Simpson Manufacturing Co., Inc. (NYSE:SSD) Q4 2017 Earnings Conference Call - Final Transcript

Feb 05, 2018 • 05:00 pm ET


Simpson Manufacturing Co., Inc. (NYSE:SSD) Q4 2017 Earnings Conference Call - Final Transcript


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Karen Colonias

an annual mid-single-digit rate over the next few years. In addition, industry sources site that the repair-remodel market also remains solid with expected annual growth rate in the mid single digit range. The second contributing factor will be the $30 million annualized revenue opportunity for our mechanical anchor product line in the Home Depot.

In 2017, we rolled this out into 285 Home Depot locations across the US and we anticipate these products will be set in approximately 500 additional stores throughout 2018. We anticipate the completed roll out into all 1,900 stores will be accomplished by 2020. Third, our top line growth expectations assume increased market share and profitability in Europe. And fourth, market share gains in both our trust and concrete product offerings.

In 2018, we estimate steady top line growth in Europe will continue to be driven by improved economic conditions and our focus on the complete product offering of connectors and fasteners in the Nordic and Western European markets. In the concrete space, we remain on track to grow our current 10% share over $1.3 billion addressable market to approximately 14% by 2020.

While we are prioritizing organic growth supported by strategic capital investment, I would like to reiterate that we will continue to evaluate attractive acquisition targets that will help grow and improve our company. However, we will not be pursuing further acquisitions in the concrete repair space. Despite our industry leading margin profile, we are intently focused on rationalizing our cost structure to drive profitability. That said, operational improvements will not jeopardize the basic fundamentals of our business that enable us to achieve such strong margins.

We maintain a trusted brand reputation to our proprietary testing capabilities, deep industry relationships and involvement with code officials to improve construction practices. We also pride ourselves on being able to provide reliability for our customers to deliver products in typically 24 hours or less. To that end we continued to expect an improvement in total operating expenses as a percentage of net sales to a range of 26% to 27% by 2020 from 31.8% in 2016.

To help gauge progress towards our goal, we feel confident in our ability to achieve total operating expenses as a percent of net sales in the mid 29% range by the end of 2018. For the full year 2017, operating expenses as a percent of net sales were 31.4%, down 40 basis points compared to 31.8% in 2016. Severance charges of $4.8 million in the fourth quarter of 2017 negatively impacted total operating expenses as a percent of net sales by about 50 basis points.

We have made positive strides towards our target during the fourth quarter by reducing total operating expense dollars by $2 million in Europe and by $3 million in the concrete space. In Europe we are reiterating our 2020 operating income margin target. We reduced our headcount in the fourth quarter primarily in our wood connector locations in Europe to right size these businesses as well as