Simpson Manufacturing Co. Nails Down Its Growth Initiatives
Simpson Manufacturing Co. (NYSE: SSD) has been riding a wave of growth that can be attributed to two things; the pandemic and its CEO, Karen Colonias. The pandemic unleashed a wave of demand the company is working hard to cash in on, it was Ms. Colonias, however, that guided the company through the tough times and put it on the course it is today. Today the company is branching out from the core construction-related products it built its name on to focus on 5 growth markets. These include construction and residential housing but also manufacturing of all varieties and specifically the OEM auto market. The takeaway for us is that Simpson Manufacturing is a strong company with a proactive leader who’s got it on a hyper-growth trajectory.
"Over the past year, we made significant progress on our growth initiatives to support different end users and distribution channels. Included in these efforts was a realignment of our sales teams to more specifically focus on five end use markets - residential, commercial, OEM, national retail and building technology, which has led to new customer and project wins within each of our five key growth initiatives,” said Ms. Colonias in the Q1 press release.
Simpson Manufacturing Is An Unlikely Hyper-Growth Story
Simpson Manufacturing is an unlikely business to enter a hyper-growth phase but the numbers speak for themselves. The company reported $493.6 million in net revenue for a gain of 42% over last year. This is an acceleration from last year’s 22.5% gain which was itself an acceleration from the prior year’s 9.5% increase. In the two-year stack, Simpson's Revenue is up nearly 75% and on track to continue growing on a YOY if not a sequential quarterly basis. The only negative in this is that pricing increases played a large role in the growth but 1) demand remains high and unaffected by prices and 2) inroads to new markets are being built and already driving business. On a segment basis, North American sales led with a gain of 46.2% while Europe grew at a slower 16.2% pace.
Moving down to the income, the company was able to widen its margin versus last year because of quick action on the part of management. Management began raising their prices early in 2021 to combat input costs, wages, and shipping costs and that resulted in wider gross and operating margin. The gross margin widened by 130 basis points while the operating margin widened by 550 bps. This, plus share repurchases over the past year, combined for GAAP earnings of $2.18 or up 88% from last year and $0.64 better than the Marketbeat.com consensus estimate. The company does not give guidance but, based on these metrics, we expect to see not only the analysts upping their targets but for the company to outperform the new targets.
The Analysts Are Attached To Simpson Manufacturing
There are only 4 analysts covering Simpson Manufacturing right now but they’ve all issued commentary this year, they are all bullish, and at least one was issued in the wake of the Q1 results. That came from Robert W. Baird which raised the price target to $145 which is about 35% above the current price action. This target is also in-line with the consensus and a bit short of the high target of $152 that was set in February.
Turning to the chart, price action is up following the report and suggests bottoming at the $104 level. There is some resistance at the short-term moving average, however, that may cap gains. If the market can not get above the EMA there is a chance of a move below recent support. A fall below $104 would be bearish. If price action can get above the EMA there may also be resistance at $112. A move above that would then face resistance at the $120 level.
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