Simpson Manufacturing's Q3 2025 Earnings Call: Contradictions on North America Volume, Cost Savings, and Housing Market Outlook

Date of Call: October 27, 2025

Financials Results

• Revenue: $623.5M, up 6.2% year over year
• EPS: $2.58 per fully diluted share, compared to $2.21 a year ago
• 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%.
• Assumes U.S. housing starts down mid single digits vs 2024.
• Slightly lower overall gross margin from new facilities and recent tariffs, partly offset by June 2 and October 15 price increases.
• Non-recurring severance costs of ~$9M–$12M in 2025; margin guidance includes a $12.9M gain from Gallatin property sale.
• Effective tax rate 25.5%–26.5%; interest expense ~ $5M largely offset by swaps and interest income.
• CapEx expected $150M–$160M (including ~$75M–$80M for Columbus and Gallatin).
• Board authorized additional $20M repurchase and a new 2026 repurchase program up to $150M.

Business Commentary:

• Revenue Growth and Pricing Strategy:
• Simpson Manufacturing Co. reported net sales of $623.5 million for Q3 2025, up 6.2% year over year, primarily driven by a 6.2% increase due to a June 2022 price increase and positive impacts from foreign exchange.

• The growth reflects the company's ability to navigate a challenging macroeconomic environment, even as residential housing markets in the U.S. and Europe remain soft.

• Volume Performance and Market Dynamics:

• In North America, net sales rose to $483.6 million, up 4.8% from the prior year, with an estimated $30 million contribution from the June price increase. North American volumes were modestly lower.

• The decline in volumes was attributed to broader market conditions, including lower housing starts in key regions such as the southern and western U.S., where the company has more content per unit due to stronger building codes.

• Strategic Cost Savings Initiatives:

• The company announced proactive strategic cost savings initiatives to align operations with evolving market demand, expecting to generate annualized cost savings of at least $30 million, with one-time charges of $9 million to $12 million to be realized in fiscal 2025.

• These actions aim to position the company for long-term success in response to a downturn in the housing market that began in 2022, focusing on ensuring exceptional customer service without compromising operations.

• Gross Margin and Tariff Impact:

• Simpson Manufacturing reported a consolidated gross margin of 46.4%, slightly below the previous year, primarily due to higher input costs, including tariffs and labor costs.
• The company introduced further pricing actions effective October 15 to address additional tariffs announced subsequent to the prior price increase, which are expected to contribute approximately $100 million in annualized sales.

Sentiment Analysis:

Overall Tone: Positive

• "Net sales of $623.5 million, a 6.2% increase year over year"; "operating margin 22.6%, up 130 basis points year over year"; management: "we remain optimistic about the future and believe in our ability to drive growth, improve profitability, and capitalize on a market recovery."

Q&A:

• Question from Daniel Moore (CJS Securities): Give us a feel for the organic volume declines in North America, and what did volume growth look like in Europe?
  Response: Pricing (~5 percentage points) and FX (~1 point) drove most of the 6.2% sales growth; global volume was down ~1% (North America YTD -1.4%), while Europe grew on higher volumes and +$8.1M FX translation.

• Question from Daniel Moore (CJS Securities): Do you see catalysts that could stem the housing slowdown next year, and is that why you are taking cost actions?
  Response: Management expects U.S. housing starts down mid single digits, so they implemented strategic cost-savings to realign the cost structure and preserve a 20%+ operating margin.

• Question from Daniel Moore (CJS Securities): Any breakdown of the $30M target cost savings between North America and Europe, and timing of the $9–$12M charges?
  Response: The $9–$12M of one-time severance includes ~$3M already in Q3 and roughly $6–$9M likely in Q4; regional breakdown not provided.

• Question from Tim Wojs (Robert W. Baird & Co.): When will the tariffs fully flow through gross margin and does turning on Gallatin materially affect gross margin?
  Response: Management says ~80% of the tariff impact is already reflected; further margin erosion expected over next few quarters and the Gallatin facility won't have a noticeable short-term gross-margin benefit as full end-to-end insourcing ramps.

• Question from Tim Wojs (Robert W. Baird & Co.): How much of the pricing carries into 2026?
  Response: About $30M–$35M of pricing is expected to carry into 2026 after accounting for June and October increases and Q4 volume effects.

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

Contradiction Point 1

Volume Trends in North America and Europe

It involves differing perspectives on the volume trends in North America and Europe, which are crucial for understanding the company's regional performance and growth strategies.

Can you detail the organic volume declines in North America and growth in Europe? - Daniel Moore(CJS Securities)

2025Q3: North America volume growth year-to-date is down 1.4%. Europe's volume increased, contributing positively to growth. - Matt Dunn(CFO)

How are recent tariff changes and their impact on consumer confidence affecting your outlook for US housing starts? - Daniel Moore(CJS Securities)

2025Q1: Entering 2025, our outlook for North America remains consistent with our long-term view of 3% to 5% organic growth. We expect Europe to grow faster than North America. - Matt Dunn(CFO)

Contradiction Point 2

Cost Savings and Market Conditions

It involves discrepancies in the company's approach to cost savings and their relationship with market conditions, which are critical for understanding the company's financial strategy and market outlook.

Are there catalysts that could halt the housing market decline next year? - Daniel Moore(CJS Securities)

2025Q3: We're focused on maintaining a 20% operating income level and making strategic cost savings initiatives for a potential extended slow market. - Mike Olosky(CEO)

How does pricing align with existing guidance and tariff impacts? - Tim Wojs(Baird)

2025Q1: We're working hard to ensure our prices are fair and convey the value we add through our services and support. We're not passing on the full tariff impact, being thoughtful in price adjustments to offset past cost increases. - Mike Olosky(CEO)

Contradiction Point 3

Cost Savings and Market Outlook

It directly impacts the company's financial strategy and investor expectations regarding cost management and market conditions.

Is the $30 million cost savings on a run-rate basis? - Kurt Yinger (D.A. Davidson)

2025Q3: The $30 million in cost savings will be realized throughout 2026. Most savings will come from SG&A, with a minimal impact on COGS. The full amount will be realized in 2026. - Matt Dunn(CFO)

What are your expectations for 2025 working capital and operating cash flow, and how will CapEx change after Columbus and Gallatin projects are completed? - Dan Moore (CJS Securities)

2024Q4: Our cost-reduction efforts have been more successful, and we now expect to bring our annualized cost savings to $30 million, of which $9 million to $12 million is anticipated in the form of severance payments in 2025. - Matt Dunn(CFO)

Contradiction Point 4

Housing Market Outlook and Share Gains

It involves differing expectations for the housing market and share gains, which can impact revenue and market positioning.

Are there any catalysts that could reverse the housing market's decline next year? - Daniel Moore (CJS Securities)

2025Q3: We expect U.S. housing starts to decline mid single digits. Affordability is a challenge, but lower interest rates may help small to medium builders. - Mike Olosky(CEO)

Can you explain the relationship between the margin guide and U.S. housing starts growth, particularly if market growth is flat or declining? - Dan Moore (CJS Securities)

2024Q4: The current market sentiment suggests a second half weighted growth year for housing starts. The company assumes low single-digit starts for 2025 and will closely monitor market conditions. - Michael Olosky(CEO)