SIMPSON MANUFACTURING CO., INC. Each of the terms the "Company," "we," "our," "us" and similar terms used herein refer collectively toSimpson Manufacturing Co., Inc. , aDelaware corporation and its wholly-owned subsidiaries, includingSimpson Strong-Tie Company Inc. , unless otherwise stated. The Company regularly uses its website to post information regarding its business and governance. The Company encourages investors to use http://www.simpsonmfg.com as a source of information about the Company. The information on our website is not incorporated to reference or other material we file with or furnish to theSecurities and Exchange Commission , except in explicitly noted or as required by law.
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated financial condition and results of operations. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto included in this report.
"Strong-Tie" and our other trademarks appearing in this report are our property.
This report contains additional trade names and trademarks of other companies.
We do not intend our use or display of other companies' trade names or
trademarks to imply an endorsement or sponsorship of us by such companies, or
any relationship with any of these companies.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements generally can be identified by words such as "anticipate," "believe,"
"estimate," "expect," "intend," "plan," "target," "continue," "predict,"
"project," "change," "result," "future," "will," "could," "can," "may,"
"likely," "potentially," or similar expressions that concern our strategy,
plans, expectations or intentions. Forward-looking statements include, but are
not limited to, statements about future financial and operating results, our
plans, objectives, business outlook, priorities, expectations and intentions,
expectations for sales growth, comparable sales, earnings and performance,
stockholder value, capital expenditures, cash flows, the housing market, the
home improvement industry, demand for services, share repurchases, our strategic
initiatives, including the impact of these initiatives on our strategic and
operational plans and financial results, and any statement of an assumption
underlying any of the foregoing and other statements that are not historical
facts. Although we believe that the expectations, opinions, projections and
comments reflected in these forward-looking statements are reasonable, such
statements involve risks and uncertainties and we can give no assurance that
such statements will prove to be correct. Actual results may differ materially
from those expressed or implied in such statements.
Forward-looking statements are subject to inherent uncertainties, risks and
other factors that are difficult to predict and could cause our actual results
to vary in material respects from what we have expressed or implied by these
forward-looking statements. Important factors that could cause our actual
results and financial condition to differ materially from those expressed in our
forward looking statements include, among others, those discussed under Item 1A.
Risk Factors and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations in the 2020 Form 10-K. Additional risks
include: the cyclicality and impact of general economic conditions? changing
conditions in global markets including the impact of sanctions and tariffs,
quotas and other trade actions and import restrictions? the impact of pandemics,
epidemics or other public health emergencies, such as the recent outbreak of
coronavirus disease 2019 (COVID-19)? volatile supply and demand conditions
affecting prices and volumes in the markets for both our products and raw
materials we purchase? the impact of foreign currency fluctuations? potential
limitations on our ability to access capital resources and existing credit
facilities? restrictions on our business and financial covenants under our bank
credit agreement? and reliance on employees subject to collective bargaining
agreements.
We caution that you should not place undue reliance on these forward-looking
statements, which speak only as of the date of this report. We undertake no
obligation to publicly update any forward-looking statement, whether as a result
of new information, future developments or otherwise. Readers are urged to
carefully review and consider the various disclosures made by us in this report
and in our other reports filed with the SEC that advise of the risks and factors
that may affect our business.
Overview
We design, manufacture and sell building construction products that are of high
quality and performance, easy to use and cost-effective for customers. We
operate in three business segments determined by geographic region:
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At our March 23, 2021 analyst and investor day, we unveiled several key growth
initiatives that we believe will help us continue our track record of above
market revenue growth through a combination of organic and inorganic
opportunities. Our organic opportunities are focused on expansion into new
markets within our core competencies of wood and concrete products. These growth
initiatives will focus on the original equipment manufacturers, repair and
remodel or do-it-yourself, mass timber, concrete and structural steel markets.
In order to grow in these markets, we aspire to be among the leaders in
engineered load-rated construction building products and systems and
customer-facing technology while leveraging our engineering expertise,
deep-rooted relationships with top builders, engineers, contractors, code
officials and distributors, along with our ongoing commitment to testing,
research and innovation. Importantly, we currently have existing products,
testing results, distribution and manufacturing capabilities for five targeted
areas for growth. Although these initiatives are all currently in different
stages of development our successful growth in these areas will ultimately be a
function of expanding our sales and/or marketing functions to promote our
products to different end users and distribution channels, expanding our
customer base, and potentially introducing new products in the future.
Also during the March analyst and investor day, we highlighted our Five-year Ambitions, which are as follows:
1.Strengthen our values-based culture; 2.Be the business partner of choice; 3.Strive to be an innovative leader in our product categories; 4.Continue above market growth relative to theU.S. housing starts; 5.Remain within the top quartile of our proxy peers for operating income margins; and 6.Remain in the top quartile of our proxy peers for return on invested capital.
As with our growth initiatives, we expect to make periodic updates related to material developments with our Five-year Ambitions.
A novel strain of coronavirus ("COVID-19") surfaced in late 2019 and has spread
around the world, including to the United States . In March 2020 , the World
Health Organization declared COVID-19 a worldwide pandemic and the President of
the United States declared the COVID-19 outbreak a national emergency. As of
June 30, 2021 , the effects of and responses to the pandemic continue to have a
significant impact on worldwide economic activity and on macroeconomic
conditions. Vaccines are available in various countries and distribution of the
vaccine also varies by country and in the U.S. by state. The duration and
severity of the effects of the pandemic are still unknown and cannot be
predicted with any certainty. Notwithstanding the Company's continued efforts to
promote the health and safety of our employees, suppliers and customers, as the
COVID-19 pandemic continues, health concern risks remain. It also remains
unclear how various national, state, and local governments will react if the
distribution of vaccines is slower than expected or new variants of the virus
become more prevalent.
In response to the pandemic, government authorities in the countries and states
where we operate have issued various and differing shelter in place and stay at
home orders, social distancing guidelines, mask mandates and other measures in
response to the COVID-19 pandemic. In many of those locations our operations are
classified as an "essential business" and we continue to operate our business in
compliance with applicable state and local laws and are observing recommended
CDC guidelines to minimize the risk of spreading the COVID-19 virus. We have
undertaken numerous steps and instituted additional precautions to protect our
employees, suppliers and customers, as their safety and well-being is one of our
top priorities, and to comply with health and safety guidelines. These steps and
precautions include enhanced deep cleaning, staggered shifts, temperature
checking, use of face masks, practicing social distancing and limiting
non-employees at our locations, amongst other safety related policies and
procedures. Although vaccines are available where we operate, health concern
risks remain and it is possible the COVID-19 pandemic could further impact our
operations and the operations of our suppliers and vendors particularly in light
of variant strains of COVID-19 that may cause a resumption of high levels of
infection and hospitalization.
The Company's management team continues to monitor and manage its ability to
operate effectively and, to date, the Company has not experienced any
significant disruptions within its supply chain. Our supply chain partners have
been very supportive and continue to do their part to ensure that service levels
to our customers remain strong and, to date, we have not experienced any
supply-chain disruptions and continued to meet our customers' needs despite the
challenges presented by the pandemic. We will continue to communicate with our
supply chain partners to identify and mitigate risk and to manage inventory
levels.
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In response to the COVID-19 pandemic the Company proactively took measures to
maintain and preserve its strong financial position and flexibility. The
Company's Crisis Management Team, which includes members of senior management,
meets regularly to review and assess the status of the Company's operations and
the health and safety of its employees.
The Company's business, financial condition and results of operations depends
significantly on the level of U.S. housing starts and residential construction
activity. Though single-family housing starts increased significantly from
prior-year's level, we believe there is uncertainty that demand will increase in
the short-term due to a number of supply-chain factors affecting new home
completion. With recent sales price increases, we believe net sales will likely
increase in future periods even if demand does not decrease. However, increased
selling prices are expected to be offset by increasing material costs, sourcing
logistics complications and a tight labor market, which could negatively affect
operating margins for the remainder of 2021.
Since June 2020 , inventory pounds in North America , which is the bulk of our
inventory, decreased 23% while the weighted average cost per pound of total on
hand increased approximately 49%. Over the next 12 to 18 months, steel cost
increases are expected to result in lowering operating margins by 300 to 400
basis points from 2021.
Management continues to monitor the impact of the global situation on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce.
Factors Affecting Our Results of Operations
Unlike lumber or other products that have a more direct correlation toU.S. housing starts, our products are used to a greater extent in areas that are subject to natural forces, such as seismic or wind events. Our products are generally used in a sequential process that follows the construction process. Residential and commercial construction begins with the foundation, followed by the wall and the roof systems, and then the installation of our products, which flow into a project or a house according to these schedules. Our sales also tend to be seasonal, with operating results varying from quarter to quarter. With some exceptions, our sales and income have historically been lower in the first and fourth quarters than in the second and third quarters of a fiscal year, as our customers tend to purchase construction materials in the late spring and summer months for the construction season. Weather conditions, such as extended cold or wet weather, which affect and sometimes delay installation of some of our products, could negatively affect our results of operations. Political, economic events such as tariffs and the possibility of additional tariffs on imported raw materials or finished goods or such as labor disputes can also have an effect on our gross and operating profits as well as the amount of inventory on-hand. Our operations can also be affected by a volatile steel market. Changes in raw material cost could negatively affect our gross profit and operating margins depending on the timing of raw material purchases or how much sales prices can be increased to offset higher raw material costs.
Our operations also expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the COVID-19 pandemic.
ERP Integration
InJuly 2016 , our Board of Directors approved a plan to replace our current in-house enterprise resource planning ("ERP") and externally sourced accounting platforms with a fully integrated ERP platform fromSAP America, Inc. ("SAP") in multiple phases by location at all facilities plus our headquarters, with a focus on configuring, instead of customizing, the standard SAP modules. We went live with our first wave of the SAP implementation project in February of 2018, and completed implementation at ourNorth America operations in 2021. We expect to complete the company-wide SAP implementation during 2022. While we believe the SAP implementation will be beneficial to the Company over time, annual operating expenses have and are expected to continue to increase through 2024 as a result of the SAP implementation, primarily due to increases in training costs and the depreciation of previously capitalized costs.
Business Segment Information
Historically ourNorth America segment has generated more revenues from wood construction products compared to concrete construction products. Our wood construction product net sales increased 23.2% for the quarter endedJune 30, 2021 compared toJune 30, 2020 , primarily due to higher product prices. Our concrete construction product net sales increased 15.2% for the quarter endedJune 30, 2021 compared toJune 30, 2020 , primarily due to higher product prices. Operating profits increased due 24 -------------------------------------------------------------------------------- to higher sales and gross margins, partly offset by higher operating expenses primarily for personnel costs and professional fees. If current economic conditions continue and factoring in recently announced sales price increases, we believeNorth America operating margins could be higher in 2021 compared to 2020. However, increased steel costs, product sourcing complications and a tight labor market will likely result in lower operating margins in the second half of 2021. OurEurope segment also generates more revenues from wood construction products than concrete construction products.Europe net sales increased for the quarter endedJune 30, 2021 compared toJune 30, 2020 , primarily due to higher sales volumes in local currency and were positively affected by approximately$5.3 million in foreign currency translation related toEurope's currencies strengthening againstthe United States dollar. Wood construction product sales increased 53.7% for the quarter endedJune 30, 2021 compared toJune 30, 2020 . Concrete construction product sales are mostly project based, and net sales increased 40.6% for the quarter endedJune 30, 2021 compared toJune 30, 2020 . Gross margins increased, mostly due to lower labor, factory, warehouse and shipping costs, partly offset by higher material costs. Operating expenses increased, primarily due to increased personnel costs. If current economic conditions continue and factoring in recently announced sales price increases, we believeEurope operating margins could be higher in 2021 compared to 2020. However, increased steel costs and product sourcing complications could offset increased sales, negatively affecting operating margins towards the end of 2021 through 2022.
Our
Business Outlook
OnJuly 26, 2021 , the Company provided a full-year outlook. The Company updated its full year outlook, primarily reflecting actual results of the second quarter, as well as improved visibility on the pandemic-related restrictions and the impact of those restrictions on the Company's operations. Based on current business trends and conditions, the Company's outlook for the full fiscal year endingDecember 31, 2021 is as follows:
•Operating margin is estimated to be in the range of 19.5% to 21.0%.
•The effective tax rate is estimated to be in the range of 25.0% to 26.0%, including both federal and state income tax rates.
•Capital expenditures are estimated to be in the range of
Results of Operations for the Three Months Ended
Unless otherwise stated, the below results, when providing comparisons (which are generally indicated by words such as "increased," "decreased," "unchanged" or "compared to"), compare the results of operations for the three months endedJune 30, 2021 , against the results of operations for the three months endedJune 30, 2020 . Unless otherwise stated, the results announced below, when referencing "both quarters," refer to the three months endedJune 30, 2020 and the three months endedJune 30, 2021 .
Second Quarter 2021 Consolidated Financial Highlights
The following table illustrates the differences in our operating results for the three months endedJune 30, 2021 , from the three months endedJune 30, 2020 , and the increases or decreases for each category by segment: 25 -------------------------------------------------------------------------------- Three Months Three Months Ended Increase (Decrease) in Operating Segment Ended June 30, North Asia/ Admin & June 30, (in thousands) 2020 America Europe Pacific All Other 2021 Net sales$ 326,076 $ 63,750 $ 19,059 $ 1,396 $ -$ 410,281 Cost of sales 176,276 24,790 11,867 673 229 213,835 Gross profit 149,800$ 38,960 $ 7,192 $ 723 (229) 196,446 Research and development and other engineering expense 12,191 1,619 324 34 1 14,169 Selling expense 26,834 4,547 1,487 299 - 33,167 General and administrative expense 38,636 9,842 2,196 101 (3,365) 47,410 Total operating expenses 77,661 16,008 4,007 434 (3,364) 94,746 Net loss (gain) on disposal of assets (73) 25 7 12 1 (28) Income from operations 72,212 22,927 3,178 277 3,134 101,728 Interest income (expense), net and other (151) (2,450) (673) (139) 777 (2,636) Income before income taxes 72,061 20,477 2,505 138 3,911 99,092 Provision for income taxes 18,582 8,393 474 6 (846) 26,609 Net income$ 53,479 $ 12,084 $ 2,031 $ 132 $ 4,757 $ 72,483 Net sales increased 25.8% to$410.3 million from$326.1 million primarily by the implementation of two product price increases during the quarter along with marginal increase in sales volume. Wood construction product net sales, including sales of connectors, truss plates, fastening systems, fasteners and shearwalls, represented 87% and 86% of the Company's total net sales in the second quarters of 2021 and 2020, respectively. Concrete construction product net sales, including sales of adhesives, chemicals, mechanical anchors, powder actuated tools and reinforcing fiber materials, represented 13% and 14% of the Company's total net sales in the second quarters of 2021 and 2020, respectively. Gross profit increased 31.1% to$196.4 million from$149.8 million . Gross margins increased to 47.9% from 45.9%, primarily due to product price increases. Gross margins, including some inter-segment expenses, which were eliminated in consolidation, and excluding other expenses that are allocated according to product group, increased to 47.4% from 46.2% for wood construction products and increased to 47.5% from 40.7% for concrete construction products, respectively.
Research and development and engineering expense increased 16.2% to
Selling expense increased 23.6% to$33.2 million from$26.8 million , primarily due to increases of$3.2 million in personnel costs,$2.4 million in commissions, and$1.5 million in professional fees, partly offset by decreases of$0.5 million in stock-based compensation expense. General and administrative expense increased 22.7% to$47.4 million from$38.6 million , primarily due to increases of$4.9 million in professional fees,$4.3 million in personnel costs, and$0.6 million in amortization and depreciation expense, partly offset by a decrease of$1.0 million in stock-based compensation expense. Included in general and administrative expense are SAP implementation and support costs of$4.7 million , which increased$2.2 million from the prior year quarter.
Our effective income tax rate increased to 26.9% from 25.8%.
Consolidated net income was
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Net sales
The following table represents net sales by segment for the three-month periods
ended
North Asia/
(in thousands) America Europe Pacific Total
Three months ended
June 30, 2020 $ 286,807 $ 37,379 $ 1,890 $ 326,076
June 30, 2021 350,557 56,438 3,286 410,281
Increase $ 63,750 $ 19,059 $ 1,396 $ 84,205
Percentage increase 22.2 % 51.0 % 73.9 % 25.8 %
The following table represents segment net sales as percentages of total net
sales for the three-month periods ended June 30, 2021 and 2020, respectively:
North Asia/
America Europe Pacific TotalPercentage of total 2020 net sales 88 % 12 % - %
100 % Percentage of total 2021 net sales 85 % 14 % 1 % 100 % Gross profit
The following table represents gross profit by segment for the three-month
periods ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Three months ended
June 30, 2020 $136,024 $13,106 $484 $186 $149,800
June 30, 2021 174,984 20,298 1,207 (43) 196,446
Increase $38,960 $7,192 $723 $(229) $46,646
Percentage Increase 28.6 % 54.9 % * * 31.1 %
* The statistic is not meaningful or material.
The following table represents gross profit as a percentage of sales by segment
for the three months ended
North Asia/ Admin &
America Europe Pacific All Other Total
2020 gross profit percentage 47.4 % 35.1 % 25.6 % * 45.9 %
2021 gross profit percentage 49.9 % 36.0 % 36.7 % * 47.9 %
* The statistic is not meaningful or material.
•Net sales increased 22.2%, due primarily to product price increases that took effect in second quarter, in an effort to offset rising material costs, along with marginally higher sales volumes. Most of the Company's distribution channels continued to benefit from increasedU.S. housing starts and repair and remodel activity, while sales to home centers decreased.Canada's net sales also increased primarily due to higher sales volumes and were positively impacted by approximately$2.6 million in foreign currency translation. 27 --------------------------------------------------------------------------------
•Gross profit as a percentage of net sales increased to 49.9% from 47.4%, primarily due to the aforementioned product price increases.
•Research, development and engineering expenses increased 14.4%, primarily due to increases of$0.5 million in personnel costs and$0.3 million in professional fees,$0.2 million in lower capitalized costs and$0.2 million in patent costs. •Selling expense increased 20.3%, primarily due to increases of$2.1 million in travel-associated expenses,$1.8 million in personnel costs,$1.3 million in commissions, and$0.5million in professional fees, offset by decreases of$0.6 million in advertising costs and$0.5 million in stock-based compensation. •General and administrative expense increased 32.6%, primarily due to increases of 8.4 million for professionallegal fees,$0.9 million in personnel costs,$0.8 million in rent, depreciation and amortization, partly offset by a decrease of$0.3 million in stock-based compensation.
•Income from operations increased by
•Net sales increased 51.0%, primarily due to higher sales volumes and were
positively affected by approximately
•Gross profit as a percentage of net sales increased to 36.0% from 35.1%, primarily due to lower labor, factory, warehouse and shipping costs, partly offset by higher material costs, each as a percentage of net sales.
•Income from operations increased by$3.2 million , primarily due to the increase in sales volumes and gross profit, partly offset by higher operating expenses due to higher personnel costs.
•For information about the Company'sAsia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the three months endedJune 30, 2021 and 2020, respectively.
Results of Operations for the Six Months Ended
Unless otherwise stated, the results announced below, when providing comparisons (which are generally indicated by words such as "increased," "decreased," "unchanged" or "compared to"), compare the results of operations for the six months endedJune 30, 2021 , against the results of operations for the six months endedJune 30, 2020 . Unless otherwise stated, the results announced below, when referencing "both periods," refer to the six months endedJune 30, 2020 and the six months endedJune 30, 2021
Year-to-Date (6-month) 2021 Consolidated Financial Highlights
The following table illustrates the differences in our operating results for the six months endedJune 30, 2021 , from the six months endedJune 30, 2020 , and the increases or decreases for each category by segment: 28 -------------------------------------------------------------------------------- Six Months
Six Months
Ended Increase (Decrease) in Operating Segment Ended
June 30, North Asia/ Admin & June 30,
(in thousands) 2020 America Europe Pacific All Other 2021
Net sales 609,744 $ 115,263 $ 30,623 $ 2,292 $ - $ 757,922
Cost of sales 330,278 52,714 18,882 492 (3,171) 399,195
Gross profit 279,466 62,549 11,741 1,800 3,171 358,727
Research and development and other
engineering expense 25,573 2,723 377 85 - 28,758
Selling expense 55,361 6,637 1,626 364 2 63,990
General and administrative expense 77,107 17,793 2,574 107 (1,606) 95,975
158,041 27,153 4,577 556 (1,604) 188,723
Net gain on disposal of assets (137) 66 25 -0.84 (63) 1 (108)
Income from operations 121,562 35,330 7,139 1,307 4,774 170,112
Interest expense, net and other (2,684) (2,833) 1,062 (56) 98 (4,413)
Income before income taxes 118,878 32,497 8,201 1,251 4,872 165,699
Provision for income taxes 28,573 14,033 1,365 209 (1,353) 42,827
Net income $ 90,305 $ 18,464 $ 6,836 $ 1,042 $ 6,225 $ 122,872
Net sales increased 24.3% to $757.9 million from $609.7 million . Net sales
increased due to increases in sales volumes as well as the implementation of
product price increases during the second quarter of 2021. Wood construction
product net sales, including sales of connectors, truss plates, fastening
systems, fasteners and shearwalls, represented 87% and 86% of the Company's
total net sales in the first six months of 2021 and 2020, respectively. Concrete
construction product net sales, including sales of adhesives, chemicals,
mechanical anchors, powder actuated tools and reinforcing fiber materials,
represented 13% and 14% of the Company's total net sales in the first six months
of 2021 and 2020, respectively.
Gross profit increased 28.4% to $358.7 million from $279.5 million . Gross profit
margins increased to 47.3% from 45.8%, primarily due to lower labor costs and
factory expense as well as product price increases implemented during the second
quarter, partly offset by higher material costs, warehouse, and shipping expense
each as a percentage of net sales. The gross profit margins, including some
inter-segment expenses, which were eliminated in consolidation, and excluding
other expenses that are allocated according to product group, increased to 47.0%
from 45.8% for wood construction products and increased to 45.2% from 42.4% for
concrete construction products.
Research and development and engineering expense increased 12.5% to
Selling expense increased to$64.0 million from$55.4 million , primarily due to increases of$6.8 million in personnel costs and sales commissions,$3.0 million in professional fees,$1.0 million in stock-based compensation, and$0.4 million cash profit sharing expense, partly offset by decreases of$1.0 million in advertising and promotional expense,$0.6 million travel-related expenses and$0.4 million software development costs being capitalized. General and administrative expense increased to$96.0 million from$77.1 million , primarily due to increases of$6.0 million in professional fees, including consulting fees,$4.9 million in personnel costs,$3.6 million in stock-based compensation,$2.5 million in cash profit sharing expenses and$1.6 million in depreciation and amortization expenses. Included in general and administrative expense are costs associated with the SAP implementation and support of$9.3 million , an increase of$3.4 million over the first six-months of 2020.
Our effective income tax rate increased to 25.8% from 24.0%.
Consolidated net income was
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Net sales
The following table represents net sales by segment for the six-month periods
ended
North Asia/
(in thousands) America Europe Pacific Total
Six Months Ended
June 30, 2020 $ 535,857 $ 70,111 $ 3,776 $ 609,744
June 30, 2021 651,120 100,734 6,068 757,922
Increase $ 115,263 $ 30,623 $ 2,292 $ 148,178
Percentage increase 21.5 % 43.7 % 60.7 % 24.3 %
The following table represents segment net sales as percentages of total net
sales for the six-month periods ended
North Asia/
America Europe Pacific Total
Percentage of total 2020 net sales 88 % 12 % - %
100 % Percentage of total 2021 net sales 86 % 13 % 1 % 100 % Gross profit
The following table represents gross profit by segment for the six-month periods
ended
North Asia/ Admin &
(in thousands) America Europe Pacific All Other Total
Six Months Ended
June 30, 2020 $ 254,819 $ 23,807 $ 651 $ 189 $ 279,466
June 30, 2021 317,369 35,548 2,451 3,359 358,727
Increase $ 62,550 $ 11,741 $ 1,800 $ 3,170 $ 79,261
Percentage increase 24.5 % 49.3 % * * 28.4 %
* The statistic is not meaningful or material
The following table represents gross profit as a percentage of sales by segment
for the six-month periods ended
North Asia/ Admin &
(in thousand) America Europe Pacific All Other Total
2020 gross profit percentage 47.6 % 34.0 % 17.2 % * 45.8 %
2021 gross profit percentage 48.7 % 35.3 % 40.4 % * 47.3 %
* The statistic is not meaningful or material.
•Net sales increased 21.5%, primarily due to higher sales volumes from all of our distribution channels, including the return of Lowe's, and product price increases implemented during the second quarter.Canada net sales increased primarily due to increases in sales volume and were positively affected by$3.3 million foreign currency translation in local currency.
•Gross profit margin increased to 48.7% from 47.6%, primarily due to decreases in labor, warehouse and factory and overhead costs as well as product price increases implemented during the second quarter, partly offset by higher material costs, each as a percentage of net sales.
30
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•Research and development and engineering expense increased $2.7 million ,
primarily due to increases of $1.0 million in personnel costs, $0.6 million in
professional fees, $0.3 million in patent costs, and $0.2 million in computer
related costs.
•Selling expense increased $6.6 million , primarily due to increases of $4.6
million in personnel costs and sales commissions, $1.5 million in professional
fees, $0.8 million in stock-based compensation, and $0.8 million in cash profit
sharing expense, partly offset by decreases of $0.9 million in advertising and
promotional expense, and $0.4 million in travel-associated expenses.
•General and administrative expense increased $17.8 million , primarily due to
increases of $11.6 million in professional fees, including consulting fees, $2.6
million in personnel costs, $1.3 million in depreciation and amortization
expense, $0.8 million in computer software and hardware costs and $0.6 million
in stock-based compensation, partly offset by decreases of $0.3 million in
travel related expenses, and $0.3 million in cost profit sharing. Included in
general and administrative expense are costs associated with the SAP
implementation and support of $7.2 million , an increase of $1.3 million over the
first six months of 2020.
•Income from operations increased
•Net sales increased 43.7%, primarily due to higher sales volumes compared to last year's COVID-19 related slow-down.Europe sales were also benefited by positive$8.8 million foreign currency translations resulting from someEurope currencies strengthening againstthe United States dollar. •Gross profit margins increased to 35.3% from 34.0%, primarily due to lower labor, factory, shipping and warehouse costs, offset by higher material costs each as a percentage of net sales.
•Selling expense increased
•General and administrative expense increased$2.6 million , primarily due to increases of$1.1 million in professional fees,$0.9 million in personnel costs, and$0.3 million in cash profit sharing. Included in general and administrative expense are costs associated with the SAP implementation and support of$2.0 million , an increase of$0.8 million over the first six months of 2020.
•Income from operations increased
•For information about the Company'sAsia/Pacific segment, please refer to the tables above setting forth changes in our operating results for the six months endedJune 30, 2021 and 2020, respectively.
Effect of New Accounting Standards
See "Note 1 Basis of Presentation - Not Yet Adopted Accounting Standards" to the accompanying unaudited interim condensed consolidated financial statements.
Liquidity and Sources of Capital
InJuly 2021 , the Company entered into a fourth amendment to the unsecured credit agreement datedJuly 27, 2012 withWells Fargo Bank, National Association , and certain other institutional lenders that provides for a$300.0 million unsecured revolving credit facility ("Credit Facility"). The amendment extends the term of the Credit Facility fromJuly 23, 2022 , toJuly 12, 2026 31 -------------------------------------------------------------------------------- and modified certain covenants to provide us with additional flexibility. As ofJune 30, 2021 , the full$300 million on the Credit Facility was available for borrowing and we remain debt free. Our principal uses of liquidity include the costs and expenses associated with our operations, including financing working capital requirements and continuing our capital allocation strategy, which includes supporting capital expenditures, repurchasing the Company's common stock, paying cash dividends, and financing other investment opportunities over the next twelve months. As ofJune 30, 2021 , our cash and cash equivalents consisted of deposits and money market funds held with established national financial institutions. Cash and cash equivalents of$67.7 million are held in the local currencies of our foreign operations and could be subject to additional taxation if repatriated tothe United States . The Company is maintaining a permanent reinvestment assertion on its foreign earnings relative to remaining cash held outsidethe United States .
The following table presents selected financial information as of
At June 30, At December 31, At June 30,
(in thousands) 2021 2020 2020
Cash and cash equivalents $ 305,796 $ 274,639 $ 315,448
Property, plant and equipment, net 255,353 255,184 247,119
Goodwill, intangible assets and other 164,511 165,110 156,957
Working capital less cash and cash
equivalents 363,453 284,439 326,040
The following table provides cash flow indicators for the six-month periods
ended
Six Months Ended June 30,
(in thousands) 2021 2020
Net cash provided by (used in):
Operating activities $ 81,632 $ 42,766
Investing activities (26,214) (13,444)
Financing activities (25,603) 57,733
Cash flows from operating activities result primarily from our earnings, and are
also affected by changes in operating assets and liabilities which consist
primarily of working capital balances. Our revenues are derived from
manufacturing and sales of building construction materials. Our operating cash
flows are subject to seasonality and are cyclically associated with the volume
and timing of construction project starts. For example, trade accounts
receivable is generally at its lowest at the end of the fourth quarter and
increases during the first, second and third quarters.
During the six months ended June 30, 2021 , operating activities provided $81.6
million in cash and cash equivalents, as a result of $122.9 million from net
income and $41.2 million from reversing non-cash expenses from net income, which
included depreciation and amortization expense and stock-based compensation
expense. Cash provided from net income was partly offset by a decrease of $82.7
million in the net change in operating assets and liabilities, including
increases of $84.7 million in trade accounts receivable, $27.3 million in
inventory and $14.8 million in other current assets, partly offset by increases
of $35.9 million in other current liabilities and $10.8 million in trade
accounts payable.
Cash used in investing activities of $26.2 million during the six months ended
June 30, 2021 was mainly for capital expenditures and a $6.8 million investment
in a venture capital fund. Our capital spending in 2019, 2020 and the six months
ended June 30, 2021 was $37.5 million , $37.9 million and $19.3 million ,
respectively, which was primarily used for machinery and equipment purchases and
software in development. Based on current information and subject to future
events and circumstances, we expect new capital spending for fiscal year 2021
will be in the $55 million to $60 million range which includes carryover
projects from 2020 that were paused due to COVID-19 concerns. Capital spending
will be primarily for safety needs, equipment replacement and productivity
improvements. At this time only a small amount of capital spending is related to
our growth initiatives.
32
-------------------------------------------------------------------------------- Cash used in financing activities of$25.6 million during the six months endedJune 30, 2021 consisted primarily of$20.0 million used to pay dividends to our stockholders and$5.3 million used to pay income taxes on behalf of the employees for shares withheld with respect to their vested restricted stock units. OnJuly 14, 2021 , the Board declared a quarterly cash dividend of$0.25 per share payable onOctober 28, 2021 , to the Company's stockholders of record onOctober 7, 2021 . The Board also approved changing our capital return threshold from 50% of our cash flow from operations to 50% of our free cash flow, which is calculated by subtracting capital expenditures from cash flow from operations. For the six months endedJune 30, 2021 , we have returned$20 million of our free cash flow to stockholders. As illustrated in the table below, from 2015 to 2020, the Company returned cash of$637.7 million in stock repurchases and dividends, which represented 70.2% of our total cash flow from operations during the same period. The Company has repurchased over 7.7 million shares of the Company's common stock since the beginning of 2015, which represents approximately 15.7% of the outstanding shares of the Company's common stock. Number of Shares Cash Paid for Share Cash paid for (in thousands) Repurchased Repurchases Dividends Total January 1 - December 31, 2020 1,053 76,189 40,400 116,589 January 1 - December 31, 2019 972 60,816 40,258 101,074 January 1 - December 31, 2018 1,955 110,540 39,891 150,431 January 1 - December 31, 2017 1,138 70,000 36,981 106,981 January 1 - December 31, 2016 1,244 53,502 32,711 86,213 January 1 - December 31, 2015 1,339 47,144 29,352 76,496 Total 7,701 $ 418,191$ 219,593 $ 637,784 During the month of July, 2021, the Company repurchased 182,752 shares of the Company's common stock in the open market at an average price of$109.44 per share, for a total of$20.0 million . For the seven months endingJuly 31, 2021 , the Company returned$40.0 million of our free cash flow to our stockholders.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
Inflation and Raw Materials
We believe that the effect of inflation has not been material in recent years, as general inflation rates have remained relatively low. However, the cost of steel, lumber and petroleum products have increased in the last few quarters as had housing prices on strong demand, especially for new housing compared to a limited supply. This could have an effect on the general inflation rates in future quarters. Our main raw material is steel. As such, increased steel prices may adversely affect our gross profit margin if we cannot recover the higher costs through price increases in a timely manner, which is reflected in the Business Outlook section above.
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