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Text: Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties.
We encourage you to read the risks described in the Company's public filings and reports, which are available on SEC or the Company's corporate website.
Now I would like to turn the conference over to Karen Colonias, Simpson's President and Chief Executive Officer.
I'll begin with a summary of our key first quarter performance drivers and initiatives.
Brian will then walk you through our financials and updated full-year 2021 business outlook in greater detail.
Our first quarter consolidated net sales were strong, growing 22.6% year-over-year to $347.6 million on significantly higher sales volumes.
Our gross margin expanded to 46.7% from 45.7% in the prior year quarter, primarily due to lower labor, factory, warehouse and shipping costs, which were partially offset by higher material costs.
Our solid gross margin, combined with our diligent expense management and reduced costs due to COVID-19, drove a significant year-over-year increase of 38.6% in our income from operations to $68.4 million and an increase of 39.8% in our earnings per diluted share to $1.16.
The increase in sales volume we experienced in the first quarter was primarily a result of the continued momentum in the home center distribution channel, where sales increased over 60% compared to the prior year period.
As a reminder, the home center distribution channel includes both our home center and co-op customers and is where we see much of our repair and remodel business.
We are continuing to see increased activity in the repair and remodel space likely as a result of the ongoing pandemic as consumers continue home renovations.
Lowe's contributed significantly to the channel growth compared to the first quarter last year, due to their return as a home center customer in the second quarter of 2020.
Our sales further benefited from solid trends in U.S. housing starts.
As we generally experience a multiple month lag in demand from the time of the start, in the first quarter, we benefited from strong fourth quarter 2020 housing starts, which grew over 10% year-over-year.
In addition, housing starts in the markets where we sell the most content continued to surpass the broader U.S. housing starts, especially in single-family space and in the western and southern regions of the U.S. While adverse weather conditions in the month of February resulted in certain supply chain interruptions, most notably in Texas, we have since addressed any back order demand and did not record a material impact to our first quarter performance.
Now let's turn to Europe.
Our first quarter sales improved over the prior year on local currency basis, given strong demand trends and our ability to continue meeting our customers' needs due to our solid inventory management practices amid broader supply chain shortages.
As a reminder, net sales in the first quarter of 2020 were negatively affected by weaker conditions in Europe due to COVID-19 when two of our larger European operations in the United Kingdom and France were ordered to cease operations in late March.
As of today, all of our major production and distribution facilities remain open and operational in Europe, so we continue to promote remote work from home where possible, such as in our corporate offices to help prevent the spread of COVID-19.
Lastly, I'd like to take a moment to discuss some recent pricing dynamics in the marketplace.
As previously announced in early February, we implemented price increases ranging from 5% to 12% depending on the product mix for certain of our wood connectors, fasteners and concrete products in the U.S. in an effort to offset rising material costs.
These price increases went into effect on April 5, following a 60-day notice period to our customers.
The notification also included a clause that prohibited significant pre-buying ahead of the increases in order for us to properly manage our inventory levels.
As a result, we do not believe we experienced meaningful pre-buying activity related to these increases.
More recently, we announced the second price increase ranging from 6% to 12% primarily for our wood connector products in the U.S. in an effort to further offset rising material costs.
Our customers were notified of this increase on April 16, which will go into effect on June 15.
We expect the impact of these price increases will help support our ability to maintain strong gross profit margins through the end of the year.
I'd now like to turn to a high-level discussion on our key growth initiatives.
As many of you are aware, we held a Virtual Analyst and Investor Day event on March 23 in which we unveiled several growth initiatives that we believe will help us continue our track record of above-market 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.
Our inorganic opportunities will be focused on licensing, purchasing IP and traditional M&A.
As a reminder, our growth initiatives focused on the following markets, which I'll list in no particular order of priority: OEM, original equipment manufacturers; repair remodel, the do-it-yourself market; mass timber, concrete and structural steel.
In order to appropriately grow in the first three markets that being OEM, retail -- R&R as well as the DIY and mass timber, we aspire to be a leader in engineered load-rated construction fastener solutions, given that each of these markets have a broader product opportunity within the fastener solutions.
In addition, we're striving to be a stronger leader in customer-facing technology, which has been a focus of ours for a number of years.
Here I'm referring to software that helps our customers better run their business by providing them with the proper tools to design, select and specify the right Simpson solutions for the job.
We expect technological advancements will drive enhanced growth in all of our key growth initiatives as well as across all of Simpson Manufacturing in general.
We believe our business model will support our ability to be successful throughout each of these areas, given our engineering expertise, our deep-rooted relationship 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, test results, distribution and manufacturing capabilities for all five of our growth initiatives.
This is also important to note that these initiatives are currently in different stages of development.
Our successful growth in these areas will ultimately be a function of expanding our sales and 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.
We will keep you appraised of significant updates regarding our key growth initiatives as they arise.
I'd also like to highlight our five-year Company ambitions that we unveiled at our Analyst Investor Day.
First, we want to strengthen our values-based culture.
Barclay Simpson founded our Company on the nine principles of doing business, which continue to guide our organization today.
Our Simpson Strong-Tie employees are our most important asset.
So we spend a significant amount of time communicating with them to ensure a relentless customer focus, involving them in leadership programs and instilling a safety-first culture.
Second, we want to be the partner of choice.
This ambition takes on many meanings.
It means we want to be your solution provider, your trusted brand to provide you a solution and quickly get that product out to your job site and we want to make it easy to do business with us.
We aspire to be the partner of choice in all aspects of our business.
Third, we strive to be an innovative leader in product categories.
If we can accomplish this, we have no doubt we will be able to accomplish ambition Number 4, which is to continue our above-market growth relative to U.S. housing starts.
This we will continue to expand our operating income margin to remain within the top quartile of our proxy peers.
And finally, we will continue expanding our return on invested capital to remain in the top quartile of those peers.
After building our strong foundation through the 2020 plan, we look forward to an even stronger future ahead.
Before I close today, I'd like to briefly touch on our capital allocation strategy.
As our business continues to generate strong cash flows, we remain focused on appropriately balancing our growth and stockholder return priorities.
We will prioritize investing in our growth initiatives in areas such as engineering, talented marketing and sales personnel and testing capabilities.
M&A also remains a key focus in order to expand our product line and develop complete solutions for the markets in which we operate to strengthen our business and improve our market share.
As previously stated, we are leveraging venture capital expertise to help identify potential strategic acquisitions or investments, including innovative technologies of interest in the building space.
In summary, we are thrilled with our strong first quarter performance, despite global macroeconomic turbulence stemming from ongoing pandemic.
We expect the second quarter of 2021 will reflect ongoing sales momentum with strong Q1 housing starts in the areas we primarily serve, which positions us well to continue to benefit from this unique environment.
Our employees have been thoughtfully engaged with our leadership team as it pertains to our Company ambitions and growth initiatives to ensure a collaborative environment and to assist in the execution of our strategy.
We look forward to capitalizing on our growth opportunities in adjacent markets by leveraging our business model, built on engineering, testing and innovation.
I'm pleased to discuss our first quarter financial results with you today.
Now turning to our results.
As Karen highlighted, our consolidated net sales were strong, increasing 22.6% to $347.6 million.
Within the North America segment, our net sales increased 20.7% to $300.6 million, primarily due to higher sales volumes in our home center distribution channel, which includes our home center and co-op customers.
Sales volumes were supported by the return of Lowe's, along with increased repair and remodel activity.
We also continue to benefit from solid demand trends in other distribution channels, which are experiencing increased demand from new housing starts and repair and remodel activity.
In Europe, net sales increased 35.3% to $44.3 million, primarily due to higher sales volumes in local currency.
Europe's sales also benefited by approximately $3.6 million of positive foreign currency translations resulting from some Europe currencies strengthening against the United States dollar.
Wood construction products represented 87% of total sales, compared to 86% and concrete construction products represented 13% of total sales compared to 14%.
Consolidated gross profit increased by 25.2% to $162.3 million, which resulted in a stronger Q1 gross margin of 46.7% compared to last year.
Gross margin increased by 100 basis points, primarily due to lower labor, factory, warehouse and shipping costs, which were partially offset by higher material costs.
On a segment basis, our gross margin in North America increased to 48.5% compared to 47.7%, while in Europe, our gross margin increased to 34.4% compared to 32.7%.
From a product perspective, our first quarter gross profit margin on wood products was 46.6% compared to 45.4% in the prior year quarter and was 42.5% for concrete products, the same as the prior year quarter.
Now turning to our first quarter costs and operating expenses.
Research and development and engineering expenses increased 9% to $14.6 million, primarily due to increases in personnel costs, professional fees and patent costs.
Selling expenses increased 8% to $30.8 million due to increases in stock-based compensation, personnel costs and professional fees, offset by a decrease in travel-related costs.
On a segment basis, selling expenses in North America were up 9.1% and in Europe, they were up 2.8%.
General and administrative expenses increased 26.2% to $48.6 million, primarily due to increases in stock-based compensation, personnel costs and professional fees and amortization and depreciation expense, offset by a decrease in travel-related costs.
Total operating expenses were $94.0 million, an increase of $13.6 million or approximately 16.9%.
As a percentage of net sales, total operating expenses were 27%, an improvement of 130 basis points compared to 28.3%.
Our solid topline performance combined with our stronger Q1 gross margin and diligent expense management helped drive a 38.6% increase in consolidated income from operations to $68.4 million compared to $49.4 million.
In North America, income from operations increased 29.5% to $69.4 million, primarily due to increased gross profit, partly offset by higher operating expenses.
In Europe, income from operations increased 35.3% to $2.3 million, primarily due to increased gross profit.
On a consolidated basis, our operating income margin of 19.7% increased by approximately 230 basis points.
Our effective tax rate increased to 24.3% from 21.3% due to a lower windfall tax credit on the vesting of restricted stock units.
Accordingly, net income totaled $50.4 million, or $1.16 per fully diluted share compared to $36.8 million or $0.83 per fully diluted share.
Now turning to our balance sheet and cash flow.
Our balance sheet remained healthy with ample liquidity to operate our day-to-day operations.
At March 31, cash and cash equivalents totaled $257.4 million, a decrease of $44.3 million compared to March 31, 2020.
As of March 31, 2021, the full $300 million on our primary line of credit was available for borrowing and we remain debt-free with a small portion of capital leases, mostly unchanged from year-end.
Our inventory position of $296.8 million at March 31 increased by $13 million from our balance at December 31, as we continue to see higher levels of construction activity and raw material prices along with the unprecedented demand we've experienced throughout the pandemic.
We continue to carefully manage raw material inventory purchases in this environment of rising costs and limited supplies, all while striving to maintain our high levels of customer service and on-time delivery standards.
As a result of our improved profitability and effective working capital management, we generated strong cash flow from operations of $18.5 million for the first quarter of 2021, an increase of $5.8 million or 45.5%.
We used approximately $10.5 million for capital expenditures during the quarter.
In regard to stockholder returns, we paid $10 million in dividends during the first quarter.
As of March 31, 2021, we had the full amount of our $100 million share repurchase authorization available, which will remain in effect through the end of 2021.
Given our confidence in our business and our expectation that our strategic initiatives will continue to drive improved operational performance and a higher return on invested capital, we expect we'll remain both active and opportunistic as it relates to share purchase activity.
Our next Board meeting is scheduled to take place in early May, where we will review our capital allocation priorities in greater detail.
Based on business trends and conditions as of today, April 26, we are updating certain elements of our guidance for the full year ending December 31, 2021 as follows.
We're updating our operating margin outlook to now be in the range of 19.5% to 22%, compared to our original estimate of 16.5% to 18.5%.
We're increasing the range to reflect the impact of our recent price increase announcements, as well as the stronger-than-anticipated demand trends we've been experiencing in 2021.
While we are very pleased to increase our outlook for operating margins in fiscal 2021, it's important to note that based on our current expectations, we are anticipating raw material costing pressure in late 2021 and into fiscal 2022.
Our gross margins in the first half of 2021 will reflect an average cost of steel sourced prior to or early into the surging steel market together with steel purchased more recently at substantially higher prices.
As we work through our on-hand inventory and continue to buy raw material at these higher prices, our anticipated cost of goods sold are expected to increase significantly in the latter part of 2021 and 2022 even if prices for raw materials begin to decline, adversely impacting our margins, as the impact from averaging raw material costs typically lags our price increases.
However, as announced during our recent Analyst and Investor Day, the key focus of our five-year Company ambitions will be to expand our operating income margin to remain within the top quartile of our proxy peers, which we plan to achieve through successful execution on our growth initiatives and careful expense management.
In addition, we expect our effective tax rate to be in the range of 25% to 26%, including both federal and state income tax rates.
And finally, we are reiterating our capital expenditure outlook to be in the range of $50 million to $55 million, including approximately $10 million to $15 million, which will be used for safety and maintenance capex.
It's important to note, our elevated capital expenditure spend relative to fiscal 2020 includes carryover projects that we have previously paused due to the pandemic, investments in factory equipment to improve service levels, as well as for safety and maintenance updates.
At this time, only a small amount of our capex spend is related to pursuing our growth initiatives outlined during our Investor and Analyst Day.
In summary, we were very pleased with our strong first quarter financial results and operating performance.
We believe our significant scale, geographic reach and diverse product offerings combined with our strong balance sheet gives us confidence in our ability to maintain operational excellence and support current and future demand trends moving forward.

user
compname reports q1 earnings per share of $1.16.
q1 earnings per share $1.16.
q1 sales rose 22.6 percent to $347.6 million.
sees fy 2021 operating margin to be in range of 19.5% to 22.0%.

assistant