Simpson Strong-Tie parent, California-headquartered Simpson Manufacturing, has reported consolidated net sales increased 7% to $326.1 million during the second quarter of the year.
North America net sales were up 10.7% to $286.8 million, primarily due to higher sales volumes from the return of Lowe's, a home centre customer. Despite Canada's net sales adversely impacted by negative foreign currency translation, in local currency, Canada sales increased as a result of higher sales volumes.
North America gross margin increased to 47.7% from 45.1% owing to decreases in material cost which was partly offset by higher labour, warehouse and shipping costs, each as a percentage of net sales.
It was a slightly different story across the pond, though, as Europe net sales of $37.4 million decreased 14.4% from $43.6million, due to lower sales volumes related to Covid-19 plant closures. Europe sales were also impacted by roughly $1.2 million of negative foreign currency translations resulting from some European currencies weakening against the US dollar.
Europe gross margin decreased to 35.1% from 37%, primarily due to increased costs as a percentage of sales resulting from lower production volumes.
"We executed a strong second quarter with sales of $321.6 million improving 7% year-over-year and 15% quarter-over-quarter on higher volume despite the significant level of macroeconomic challenges resulting from Covid-19," said Karen Colonias, Simpson Manufacturing President and CEO. "Our sales volume improved primarily due to the addition of Lowe's, a returning home centre customer, which resulted in considerably higher demand associated with the initial product rollout into stores.
"We also experienced improved sales in the repair and remodel market as a result of a shift in consumer behaviour toward home renovations which we believe stemmed from the Covid-19 pandemic and ongoing shelter-in-places orders."
Partially offsetting this strength, Colonias said, were Europe-specific volume declines following government-ordered shutdowns in the UK and France. As a result, the company produced a strong gross margin of 45.9% due to a combination of sales mix and lower material costs on improved overhead absorption. Coupled with the firm's effective expense management, this resulted in a 35% year-on-year increase in its income from operations to $72.2 million and earnings of $1.22 per diluted share.
"The health, safety and wellbeing of our employees is our top priority, and we have been extremely diligent in our efforts to ensure Simpson remains a safe place to work by enacting rigorous safety protocols in all of our facilities," she continued. "These actions, in addition to being deemed an essential business, have enabled us to continue operating our business and serve our customers with minimal disruptions in a highly difficult environment."
Colonias believes the solid demand trends Simpson experienced in Q2 from the addition of Lowe's and improved repair and remodel market will continue, and in turn, offset the expected weakness in the housing market.
"As a result, we expect our full year net sales and gross margin will improve year-over-year in 2020 subject to circumstances outside of our control related to the Covid-19 pandemic," she added. "We will continue to execute our model with an emphasis on enhancing our operating efficiencies and cost savings which will serve us well through this pandemic and longer-term."
On 27 April, the company withdrew its 2020 full-year outlook originally provided in February due to uncertainty surrounding the Covid-19 pandemic and related impacts on the company's business. Simpson now believes it is in a better position to provide a full year outlook reflecting an additional quarter of results.
Based on business trends and conditions as of yesterday, 27 July, the company's outlook for the rest of the fiscal year predicts net sales to increase in the range of 1.5-4% compared to 2019, with gross margin estimated to be in the range of 43-45%. The firm predicts its operating expenses as a percentage of net sales are estimated to be between 27-29%.
Simpson Manufacturing maintained it was continuing to monitor the impact of the Covid-19 pandemic on its operations and financial condition, and pointed out ongoing uncertainties around the outbreak could still have a material adverse impact on the company's financial outlook.
In March, Simpson Manufacturing released its inaugural Sustainability, Environmental and Social Responsibility Report, highlighting the company’s commitment to sustainable business practices to its employees and stakeholders.
