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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 the SEC's 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 full-year 2020 results before turning to a discussion on our key fourth quarter performance drivers and initiatives.
Brian will then walk you through our financials and fiscal 2021 business outlook in greater detail.
I am extremely proud of our strong financial and operational performance in 2020 which we delivered in a highly challenging operating environment amid the COVID-19 pandemic.
Our net sales improved 11.6% over 2019 to $1.28 billion, the highest in the company's history, driven by strong sales volume.
As a result, we generated record earnings of $4.27 per diluted share, up 43.3% over 2019.
These results would not have been possible without the hard work and dedication of all our Simpson employees.
Their diligence including strict adherence to protocols to help minimize the spread of COVID-19 has enabled us to continue operating our business with minimal disruptions from the pandemic.
On behalf of the entire Simpson management team, we applaud them for their tremendous efforts.
The health, safety and well-being of all our employees remains our Number 1 priority and we will strive for continuous improvement to ensure Simpson remains a safe and rewarding place to work.
Our record 2020 results were further supported by our commitment to position Simpson for long-term sustainable and increasingly profitable growth.
In October of 2017, we unveiled a three-year 2020 plan with aggressive targets to maximize our operating efficiencies and drive long-term shareholder value.
Since then, we've made significant progress against our goal, some of which we updated in July of 2019 to reflect changes in the macroeconomic landscape.
While we elected to withdraw these financial targets in April 2020 due to the significant level of uncertainty surrounding COVID-19, we continued to execute based on the same underlying principles, focusing on operating efficiencies and cost savings to guide us through the COVID-19 pandemic.
At the same time, we did experience certain tailwinds in our business as a result of the COVID-19 related macroeconomic conditions, namely we had favorable steel prices, temporary reduction in travel and related operating expenses, and an increase in repair and remodel activity.
Due to the culmination of these factors, we were able to meet or exceed nearly all of our ambitious 2020 plan objectives.
We are very proud of these accomplishments and I'd like to spend a few minutes discussing those with you.
Our first 2020 plan objective was a continued focus on organic growth.
Our goal was to achieve a compounded annual growth rate in net sales of approximately 8% from 2016 to 2020.
As of the year end of 2020, we had well exceeded this target, achieving a compounded annual growth rate over 10% relative to our 2016 baseline.
Milestones that helped support this goal included price increase for the majority of our US wood connector products in the third quarter of 2018, the signing of one of our largest US homebuilding companies onto our builder program resulting in 23 of the Top 25 US builders now engaged on our program, strong repair and remodel trends associated with the COVID-19 pandemic and the return of Lowe's as the home center customer in mid-2020.
Our second objective involved rationalizing our cost structure to improve companywide profitability.
We aimed to reduce our total operating expense as a percent of net sales from 31.3% in 2016 to a range of 26% to 27% by the end of 2020.
We tackled this through a combination of zero based budgeting, lowering our indirect procurement costs and other cost reduction measures we took in both Europe and in our concrete business.
In addition, specifically in 2020, we experienced solid cost savings from our expense management practices as well as one-time benefits from the reduced travel and trade show costs as a result of the COVID-19 restriction.
These factors combined with strong topline growth enabled us to exceed our operating expense target.
For the full year of 2020, we recorded operating expenses as a percent of net sales of 25.6%, representing 570 [Phonetic] basis points of improvement compared to 2016.
Our next plan was to improve our operating income margin to a range of 16% to 17% by the end of 2020.
We exceeded this target as our gross margin significantly benefit from lower material costs and limited spending on operating expenses due to the COVID-19 restrictions.
We reported an operating income margin of 19.9% for 2020, a 350 basis point improvement compared to 16.4% in 2016.
At the consolidated level, our gross margin improvement was supported by enhanced gross margins in our concrete business, another 2020 plan goal.
Following the unveiling of the 2020 plan, we implemented a new concrete strategy in late 2017 by narrowing our concentration to six distinct product categories.
By focusing on these higher margin products to increase profitability, we exceeded our goal of improving our global concrete gross margin from 34.7% in 2016 42% in 2020.
Our final profitability goal was to improve our operating income margin in Europe.
We've made substantial progress in Europe over the past few years, including rolling out our fastener lines in the Nordic region and in France, the consolidation of our European management team to create efficiencies as well as significant cost cutting initiatives.
As a result, we achieved an operating income margin of 7% excluding our SAP costs of approximately $2.5 million in 2020.
While this is lower than our original target range of 8% to 9%, we are pleased with the results, which reflect approximately 350 basis points of improvement versus the 2016 numbers.
Our third objective focused on improving our working capital management and overall balance sheet discipline.
Since the onset of the 2020 plan, we've made headway on this front, primarily through inventory reductions and the implementation of lean principles throughout our operation.
We've completed a three-phase SKU reduction program, eliminating upwards of 12,000 non-moving or slow-moving items and converted our customers over to replacement products.
In addition, we carried out rapid improvement events at many of our US production facilities, resulting in efficiency enhancements as well as improved management of inventory and purchasing practices.
As we move forward, we remain committed to driving continuous cost management and improved efficiencies through our lean initiatives.
However, consistent with our strategy, it is critical that we balance our inventory purchases with our liquidity needs in order to maintain our commitment to product availability standards and an exceptional customer service experience.
The final element of our 2020 plan was focused on maximizing shareholder value with the goal of improving our return on invested capital from 10.5% in 2016 to a range of 15% to 16% by the end of 2020.
Through our solid operational execution, combined with the enactment of the US Tax Cuts and Jobs Act of 2017, which lowered our effective income tax rate beginning in 2018, we surpassed this target, ending 2020 with the return on invested capital of 20%.
Beyond this, we continued to return capital to our shareholders in the form of dividends and share buybacks.
In 2020, we returned $116.2 million to our stockholders through the payments of $40 million in dividends and $76.2 million in share repurchases.
Since the onset of the 2020 plan, we have returned over 83% of our cash generated by operations to our shareholders, far exceeding our target of 50% I'm extremely proud of all that we've accomplished in these past three years and by executing on the 2020 plan, we achieved solid organic growth, we've rationalized our cost structure to improve companywide profitability and we've improved our working capital management and balance sheet position, in turn creating value for all key Simpson stakeholders.
Now let's turn to a brief information on our fourth quarter results and operating initiatives.
Our fourth quarter consolidated net sales grew 12% year-over-year to $293.9 million on significantly higher volume.
Gross margin increased to 42.1% from 41.9% in the prior year quarter, primarily related to strength in Europe, where we experienced lower material and warehouse costs.
Our solid gross margin combined with effective expense management and reduced costs from travel and other restrictions as a result of the COVID-19 drove a 7.8% year-over-year increase in our income from operations to $39.5 million and earnings of $0.68 per diluted share.
The increase in sales volume we experienced in the fourth quarter was primarily related to ongoing momentum in the home center distribution channel, which includes both our home centers and co-op customers.
We are continuing to experience a shift in consumer behavior toward home renovations as a result of the pandemic.
Sales from home center distribution channels where we see much of our repair and remodel business improved over the prior year period.
Growth was supported by our product rollout of our connectors, mechanical anchors and fastener product solutions into all 1737 Lowe stores, which we completed during the fourth quarter.
As a reminder, Lowe's returned to Simpson as a home center customer beginning in the second quarter of 2020.
Our sales were further supported by solid US housing starts, as we generally experience a multiple month lag in the demand from the time of the start, in the fourth quarter, we benefited from strong third quarter 2020 housing starts which grew over 11% year-over-year.
In addition, while we typically see lower seasonal sales in the fourth quarter related to holiday closures and winter conditions, in 2020, the fourth quarter, we experienced a very mild winter.
This enabled construction activity to continue late into the year, further bolstering our net sales.
Turning now to Europe.
Sales continued to recover nicely following government-ordered shutdowns to our operations in the United Kingdom and France due to COVID-19 in late March.
Sales were assisted by strong demand trends and our ability to meet our customer needs through our solid inventory management practices.
We believe our sales benefited in Europe during the fourth quarter as many of our competitors experienced supply chain issues.
During this time, we were able to offer customers the important products they required to keep up with demand and to maintain job site on schedule.
I'd also like to note that while the United Kingdom has reimplemented shutdowns due to the most recent COVID-19 surge, we have been deemed an essential business and all of our major production and distribution facilities have remained open and operational with remote work being promoted where possible, such as in our corporate offices.
In regards to, [Indecipherable] implementation, the rollout continued to progress despite travel limitations related to COVID-19.
In the fourth quarter, we completed the SAP rollout at our UK branch and Gallatin, Tennessee locations, both of which are now live.
Most recently, we successfully transitioned all of our Canadian-based sales organization over to SAP, thus completing the full SAP rollout in North America, a very important milestone.
This year we will continue working on the SAP transition in our European locations and the rest of the world and we currently anticipate a companywide completion in 2022 and we will continue to monitor and update our timeline should circumstances change.
Now I'd like to briefly touch on our capital allocation structure.
We are very grateful to be able to operate as a supplier to other essential businesses with only minimal disruptions due to the pandemic.
As our business continues to generate strong cash flow, we remain focused on appropriately balancing our growth and stockholder return priorities.
We are also very pleased to be in a position to pay off our line of credit borrowing in pool, as well as declare our quarterly dividend as we have done consistently since 2004.
While the challenges of the COVID-19 pandemic continue to impact our broader economy, exiting 2020 we feel confident in the bright future that we believe lies ahead for Simpson.
With another quarter of strong year-over-year growth in housing starts, which were up over 11% in the fourth quarter of 2020, we believe housing will continue to be a key element of the economic recovery in the coming years ahead and we are well positioned to capitalize on this environment.
At the same time, we continue to pursue our strategy of diversification, positioning our business to be less vulnerable to US housing market through key investments and adjacent products in markets and we also remain focused on growth, including M&A opportunities that would complement our existing product offering, manufacturing footprint or strengthening our software capabilities.
Our success in achieving the 2020 plan target has created a very strong foundation for Simpson, successfully positioning our company for long-term sustainable and increasingly profitable growth.
But now we are ready for our next chapter.
Today, I'm pleased to announce that on Tuesday, March 23, we plan to host a Virtual Analyst and Investor Day to provide more insight and details surrounding the elements of our business strategy in 2021 and beyond.
Additional information about this event will be released in the coming days.
I'm pleased to discuss our fourth quarter financial results with you today.
Now turning to our results.
As Karen highlighted, our consolidated net sales were strong, increasing 12% to $293.9 million.
Within North America segment, net sales increased 9.8% to $249.1 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.
Our net sales further benefited from other distribution channels, which experienced increased demand from new housing starts and repair and remodel activity.
In Europe, net sales increased 24.9% to $41.8 million primarily due to higher sales volumes in local currencies.
Wood construction products represented 85% of total sales compared to 83% and concrete construction products represented 15% of total sales compared to 17% last year.
Consolidated gross profit increased by 12.4% to $123.7 million, which resulted in a stronger Q4 gross margin of 42.1% compared to last year.
Gross margin increased by 20 basis points, primarily due to lower material and warehouse costs, which were partially offset by higher labor costs.
On a segment basis, our gross margin in North America declined to 43.2% compared to 43.9%, while in Europe, gross margin increased to 25.3% compared to 29.9%.
From a product perspective, our fourth quarter gross margin on wood products was 41.8% compared to 40.8% in the prior year quarter and was 39.6% for concrete products compared to 43.7% in the prior year quarter.
Now turning to our fourth quarter costs and operating expenses.
Research and development and engineering expenses increased 10% to $12.9 million primarily due to personnel costs, stock-based compensation, product testing and cash profit sharing expenses.
Selling expenses decreased 1.2% to $27.8 million due to lower travel and entertainment and advertising and trade show expenses, partly offset by higher personnel costs, cash profit sharing, sales commissions and stock-based compensation expense.
On a segment basis, selling expenses in North America were down 2.1% and in Europe, they were mostly flat.
General and administrative expenses increased 10.9% to $43.6 million primarily due to increases in cash profit sharing, stock-based compensation and software subscriptions and licenses.
Total operating expenses were $84.3 million dollars, an increase of $5.1 million or approximately 6.5%.
As a percentage of net sales, total operating expenses were 28.7%, an improvement of 150 basis points compared to 30.2%.
Our solid topline performance combined with our stronger Q4 gross margin and diligent management of costs and operating expenses helped drive a 7.8% increase in consolidated income from operations to $39.5 million compared to $36.6 million.
In North America, income from operations decreased 1.8% to $36.1 million.
In the fourth quarter of 2019 North America income from operations included a $5.6 million gain on the sale of a selling and distribution facility.
In Europe, income from operations increased 145.8% to $1.3 million primarily due to increased gross profit.
On a consolidated basis, our operating income margin of 13.4% decreased by approximately 50 basis points.
Our effective tax rate increased to 25.6% from 22.3% due to the release of foreign valuation allowances in 2019.
Accordingly, net income totaled $29.6 million or $0.68 per fully diluted share compared to $28.1 million or $0.63 per fully diluted share.
Now let's turn to our balance sheet and cash flow.
Our balance sheet remained healthy with ample liquidity to operate our day-to-day operations.
At December 31, cash and cash equivalents totaled $274.6 million, an increase of $44.4 million compared to December 31, 2019 after paying down the remaining $75 million on our revolving credit facility during the quarter.
As of December 31, 2020, the full $300 million on our primary line of credit was available for borrowing.
Our inventory position of $283.7 million at December 31 increased by $23.6 million from our balance at September 30 as we continue to see higher levels of construction activity along with the unprecedented demand we've experienced through the pandemic.
We continue to be highly selective in regard to inventory purchases through careful management and purchasing practices along with maintaining our high level -- 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 $77.5 million for the fourth quarter of 2020, an increase of $21.1 million or 37.4%.
For the full year of 2020, we generated $207.1 million of cash flow from operations, which increased nearly $1.5 million.
During the fourth quarter, we used approximately $17 million for capital expenditures.
For the full year of 2020, capital expenditures were approximately $37.9 million, in line with our reduced expectations as a result of our focus on cash preservation in mid-2020 due to COVID-19.
We were also pleased to have paid $40.4 million in dividends in fiscal 2020 including $10.2 million in the fourth quarter.
In addition, we repurchased approximately 1.05 million shares of our common stock in 2020 at an average price of $72.33 per share for a total of $76.2 million.
This includes approximately 151,000 shares of our common stock that we repurchased during the fourth quarter at an average price of $89.49 per share for a total of $13.5 million.
As our authorization for repurchases of common stock expired at year-end, on December 16, our Board of Directors authorized the repurchase of up to $100 million of our common stock, which went into effect on January 1, 2021 and runs through December 31, 2021.
In addition, on January 22, our Board of Directors declared a quarterly cash dividend of $0.23 per share, which will be payable on April 22, 2021 to stockholders of record as of April 1, 2021.
Based on business trends and conditions as of today, February 8, we are initiating guidance for the full year ending December 31, 2021 as follows.
Operating margin is estimated to be in the range of 16.5% to 18.5%.
The effective tax rate is estimated to be in the range of 25% to 26% including both federal and state income taxes and capital expenditures are estimated to be in the range of $50 million to $55 million including approximately $10 million to $13 million, which will be used for maintenance capex.
As of today, the magnitude and duration of the COVID-19 pandemic and its impact on general economic conditions remains uncertain.
It's important to note that the potential economic impact related to COVID-19 on our operations, raw material costs, consumers, suppliers and vendors may have a material adverse impact on our 2021 financial outlook should conditions materially change from the current environment.
We will continue to monitor the impact of COVID-19 on our operations, which were not significantly impacted in the fourth quarter of 2020.
In summary, despite the COVID-19 related challenges in the marketplace and ongoing uncertainty, we were very pleased with our fourth quarter financial results and operating performance.
Our industry-leading position, geographic reach and diverse product offerings combined with our strong balance sheet and liquidity position gives us confidence in our ability to maintain operational excellence and support current and future demand trends.
As Karen mentioned, we look forward to updating you on our go-forward business strategy in 2021 and beyond during our Virtual Analyst and Investor Day on March 23.

user
compname reports q4 earnings per share $0.68.
q4 earnings per share $0.68.
q4 sales $293.9 million versus refinitiv ibes estimate of $276.1 million.
sees fy 2021 operating margin is estimated to be in range of 16.5% to 18.5%.
capital expenditures are estimated to be in range of $50 million to $55 million for 2021.

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