Simpson Manufacturing (NYSE:SSD) Slaughtered After EPS Beat, Upside Guidance

There’s Nothing Not To Like About Simpson Manufacturing

Simpson Manufacturing Co, Inc (NYSE:SSD) just reported a stellar quarter and updated its guidance, and yet shares are down nearly 4.0% on the news. The move raises questions about the company’s health but upon a deeper look, I can find no fault in the results, the outlook, or the investment. As a leader in construction fasteners, the company is well-positioned for trends within the housing sector, the balance sheet is a fortress, and the dividend is growing so nothing not to like. While I don’t like seeing the stock down the way it is, I can’t say it isn’t offering another opportunity for entry.

Simpson Manufacturing Blows Past Consensus, Raises Guidance

Simpson Manufacturing reported a great quarter, no two bones about it. The only area of weakness is in the EU segment but even that is growing. The top-line revenue came in at $364.3 million or up 17.5% from last year and beat consensus by 1500 basis points. The strength was centered in the North American market, up 19.4%, with the EU up only 6%.

North American sales were underpinned by strong demand in the home center channels that was in turn driven by home-improvement trends and the return of Lowes. The company estimates that all of Lowes 1,700-odd stores will be carrying Simpson products by the end of October. The rising number of housing starts was also cited as aiding NA results. Results in the EU were boosted by a combination of demand and positive FX tailwinds.

Moving down the report, the company’s gross margins came in strong at 47.6%. This is above the consensus and up 320 basis points from last year. The North American segment saw margins increased 330 basis points on a combination of lower material and labor costs, partially offset by higher shipping costs. The European segment margins shrank slightly due to rising labor costs partially offset by lower material costs. At the operating level, margins increased 5.4% to 25.1% and drove a 59% YOY increase in earnings.

On the bottom line, the GAAP earnings came in at $1.54. This is not only up nearly 60% from the previous year but it is also $0.55 or 50% above the consensus. The total cash from ops fell slightly but that’s not a worry, the company made two acquisitions over the past quarter that should help aid expansion in the EU and customer satisfaction in the U.S. Looking forward, Simpson sees FY revenue growing 9% to 10% versus the previously guided 1% to 4%. Not too shabby.

Simpson Manufacturing, Another Stock Ripe For Dividend Increase

Simpson Manufacturing is a stock with a nice history of dividend increases, right up until the pandemic struck. Management didn’t go so far as to suspend the payments in order to preserve capital but they did opt out of an 11th distribution increase. That said, with sales on the rise and the outlook as bright as it is there is no reason they can’t catch up and I expect the company will. Regarding the balance sheet, the company has virtually no debt and paid down a large chunk of what there was over the past quarter. The company’s cash position is large, about $7.25 per share, and coverage high leaving ample free-cash-flow for both acquisitions, CAPEX, buybacks, and a dividend increase. Based on the 23% CAGR the next increase could be substantial so don’t be surprised when it gets announced. Be ready.

Simpson Manufacturing Co, Inc; The Technical Outlook

Shares of Simpson got hit hard after the earnings release but that move doesn’t jibe with the results or the outlook. The good news is that price action appears to be finding support at the $90.00 level where is has bounced three times before. There is a risk that price action will fall below this level but I don’t think it’ll fall far if it does. If support confirms at the $90 level look for prices to rebound back to the $100 and $110 level. If not, the next support target is close to $85.