Q3 2025 Earnings Call Contradictions: Volume Decline, Cost Savings, and Strategic Shifts

Date of Call: October 27, 2025

Financials Results

• Revenue: $623.5M, up 6.2% year-over-year
• EPS: $2.58 per diluted share, compared to $2.21 prior year (net income $107.4M vs $93.5M)
• Gross Margin: 46.4%, down 40 basis points year-over-year
• Operating Margin: 22.6%, up 130 basis points year-over-year

Guidance:

• Operating margin for full-year 2025 expected to be 19% to 20%.
• U.S. housing starts expected down mid-single digits vs. 2024; Europe roughly flat.
• Slightly lower overall gross margin expected due to new facilities and recent tariffs, partially offset by June 2 and October 15 price increases.
• Nonrecurring severance costs of ~$9M–$12M in 2025; includes $12.9M gain from Gallatin sale in margin.
• Interest expense on term loan expected ~ $5M; effective tax rate 25.5%–26.5%.
• 2025 CapEx $150M–$160M; 2026 share repurchase authorization up to $150M.

Business Commentary:

* Revenue Growth Amid Market Challenges: - Simpson Manufacturing Co. reported net sales of $623.5 million in Q3 2025, reflecting a 6.2% increase year-over-year. - The growth was primarily driven by a June price increase, which contributed positively, and favorable foreign exchange effects.

• Volume Trends and Market Dynamics:
• North American volumes were modestly lower, with volume calculations excluding software, services, and equipment.

• The decline in housing starts, particularly in the southern and western regions, affected volumes, though the company continues to outperform the market.

• Strategic Cost Savings Initiatives:

• The company initiated strategic cost savings actions, expecting annualized savings of at least $30 million, with onetime charges of approximately $9 million to $12 million to be realized in fiscal 2025.

• These actions are in response to a downturn in the housing market and aim to align operations with evolving market demand while maintaining customer service levels.

• Gross Margin Impact and Pricing Actions:

• Consolidated gross margin was 46.4%, slightly below the previous year due to higher input costs, including tariffs and labor costs.
• Pricing actions, including a June price increase and a further increase in October, are expected to contribute approximately $100 million in annualized sales.

Sentiment Analysis:

Overall Tone: Neutral

• Management described 'solid results' despite a soft housing market, highlighted pricing and FX drove revenue (+6.2%), but volume declines and tariff-driven margin pressure prompted $30M annualized cost-savings and $9M–$12M one-time charges; management reiterated commitment to 20%+ operating margins and expanded share repurchase plans.

Q&A:

• Question from Dan Moore (CJS Securities, Inc.): To start, 6% revenue growth — give us a flavor for organic volume declines in North America and what did volume growth look like in Europe?
  Response: Pricing (~5 pts) and FX (~1 pt) drove most of the 6.2% sales growth; global volume was down ~1 point and North America YTD volume down ~1.4%.

• Question from Dan Moore (CJS Securities, Inc.): Do you see catalysts that could reverse the trend into next year or do you foresee continued declines, and is that why you're taking cost actions?
  Response: Management expects mid-single-digit declines this year and a likely flat market next year, so they initiated cost actions to protect margins and reach their 20% operating income target.

• Question from Dan Moore (CJS Securities, Inc.): Any breakdown between North America and Europe on the targeted cost savings, and timing for the remaining one-time charges?
  Response: Region breakdown not disclosed; model Q4 for the remaining $6M–$9M of the $9M–$12M one-time costs (with $3M already in Q3).

• Question from Dan Moore (CJS Securities, Inc.): Is the $30M cost savings intended to improve the bottom line to return to 20% operating margin or will some be reinvested?
  Response: The $30M is targeted to restore/maintain the ~20% operating income level (not framed as reinvestment).

• Question from Timothy Wojs (Robert W. Baird & Co.): Is the cost action driven by expectation that the market will stay slower, or is something worse happening?
  Response: Cost reductions are driven by expectations of a slower/flattish market next year and the need to ensure delivery of the 20% operating margin ambition.

• Question from Timothy Wojs (Robert W. Baird & Co.): When will tariffs fully flow through gross margin and does the new Gallatin facility affect gross margins?
  Response: About ~80% of tariff impact was reflected in Q3; modest additional margin erosion expected into Q4/Q1; Gallatin provides little noticeable short-term gross-margin benefit.

• Question from Timothy Wojs (Robert W. Baird & Co.): What's the nearer-term volume trajectory — will volumes get weaker into early next year?
  Response: Q3 volume down 2.7% sequentially and YTD down 1.4%; trend modestly worsening but uncertain going forward.

• Question from Timothy Wojs (Robert W. Baird & Co.): Should we expect Simpson to continue to outperform mid-single-digit market declines?
  Response: Company's ambition is to outgrow the market (historically ~300 basis points above starts).

• Question from Kurt Yinger (D.A. Davidson & Co.): Is the $30M run-rate savings realized in early 2026 and how does it split between COGS and SG&A?
  Response: $30M run-rate expected to be realized in 2026; over 90% of savings are SG&A, with a small portion in COGS.

• Question from Kurt Yinger (D.A. Davidson & Co.): Your residential performance — any surprise and are you gaining share given regional variation?
  Response: Residential volumes were down mid-single digits in the quarter, but the company is gaining share via expanded shelf space, dealer conversions and digital initiatives.

• Question from Kurt Yinger (D.A. Davidson & Co.): Anything beyond the October price increase that improved the guide or is it mainly volume holding up and the Gallatin gain?
  Response: Guide narrowed due to volume performing better than some market forecasts and inclusion of the known Gallatin gain, but cost actions were still necessary.

• Question from Dan Moore (CJS Securities, Inc.): Which end markets offer the best near-term opportunities to outpace the market into '26?
  Response: Top near-term opportunities include Europe, component manufacturing, and continued new-product innovation plus incremental gains from expanded shelf/e-commerce.

• Question from Dan Moore (CJS Securities, Inc.): Is the 2026 share repurchase authorization of up to $150M how we should think about buybacks absent M&A?
  Response: Yes — with heavy CapEx normalizing after current projects, $150M is the Board's target for 2026 repurchases barring material M&A.

• Question from Timothy Wojs (Robert W. Baird & Co.): How much pricing carryover into 2026 should we model (you mentioned ~$30M in Q3)?
  Response: Annualized tariff impact ~ $100M; tariff-related price increases ~ $50M; June U.S. price increase ~ $52M; Q3 showed ~$30M pricing benefit, ~ $25M expected in Q4, leaving ~ $30M–$35M carryover into 2026.

• Question from Timothy Wojs (Robert W. Baird & Co.): Any finer point on Q4 margin variability within the 100-bp guide range?
  Response: Volume is the biggest variable for Q4 margin variability; timing and extent of cost-savings execution are secondary factors.

• Question from Timothy Wojs (Robert W. Baird & Co.): The $30M annualized savings — is that net of severance (i.e., actual savings)?
  Response: Yes — at least $30M is the expected net run-rate savings (severance is a one-time charge included in 2025 costs).

Contradiction Point 1

Volume Decline and Market Conditions

It involves differing statements about the volume decline in the North American market and the expectations for market conditions moving forward, which can impact investor trust and stock price volatility.

What caused the volume declines in North America and their impact on Europe? - [Dan Moore](CJS Securities, Inc.)

2025Q3: Year-to-date volume growth in North America is down 1.4% versus prior year, primarily due to a soft residential housing market. - [Matt Dunn](CFO)

Did North America's Q2 growth come from volume increases or pricing? - [Timothy Ronald Wojs](Robert W. Baird & Co. Incorporated)

2025Q2: Volumes are flat, with revenue growth driven by pricing, acquisitions, and some foreign exchange help. Year-to-date North American volumes are down roughly 1% versus prior year. - [Matt Dunn](CFO)

Contradiction Point 2

Cost Savings Initiatives

It involves a shift in the company's approach to cost savings, suggesting a more aggressive strategy in 2025Q3 compared to previous quarters, which could impact operational efficiency and shareholder value.

Are there catalysts that could alter the housing market's trajectory next year? Will declines continue, and why are cost-cutting measures being implemented? - [Dan Moore](CJS Securities, Inc.)

2025Q3: We continue to work on our strategic cost savings initiative focused on aligning our operations with evolving market demand. We have identified approximately $30 million in expected savings by year-end 2026. - [Michael Olosky](CEO, President & Director)

Operating margins remain strong, but the full-year outlook remains at the midpoint. Is the outlook conservative due to the macro environment? - [Daniel Joseph Moore](CJS Securities)

2025Q2: We continue to work on our strategic cost savings initiative focused on aligning our operations with evolving market demand. - [Michael L. Olosky](CEO, President & Director)

Contradiction Point 3

Cost Reduction Initiatives

It involves the company's strategic cost reduction initiatives, which could impact operational efficiency and shareholder value, and appear to change in scope between quarters.

Are there catalysts that could alter the housing market's trajectory in 2024? Will declines continue, and what prompted the cost-saving measures? - [Dan Moore](CJS Securities, Inc.)

2025Q3: Due to the expected flat market for next year, we are announcing a strategic cost savings initiative of approximately $30 million, which we expect to realize in 2026. Approximately $9 million to $12 million of this is expected to be recognized in 2025 as a one-time cost. - [Matt Dunn](CFO)

Have you received feedback on recent price increases amid macroeconomic uncertainty, particularly from big-box retailers? - [Dan Moore](CJS Securities)

2025Q1: We're taking a thoughtful approach to how we adjust prices to offset these costs and maintain a reasonable premium while considering market conditions. This allows us to continue to deliver value to our customers and meet our financial goals. - [Michael Olosky](CEO)