SSD - Simpson Manufacturing Company

Monopoly Manufacturer of Building Supplies at a fair price.

May 27, 2025

Disclaimer: This post is not financial advice, and is not a solicitation to purchase or sell any securities. For more info, please review the disclaimer.

What do they do?

Simpson Manufacturing Co designs, manufactures, and occasionally distributes screws, fasteners and connectors for wood and concrete construction. Roughly 85% of revenue comes from wood-framing products—such as joist hangers, hurricane ties, and shear wall assemblies. Some sample products are pictured below:

What’s their moat?

Simpson manufacturing has 75%+ market share in structural connectors1. SSD was founded ~70 years and has been public for more than 30 years. They have strong economies of scale and a reputation for the best products in the space. For decades SSD has been collaborating with municipalities to get their products designed into building codes. They have local production facilities and highlight their ability to fulfill most orders within 24-48 hours. SSD consistently spends 4% of revenue on R&D and releases about 50 new products a year.

Simpson Manufacturing is the industry leader in field support, technical expertise, digital tools, and training. Architects and engineers are able to quickly speak with an expert and find the appropriate product that is up to code.

Simpson has the best capabilities to test fasteners under stress. These include simulated earthquakes via shake table tests on “a six-story hybrid structural steel and mass timber structure” and a collaborative project to determine a 10-story timber building’s ability to withstand earthquakes. Of course, both heavily feature Simpson connectors.

Because structural connectors are mission-critical, theoretical values are estimated conservatively. However, Simpson’s testing prowess allows them to demonstrate performance up to twice the theoretical estimate giving engineers greater confidence in the connectors or allowing them to select cheaper options that still provide the requisite strength.

Because of this history, R&D spend, software tooling, and expertise, Simpson connectors are spec’d into most home blueprints and are the heavy default for architects and engineers, especially in natural disaster-prone areas (e.g. California and Florida). Note that SSD sales are not just correlated with housing starts; they’re particularly sensitive to new houses in those disaster-prone areas which require substantially more wood connectors than a house on the great plains.

What are the unit economics?

Given the 15k SKUs2 for wood structures alone, it’s hard to break down the typical unit, but overall:

Gross Margin is generally in the 45-46% range for both segments with Concrete margins in 2024 exceeding Wood margins for the first time in years.
R&D: ~4% of revenue, supporting ~50–65 new product launches per year.
Selling expenses: ~10% of revenue, dipping to 8% in 2022 during a 35% revenue surge (partly from the ETANCO acquisition).
G&A: Trending toward 12.5%, reflecting some operating leverage as revenue has doubled over the last 7 years.
Operating margin: 18.5%–21%, consistent with company guidance.

What does the future look like?

Wood framing is likely to retain 90%+ share for the foreseeable future3. Price has been the primary driver, along with innovations like plywood that have allowed flexible construction designs. Wood framing is also preferred by builders because it’s easier to adjust to the site or obstacles as they come up with a stick-framed house. Finally, wood stores carbon and has even received ESG credits. 3D house printing is unlikely to take off, but its adoption would be a huge headwind to SSD.

SSD continues to grow share and targets growth of 400-500bps faster than the overall market. Housing starts have declined the last couple years while SSD revenue has been approximately flat. If housing starts are finally able to grow again, then SSD is likely to grow revenue organically in the 4-8% range. Capex is also temporarily elevated as they spend $75M on their Columbus, Ohio facility expansion and construction of the new Gallatin, Tennessee facility.

What’s the valuation?

Normalized FCF: ~$330M (adjusting for one-time capex)
Enterprise value: ~$6.6B
FCF yield: 5%
Historical Revenue & FCF growth: ~15% per year (including acquisitions)

Expecting slower growth (5–10%) going forward, the stock likely offers a low-teens IRR. While not screamingly cheap, SSD trades at or slightly below its 10-year average multiples.

What are the main risks?

Cyclicality – SSD is exposed to the housing cycle. I think housing starts are likely near their nadir, but a recession could hurt Simpson revenue and profitability significantly. SSD remained profitable through the Great Financial Crisis, but it took 8 years for profit to make a new high.
Share erosion – Simpson is effectively a monopoly in wood structural connectors, and is growing nicely in Concrete Construction Connectors. However, if lower price imports or Berkshire-backed MiTek are able to make significant inroads SSD would suffer a double whammy of deteriorating fundamentals and a drastic re-rating lower.
Higher Interest Rates - If inflation is a continued concern and rates go even higher that will likely hurt home starts and SSD’s business.
Tariffs & input cost volatility - Simpson imports raw materials, primarily steel, as well as some lower-value finished goods like screws from other countries including China. However, SSD primarily sources domestically, so tariffs might hurt their competitors more. Currently, Simpson seeks to maintain gross margin and announced a price increase effective June 2nd.

Conclusion

Simpson Manufacturing is a very high quality company in a sticky industry with dominant market share, strong spending on R&D, economies of scale, integration into local building codes, and some pricing power. However, organic growth has been challenged, especially with weak housing starts and higher interest rates. Valuation is in-line with historical averages. Given the 5% FCF yield and likely Mid-Single Digits revenue growth, I think shareholders are in for a likely low-teens long-term return. I like it enough to have a position, but would look for a better bargain before adding aggressively.

Note:

At some point, I hope to analyze their Etanco acquisition, acquisition history, and attempt to disentangle their volume vs pricing growth.