted to be up. And then we also have some mix headwind that we've talked about in the past. We think Western United States, if you look at it from a trailing 12 months perspective, continues to be down low to mid-single digits. The South in both of those 2 regions, we have a good amount of content flattish. So those are some of the things we're working at. And if you look at the translation to our volume, last year, volume was down roughly 1% and year-to-date, our volume is down roughly 1%.

Okay. Okay. And then I just want to sneak one more in. Just on Europe, I mean you're almost -- I mean, I guess, if you round up, you technically be at mid-teens kind of EBIT margins. Is there -- are you making -- I guess, maybe you could just talk about some of the improvements you've maybe made in kind of the underlying business. And as you think about kind of getting to that market getting to that kind of margin on a full year basis. Any kind of visibility to when you might get there?

Yes. So we're very happy with the work that our European team has done, Tim. Over the last couple of years, they worked hard to make sure they're controlling costs. They've done a lot of work from a footprint optimization perspective. And then while trying to maintain good cost control, they have been trying to keep some volume growth relative to the market and the fact that they had 3% volume growth in the second quarter with a record operating margin. We're pretty pleased. The guide is -- the target for those guys is still 15% operating margin. We still think that's a midterm goal and having a little bit of volume growth will help us get there sooner rather than later, but they've still got some work to do, but they've made a lot of progress over the last 3 years.

Our next question is from Kurt Yinger with D.A. Davidson.

First off, on North America, I know you had mentioned $30 million pricing benefit. By my math, I mean, that would have volumes down less than 1% in the quarter. Did mix play a role as well? And any way we could maybe put kind of a finer point just on the volume figure?

For North America volume specifically?

Yes. Yes.

Yes. I mean total company volume in the quarter was down a little less than 1%. So I think in our investor deck, we've got down 0.6% for the quarter. European volume was up a little bit, as Mike said, I think 3%, and that's kind of a small -- about 1/4 of our business. So kind of somewhere around that down 1% and but we did divest a couple business -- or exit a couple of businesses last year that as part of that strategic cost savings. And so that cost us about 70 basis points on the whole company on the quarter in terms of year-over-year volume. So much closer to flat, which would be barely down in North America and then slightly up in Europe.