Simpson Manufacturing Co., Inc Rockets To New High On Growth Outlook
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The Simpson Manufacturing Co. Story Just Got More Interesting
We’ve liked Simpson Manufacturing Co., (NYSE: SSD) for some time. The company is well-positioned in the U.S. and European housing markets and supported by demand from both the new construction/renovation and consumer DIY/home-improvement channels. It is also a solid dividend-payer with a positive outlook for dividend growth and now we like the company even more. Not only are the Q1 results far beyond expectations the outlook has taken on a new turn that suggests revenue growth will accelerate over the next year or two.
"We aspire to be a leader in engineered load-rated construction fastening solutions and believe that there is a broad product opportunity within the OEM, R&R/DIY and mass timber markets. In addition, we are working to be a stronger leader in customer-facing technology to help our customers run their businesses more efficiently. We currently have existing products, testing results, distribution and manufacturing capabilities for all of our growth initiatives which are currently in different stages of development."
Simpson Manufacturing Co., Inc Hits The Nail On The Head In Q1
Simpson Manufacturing Co., Inc not only had a good quarter it had a great quarter. Unlike many others this reporting season, Simpson was able to beat the consensus and by a wide enough margin to get the market’s attention. The $347.64 in revenue is down sequentially but the second-highest quarterly take in company history, up 22.5% from last year, and beat the consensus by 1100 basis points. And the YOY growth is accelerating.
Revenue strength was seen in both the North America and European segments with the first up 20.7% and the second a stronger 35%. Gains in both regions were driven by rising volume with U.S. sales aided by the return of Lowes and EU sales by favorable FX conversion.
Moving down, the goods news is not limited to revenue. The company’s margins improved at both the gross and operating levels to produce a 38.6% increase in operating income and a 45% increase in cash flow from operations. On the bottom line, the $1.16 in GAAP earnings is up 40% from last year and beat the consensus by $0.26 or 28%.
The Q1 results were good enough for the company to give a little color on FY21 but not what we’d call actual guidance. The company says the FY operating margin should come in the range of 19.5% to 22% versus the previous range of 16.5% to 18.5%. Our take is that 1) earnings will be well above what was previous expected during a time of expected revenue expansion and 2) the company is forecasting margin expansion or at least the possibility of margin expansion later in the year which is also good for earnings. We like it.
Simpson Manufacturing Could Increase Its Dividend
Simpson Manufacturing pays a dividend so safe the only thing we can fault is the yield but even that has a silver lining. At 0.86% the yield is well below what we like to buy for our dividend growth portfolio but there is this to consider. The quarterly payout is less than 20% of the Q1 earnings and the balance sheet is a fortress with ample cash, cash flow, and free cash flow to continue paying the dividend, possibly increase it, and fund its growth initiatives without turning to the debt market. That's a win in our view. The company hasn’t increased the payout for the last two years but there is a history of increases prior to that so we are optimistic about future increases at least.
The Technical Outlook: Simpson Manufacturing Breaks Out To New Highs
Shares of Simpson Manufacturing jumped more than 4.0% on the Q1 news and broke out to a new all-time high. The move is in line with the underlying trend and driven by a robust outlook for growth so we think it could have legs. The indicators are both firing bullish crossovers and strong entry signals that also suggest upward movement is strong and has room to run. Our first target for resistance is near the $120 level, is the stock can get above that level a move up to $140 is likely.
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