No Love For Simpson Manufacturing
Simpson Manufacturing (NYSE:SSD) isn’t seeing much love from the market following its Q4 earnings release. Not because the company underperformed, it didn’t, but because the market was expecting the good news. The problem for share prices is that growth was priced in and the Q4 results were not spectacular enough to bring in new money. While hard for investors to watch, the move downward is setting up another buying opportunity in a stock well-positioned for 2021. Don’t forget, home building and home building sentiment are trending at record highs and that means business for Simpson Manufacturing Co.
Simpson Is Firing On All Cylinders
Simpson Manufacturing is riding a wave of home building and home refurbishment that has years to run. Not only is there increasing demand from builders but also from home improvement channels. The company’s $293.9 million in revenue is not only a quarterly record but up 12% from last year and 600 basis points better than the analysts had expected. While strong, the consensus among MarketBeat writers if not Wall Street analysts was for revenue to beat by at least a mid-single-digit rate and that is what we got.
On a segment basis, sales in North America grew by 9.8% while those in Europe grew by 24.9%. Sales in the Americas were aided by the addition of Lowe’s to the fold. This helped drive double-digit gains in the home improvement channels. In the EU locally heavy sales volume and a favorable FX transaction helped to drive results.
Moving down the report, the companies consolidated gross margin improved but by a small 20 basis point margin. Higher costs and lower margins in the U.S. were offset by lower costs and higher margins in the EU. Looking forward, the company refrained from giving revenue or earnings guidance for 2021 but did guide the margins to a range that is 300 basis points above the Q4 results at its low point. On the bottom line, the companies GAAP EPS of $0.68 is up 8% from last year and beat the consensus by $0.03.
The Simpson Manufacturing Dividend Is Very Safe
Simpson Manufacturing may be a hum-drum supplier of nuts and bolts but it is one with a growing business and well-supported by industry trends. It is also a company with a fortress balance sheet and every expectation for aggressive dividend increases at some point in the not-too-distant future.
Simpson execs have refrained from increasing the distribution during the pandemic but have increased it for 10 years prior to it. That, along with the fortress balance sheet, 22% payout ratio, the forecast for widening margin, large cash position, and ample free cash flow all point to future increases if not when one might come. Previous increases were paid in July of their respective year which makes July 2021 a likely target. Until then investors can sit tight knowing the 0.90% yield is reliable.
The Technical Outlook: Simpson Manufacturing Can’t Break Out Of Its Range
Shares of Simpson Manufacturing have been stuck in a trading range since hitting their peak in the summer of 2020. Since then price action has trended between the $90 and the $104 level where they appear to be stuck. The Q4 results and outlook were good but not good enough to spur new buying, especially without a dividend increase to help attract the bulls. In the near-term, investors might expect to see this stock move down to the bottom of the range. In the long-term view, a move to retest the bottom of the range would be a buying opportunity in our opinion.
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