Note: This is an earnings call transcript. Content may contain errors.

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DATE

Monday, Oct. 27, 2025, at 5 p.m. ET

CALL PARTICIPANTS

  • President and Chief Executive Officer — Michael Olosky
  • Chief Financial Officer — Matt Dunn
  • Operator

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RISKS

  • Volume Decline — Global sales volume decreased by 1% in Q3 2025, as noted by Matt Dunn, reflecting weaker demand. North American volume declined 2.7% in Q3 2025 compared to the previous quarter.
  • Residential and Commercial Softness — Residential volumes declined by mid-single digits in Q3 FY2025 and commercial segment volumes decreased by mid-single digits in Q3 FY2025, attributed to a "weak commercial market," according to management.
  • Gross Margin Compression — Consolidated gross margin declined 40 basis points to 46.4% in Q3 2025, driven by higher input costs, including tariffs and labor. Management expects further deceleration in gross margins as the impact of tariffs flows through inventory.
  • Higher Operating Expenses — Operating expenses increased 9% to $162.3 million in Q3 2025, driven by higher variable compensation on improved profitability, as well as severance, FX, and healthcare costs. Operating expenses represented 26% of net sales, compared to 25.4% in Q3 2024.

TAKEAWAYS

  • Net Sales -- $623.5 million, up 6.2% year over year, with growth driven mainly by June 2 price increases and foreign exchange.
  • North America Segment Sales -- $483.6 million, a 4.8% increase year over year, with $30 million attributable to the June price hike; North American volumes were modestly lower.
  • Europe Segment Sales -- $134.4 million, up 10.9%, including an $8.1 million benefit from foreign currency, representing 4.3% growth in local currency.
  • Gross Margin -- 46.4%, down 40 basis points from Q3 2024, with North America at 49% (down from 49.5%) and Europe at 37.9% (up from 36.6%) due to contrasting trends in cost structure.
  • Segment Product Sales -- Wood construction product sales were up 5% year over year; concrete construction product sales up 12.8% year over year.
  • Operating Margin -- 22.6%, up 130 basis points, aided by a $12.9 million gain on a facility sale and approximately $3 million in restructuring costs.
  • Adjusted EBITDA -- Adjusted EBITDA was $155.3 million, a 4.5% increase, Adjusted EBITDA margin was 24.9%.
  • EPS -- $2.58 per diluted share versus $2.21 in Q3 2024, with net income at $107.4 million for Q3 2025.
  • Cost Savings Initiative -- Annualized cost savings of at least $30 million targeted for FY2026, with $9-$12 million in one-time severance charges to be realized in 2025.
  • Pricing Actions -- June and October increases are expected to contribute a combined $100 million in annualized sales, with tariff-specific price hikes above $50 million annually.
  • Operating Expense Breakdown -- Research & development and engineering costs increased 1.2% to $20.8 million; selling expenses rose 5.9% to $56.1 million.
  • Cash Flow -- Cash flow from operations was $169.5 million; capital expenditures totaled $35.9 million; dividends paid were $12.1 million; $5.6 million in term loan repayments; 158,865 shares repurchased for $30 million.
  • Balance Sheet -- Cash and equivalents at $297.3 million as of Sept. 30, 2025; net debt at $71.9 million as of Q3 2025; inventory at $591.9 million as of 09/30/2025, up $5.3 million sequentially with lower pounds on hand.
  • 2025 Operating Margin Guidance -- Updated to a range of 19%-20%, including a $12.9 million gain from a property sale in Q3 2025 and $9-$12 million of one-time severance costs in 2025.
  • CapEx Guidance -- Full-year capital expenditures projected at $150-$160 million for FY2025, with $75-$80 million allocated to Gallatin and Columbus facility projects for the full year 2025.
  • Share Repurchase Programs -- An additional $20 million authorized for share repurchases through year-end 2025; a new 2026 program for up to $150 million in buybacks authorized through year-end 2026.

SUMMARY

Simpson Manufacturing (SSD +4.76%) management emphasized strategic cost-saving initiatives to offset ongoing market softness, highlighting a disciplined approach to maintaining operating income margins near or above 20% for FY2025. Significant price increases enacted in June and October were designed to counteract tariff-related input cost pressures, with an anticipated $100 million annualized sales impact. The company continued to generate strong operating cash flows, enabling increased capital returns through expanded share repurchase authorizations and ongoing CapEx to support long-term operational efficiency improvements.

  • Michael Olosky stated, we expect to generate annualized cost savings of at least $30 million, with one-time charges of approximately $9 million to $12 million to be realized in FY2025.
  • Matt Dunn reported, a little more than five points of that was from pricing in Q3 2025, quantifying the relative contribution of pricing over volume or acquisition to top-line performance.
  • Guidance assumes US housing starts will decline by mid-single digits in 2025, with Europe expected to remain stable, reinforcing cautious near-term demand expectations.
  • New facility investments, such as the Gallatin plant, were described as critical to growth and operational efficiency for fastener products, but management does not expect these to immediately impact gross margin.
  • Board action enabled further capital deployment flexibility via newly authorized repurchase capacity for 2025 and 2026, pending the absence of "significant M&A," according to Matt Dunn.

INDUSTRY GLOSSARY

  • OEM business: Sales channel involving supply of engineered products directly to Original Equipment Manufacturers who incorporate components into larger end-products.
  • Component manufacturer business: Market segment involving sales to producers of prefabricated building components such as trusses or wall panels.
  • CS Producer: Simpson Manufacturing's proprietary cloud-based production management software for truss manufacturers.
  • Gallatin facility: Newly built Simpson Manufacturing plant in Gallatin, Tennessee supporting growth and efficiency in the fastener product line.

Full Conference Call Transcript

Michael Olosky, Simpson's President and Chief Executive Officer.

Michael Olosky: Thanks, Kim. Good afternoon, everyone. And thank you for joining today's call. I'm joined by Matt Dunn, our Chief Financial Officer. Today, I'll share highlights from our third quarter performance, key developments across our end markets, and progress on our strategic initiatives. Matt will then walk through the financials and our updated fiscal 2025. We are pleased to report net sales of $623.5 million, a 6.2% increase year over year, primarily driven by our June 2 price increase and a positive impact from foreign exchange. This growth reflects the ability of our business model to navigate a challenging macroeconomic environment even as residential housing markets in the US and Europe remain soft.

In North America, net sales rose to $483.6 million, up 4.8% from the prior year. This includes an estimated $30 million contribution from our June price increase. North American volumes were modestly lower. This reflects broader market conditions, including significantly lower housing starts, both in the Southern and Western regions of the United States, where we have more content per unit as a result of stronger building codes. As a reminder, our volume calculations exclude contributions from software, services, and equipment. Our comparative data versus US housing starts was unavailable for Q3 due to the government shutdown, but we remain confident in our ability to outperform the market over the long term.

Our focus on innovation, customer service, and operational excellence continues to drive solid results. Highlighting some developments from our key end markets, our volume performance was mixed, though we're seeing positive momentum across several key areas. The OEM business delivered high single-digit volume growth, led by mass timber solutions and new product introductions. Direct sales to manufacturers of material handling and data center equipment also posted solid gains. In the component manufacturer business, we achieved low single-digit volume growth supported by our new customer wins and expanded product offerings. We recently launched CS Producer. It's our first cloud-based trust production management software. CS Producer gives floor and roof trust manufacturers powerful ways to schedule and manage daily operations.

It's also a major milestone in our software roadmap and received enthusiastic feedback at the Building Component Manufacturers Conference. In our national retail business, volume was slightly down while point-of-sale performance improved mid-single digits. We saw continued strength in outdoor accents, fastener solutions, e-commerce, and pro initiatives, with our two largest retail partners. Expanded shelf space and new products introduced last year are contributing positively. In the residential business, volumes declined slightly. However, we secured new business through dealer conversions and growth in outdoor living solutions. Multifamily demand remains a bright spot, especially in the Northwest, Northeast, and Canada. In the commercial business, volumes declined mid-single digits reflecting an overall weak commercial market.

But we saw growth in cold form steel connectors and adhesive anchor lines driven by strong field engagement and specification efforts. I'm also proud to highlight that our commitment to customer service was recognized with two supplier awards from Do It Best and Southern Carlson during the third quarter. In Europe, net sales reached $134.4 million, up 10.9% year over year or a solid 4.3% on a local currency basis. Growth was driven by increased volumes resulting in performance that outpaced the market. As we look ahead, we are undertaking proactive strategic cost savings initiatives to align our operations with evolving market demand and position the company for long-term success.

This is in response to a downturn in the housing market that began in 2022. While these decisions are not easy, we are committed to supporting our team ensuring we do not compromise on what we're known for which is delivering best-in-class service to our customers. These actions are designed to drive efficiencies, preserve profitability, and unlock future growth opportunities in what's expected to be a continued soft market. As a result of these actions, we expect to generate annualized cost savings of at least $30 million with one-time charges of approximately $9 million to $12 million that will be realized in fiscal 2025. We remain committed to supporting our team in delivering exceptional customer service.

Matt will provide further detail on the financial impact shortly. Turning to consolidated gross margin, which was 46.4% and slightly below last year. This reflects higher input costs, including tariffs and labor costs. Our June price increase helped partially offset rising costs and we've taken further pricing actions effective October 15 to address additional tariffs announced subsequent to our prior price increase. These increases are expected to contribute approximately $100 million in annualized sales. We expect continued deceleration in our gross margins as the impact of tariffs flow through our inventory.

Third quarter operating margin was 22.6%, up 130 basis points year over year including a $12.9 million gain from the sale of our Gallatin, Tennessee facility and approximately $3 million in restructuring costs. Adjusted EBITDA totaled $150.3 million, a 4.5% increase year over year. Next, I'd like to highlight progress on our financial ambitions. First, continuing above-market volume growth relative to US housing starts. We're updating our 2025 outlook for US housing starts. We now expect them to decline mid-single digits compared to 2024. In Europe, housing starts in 2025 are expected to remain relatively consistent with 2024. We remain focused on growing above the market. Second, maintaining an operating income margin at or above 20%.

Considering the cost savings initiatives we are taking, in a growing market, we remain confident in our ability to deliver 20 plus percent operating margins. And third, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth. Year-to-date EPS has increased approximately five to ten basis points above revenue growth, demonstrating our ability to deliver shareholder value. In summary, we delivered solid results in a challenging housing environment. Our pricing actions, cost savings initiatives, and market share gains are positioning us for continued success. We're optimistic about the future and believe in our ability to drive growth, improve profitability, and capitalize on a market recovery.

Thank you to our incredible team for their dedication, resilience, and relentless customer focus. With that, I'd like to turn the call over to Matt who will discuss our financial results and outlook in greater detail. Good afternoon, everyone, Thank you for joining us on our earnings call today.

Matt Dunn: Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to 2025 and all comparisons will be year-over-year comparisons versus 2024. Now turning to our results. Our consolidated net sales increased 6.2% year over year to $623.5 million. Within the North America segment, net sales increased 4.8% to $483.6 million. In Europe, net sales increased 10.9% to $134.4 million due to increased sales volumes as well as the positive effect of approximately $8.1 million in foreign currency translation. Globally, wood construction product sales were up 5%, and concrete construction product sales were up 12.8%.

Consolidated gross profit increased 5.2% to $289.3 million resulting in a gross margin of 46.4%, down 40 basis points from 2024. On a segment basis, our gross margin in North America was 49%, slightly lower than the 49.5% reported in the prior year due to factory and overhead as well as higher warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 37.9% from 36.6% primarily due to lower material costs as a percentage of net sales. From a product perspective, our third quarter gross margin was 40.2% for Wood Products, compared to 46.3% in the prior year period.

For concrete products, gross margin was 48% compared to 49.7% a year ago with the reduction partly due to increased tariffs on imports. Now turning to expenses. While SG&A headcount is down over 4% year over year, total Q3 operating expenses increased 9% to $162.3 million primarily driven by higher variable compensation on improved profitability, severance costs related to our strategic cost savings initiatives, foreign exchange, and employee health care costs. As a percentage of net sales, Q3 operating expenses were 26% compared to 25.4% last year. Our third quarter operating expenses included approximately $3 million in severance-related costs associated with our strategic cost savings initiatives which we anticipate will deliver annualized cost savings of at least $30 million.

To further detail our third quarter SG&A, our research and development and engineering expenses increased by 1.2% to $20.8 million. Selling expenses increased by 5.9% to $56.1 million primarily due to higher variable compensation and commissions, personnel, and severance costs related to our strategic cost savings initiatives, partially offset by a decrease in travel-related costs. On a segment basis, selling expenses in North America were up 6.8% and in Europe, they were up 2.8%. General and administrative expenses increased by 13.3% to $85.4 million due to increases in variable compensation, software costs, including development for our component manufacturing business as well as negative foreign exchange effect.

As a result, our third quarter consolidated income from operations totaled $140.7 million, an increase of 12.7% from $124.9 million. Our consolidated operating income margin was 22.6%, up from 21.3% last year. Income from operations included a $12.9 million gain on the sale of the existing Gallatin, Tennessee facility. In North America, income from operations increased 1.6% to $125.2 million driven by an increase in gross profit partly offset by higher variable incentive compensation, personnel costs, severance costs related to our strategic cost savings initiatives, and software-related costs. Our third quarter operating income margin in North America was 25.9%, compared to 26.7% last year.

In Europe, income from operations increased 27.6% to $16.1 million due to an increase in gross profit partly offset by increases in operating expenses due to the negative effect of approximately $2.1 million in foreign currency translation. Our third quarter operating income margin in Europe was 12% compared to 10.4% last year. Our third quarter effective tax rate was 25.3%, approximately 80 basis points below the prior year period. Accordingly, net income totaled $107.4 million or $2.58 per fully diluted share. Compared to $93.5 million or $2.21 per fully diluted share. Adjusted EBITDA for the third quarter was $155.3 million, an increase of 4.5% resulting in a margin of 24.9%. Now turning to our balance sheet and cash flow.

Our balance sheet remained healthy with cash and cash equivalents totaling $297.3 million at 09/30/2025, up $106.9 million from 06/30/2025. Our debt balance was approximately $369.2 million net of capitalized finance cost and our net debt position was $71.9 million. We have $450 million remaining available for borrowing on our primary line of credit. Our inventory position as of 09/30/2025 was $591.9 million which was up $5.3 million compared to 06/30/2025, with lower pounds of inventory on hand. Our disciplined approach to capital allocation keeps our investments aligned with evolving market conditions and focused on driving sustainable value. We generated strong cash flow from operations of $169.5 million for the third quarter.

This enabled us to invest $35.9 million for capital expenditures, pay $12.1 million in dividends to our stockholders, and pay down $5.6 million of our term loan. In addition, we repurchased 158,865 shares of common stock at an average price of $188.84 per share for a total of $30 million. On October 23, our Board amended our share repurchase program authorizing an additional $20 million of our common stock for repurchases through year-end resulting in $30 million remaining under our authorization. In addition, the Board authorized a new share repurchase program for 2026, to repurchase up to $150 million worth of our shares through year-end 2026.

This reflects our confidence in the long-term prospects of the business and our commitment to returning capital to shareholders. In regard to our investments, our new Gallatin, Tennessee facility opened during the third quarter. As a reminder, this facility will play a critical role in helping to support growth and enhance operational efficiency across our fastener product lines. Next, I'll turn to our 2025 financial outlook. Based on business trends and conditions as of today, October 27, we are updating our guidance for the full year ending 12/31/2025, as follows. We expect our operating margin to now be in the range of 19% to 20%.

Additional key assumptions include our expectation for US housing starts to be down in the mid-single-digit range from 2024 levels. A slightly lower overall gross margin based on the addition of new facilities as well as the recently imposed tariffs which we anticipate will be partly offset by the price increases that went into effect on June 2 and October 15. Our outlook also assumes nonrecurring severance costs from our strategic cost savings initiatives in North America and Europe of approximately $9 million to $12 million. And finally, our margin guidance includes the benefit of $12.9 million from the gain on the sale of our existing Gallatin, Tennessee property.

Next, interest expense on our term loan, had borrowings of $369.2 million as of 09/30/2025, is expected to be approximately $5 million. The benefits from interest rate and cross-currency swaps and interest income on our cash and money markets are expected to substantially offset the expense. Our effective tax rate is estimated to be in the range of 25.5% to 26.5% including both federal and state income tax rates based on current laws. And finally, our capital expenditures outlook is expected to be in the range of $150 million to $160 million which includes approximately $75 million to $80 million for the completion of both the Columbus facility expansion and the recently opened Gallatin fastener facility.

In summary, despite a challenging market backdrop, we delivered solid third quarter results and continued to execute with discipline. Our pricing actions helped offset rising costs from tariffs helping our margins remain resilient even as we navigate cost headwinds. While SG&A was elevated this quarter, the strategic cost savings initiatives we implemented in late September and early October will drive meaningful efficiencies and support future earnings growth. Gains on asset sales also contributed positively to operating income and EPS. Looking ahead, we remain focused on disciplined capital deployment and returning value to stockholders through our expanded share repurchase authorization and our commitment to return at least 35% of our free cash flow.

With that, I will now turn the call over to the operator to begin the Q&A session.

Operator: Thank you. We will now be conducting a question and answer session. Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore: Thank you. Good afternoon, Michael and Matt. For all the color, and thanks for taking the questions. Hey, Michael. Hey, Matt. Start with 6% revenue growth in Q3, you know, certainly, it's very solid in light of the current housing environment. You know, obviously, it was mostly pricing strategic actions. Just give us a flavor for kind of the, you know, organic volume declines in North America? And what did volume growth look like in Europe?

Matt Dunn: Sure. Daniel, this is Matt. Let's break it down on a global basis first. So the 6.2% sales growth for the quarter a little more than five points of that was from pricing. A little more than one point from foreign exchange, less than half a point of help from acquisitions they've acquired in 2024 that had not anniversaried yet. And then volume was down one point. So that's on a global basis. If you look at volume on a North America basis, in the quarter, I think Daniel, year-to-date volume growth is down 1.4% versus prior year. Yep. North America. North America. Got it. That's really helpful.

Obviously, just sticking with kind of the macro housing demand proven to be more tepid this year than perhaps we'd hoped or expected when we started the year. You know, the rental rates coming down, affordability remaining challenged, you're taking some meaningful cost actions, and that'll be my follow-up question. But do you see any catalysts that could kind of stem the tide and get us trajectory next year? Do you, you know, foresee continued declines? In the housing market, and that's why you're taking the actions I know it's early to be crystal balling '26, but just kind of be out on the next to what do you see things going?

Michael Olosky: Yeah. Daniel, when we look at this year again, probably down mid-single digits. And I think that's a bit of a surprise for a lot of people. When we were coming into the year, we were thinking it was gonna be up low single digits. And it does look like it's certainly decelerating the second half of the year. We look at all of the various market forecasts. Like, not getting specific to market, most of them are coming in on the flat range. And when I talk with our customers, affordability is certainly an issue, but a lot of the bigger builders are already sub mortgage rates.

So a lot of people that are going to these big production builders are already getting a 4% loan. So certainly lower interest rates will help the small to medium-sized builders that really can't subsidize things. The way the bigger builders are. But I guess we're full on the things within our scope of control. We're absolutely committed to being in that 20% operating income level, and that's why we had to make the really difficult decision to make these strategic cost savings initiatives and get our cost structure in line with what we think is gonna be a little bit more of an extended slow market.

Matt Dunn: Yeah. Daniel, I would just add, you know, as Michael said, tough decisions and looking ahead toward what looks like it's gonna be a flattish market next year. We took these actions to, you know, stay on track against our financial ambitions. We believe that they'll deliver at $30 million of annualized cost savings in 2026. Really through a combination of workforce reduction, and portfolio management. And then as we mentioned on the call, we expect $9 to $12 million of one-time cost during 2025, of which $3 million are already in the Q3 results, but the full $9 million to $12 million is included in our updated outlook for the year. Really helpful.

And then, yeah, I was I think you just touched on it, but I was gonna dig a little deeper into the targeted cost savings. Any kind of general breakdown between North America and Europe, and then, it sounds like you've already incurred $3 million. The $9 to $12 million is not incremental to that. But I assume the balance is likely gonna be in Q4. Is that the right way to think about it from a modeling perspective? Let's take the second part first. Yeah.

From a modeling perspective, you could assume that the six to nine is going to come in Q4 and then the three we already had in Q3 would get you to that nine to 12. In terms of breakdown, regionally, not going to provide all that as you can assume. You know, not all of it's done yet, certainly given some of it's still to come in Q4. So Got it. Last one. I'll jump back in queue. But, that entire $30 million cost savings earmarked for bottom line improvement or, you know, at least sort of bottom line maintenance and getting back to that 20% operating margin target.

Is it the right way to think about it versus reinvesting back into the business?

Michael Olosky: Yeah. We're not guiding yet, Daniel, obviously, for 2026. Right. Our assumption in the market is gonna be flattish from everything we've heard and we are committed to making sure we get back to that 20% operating income level.

Daniel Moore: Perfect. I'll jump back with any follow-ups. Thank you.

Michael Olosky: Yeah. Thank you. Our next question comes from the line of Timothy Wojs with Baird. Please proceed with your question.

Timothy Wojs: Hey, guys. Good afternoon. Nice job. Maybe just on that last point, Michael, is basically what's changing on the cost side, the expectation that the market's just gonna stay slower? I mean, if we look back a year ago when you guys had that question or two years ago when you had that question, it was of like, hey, the market is going to get better and we'll lever those costs. Is it basically that or is there something kind of worse happening in the market? I just kind of want to make sure I understand the drivers of the cost reductions.

Michael Olosky: Yeah. Good question, Tim. It's very much in line with what you're hearing about the market. So the census data came through August, which is the last report we had basically said that housing starts were up a percent. Which was a little inconsistent with some of the results we've seen in the industry. We've definitely seen things slow down the second half. We've certainly heard that from our customers. I believe they are all feeling the same thing. You're probably hearing that from other clients as well. And then we think that's just gonna carry over into a flat year next year.

Matt Dunn: Yeah. I think, Tim, we just wanted to make sure, you know, we could see our way to delivering our financial ambition on the operating margin side of 20% even if the market is flattish or a little bit down next year. Again, not given the formal guide yet, but, you know, just need to take some cost choices to make sure we could get there next year.

Timothy Wojs: Okay. Okay. No. That's helpful. Thanks for that. I guess on gross margins, when do you I guess two questions on the trajectory. So when do you fully kind of expect the tariffs to kind of flow through the gross margin line? And then is there a noticeable impact in gross margins from turning on the Gallatin facility? Or are there other cost offsets?

Matt Dunn: Yeah. I'll take the second part first. Not a noticeable impact on turning on the Gallatin facility on gross margin certainly in the short term. Or even the, you know, the next year or so. I think some of that will depend on what happens with tariffs and what we do with sourcing and are we sourcing more maybe than we thought from the start. A lot of that depends on where we net out on tariffs. In terms of gross margin impact of tariffs, if you look at our product segment breakdown on gross margin that we talked about, you can see the gross margin on concrete construction products is down quite a bit more than wood construction products.

That's largely where the anchor business falls, which is subject to the most tariffs, and some of our fastener business fall there as well. I would say that from a gross margin standpoint, we continue to see erosion over the next, you know, quarter or so, couple of quarters as the tariffs are fully rolled in, but you're seeing an impact in Q3, certainly and so incrementally a little bit more in Q4 and then you know, maybe a little bit in Q1. But from that standpoint, then they should essentially be rolled in everywhere.

But I would say, you know, if I had to pick a percentage on it now, I would say, you know, 80% rolled in already in what you see in the Q3 results.

Michael Olosky: Tim, remember we're talking about Gallatin. We're also insourcing, coating, and heat treating processes. So it's not just moving production and adding additional cold forming equipment. It's ramping up, kind of a full end-to-end process. So that's why it's gonna take us a little bit of time to get that fully gone.

Timothy Wojs: Okay. Okay. No. It's helpful. And then, guess just to kind of put a finer point on the volume trajectory. So I think we were down a little bit in North America in Q2. I think we're down a little bit again in Q3. Are you seeing things even out, or would you expect your volume performance to get weaker in the first quarter and into early next year?

Michael Olosky: So if you just look at Q3, Tim, volume was down 2.7% versus prior quarter. And if you look year to date, it's math as I mentioned, down 1.4% for the full year. So definitely trajectory-wise getting a little bit worse. Again, a lot of things can happen over the next couple of months. So let's see how the rest of the year plays out before we talk about 2026 too much.

Timothy Wojs: Okay. And you should still outperform the mid-single digits. That would be the expectation. Right?

Michael Olosky: I mean, our ambition is to drive above growth. As you know, historically, we've been about 300 basis points above that. Now it's not always been a straight line. That's date, nine, ten years, we've had a couple of years where volume growth was below the market. But we certainly want to grow above the market and ideally above that long-term average.

Timothy Wojs: Okay. Okay. Sounds good. Good luck on the rest of the year. We'll see you in a couple of weeks.

Michael Olosky: Alright. Thanks, Tim. Thank you. Our next question comes from the line of Kurt Yinger with D.A. Davidson. Please proceed with your question.

Kurt Yinger: Great. Thanks, and good afternoon. Just wanted to follow-up on the cost savings target. I apologize if I missed this, but is that $30 million expected to be kind of achieved on a run rate basis I guess, in early 2026 there? And guess as we think about the sources of savings, how would you kind of have us split that between the cost of goods and kind of the operating expense segments?

Matt Dunn: Yeah. Kurt, the $30 million would be a realized number in 2026. Kinda throughout the course of the year. We are gonna see a little bit of savings in 2025, but it's more than offset by the severance cost. So, you know, from an incremental savings standpoint, you know, net, the full $30 million should show up in 2026. So, you know, in terms of how that splits versus SG&A and COGS, I would say, 90 plus percent of it's in SG&A. There's a little bit in the, you know, in the COGS side. But the bulk of it is SG&A.

Kurt Yinger: Okay. Okay. That makes sense. And then I believe Michael, you had mentioned kind of the residential market was down low single digit for you guys this quarter. Which in light of some of the pressures in Florida and California in other parts of your business that are maybe more exposed or higher content per start. Seems pretty good still. I guess has that performance surprised you at all? Do you feel like you're actually potentially gaining some share there relative to the impacts of certain regions? How would you just kind of frame that for us?

Michael Olosky: Yeah. So, Kurt, just to be clear, the volume for the total North American business was down 2.7% for the year. Our residential for the quarter. For the quarter. Thank you. For the residential business, it is down mid-single digits for the quarter. We do believe that, and we see this with our customers that we continue to pick up share at some of our lumber yards and pro dealers. We tend to still getting more shelf space. We think eventually leads to more positive sell-out. So we continue to feel good about our ability to grow above market. If you look at the regional mix, so the regional mix is a big deal for us.

So the South and the West when you look at the census data through August, they're down mid-single digits. If you look at the Midwest and Northeast, again, look at the housing's data the census housing data, they're about double digits. And remember, a house built in a seismic or a hurricane area can have 10x the content of a house built in the middle of the US with a pretty standard building code. So that definitely has a mix. We don't have great visibility all the way to the end builder, as you know, because going through a bunch of lumber yards with pro dealers, and contractor distributors. So it's hard to say exactly how that's impacting us.

But that's definitely a headwind.

Kurt Yinger: Okay. Okay. Perfect. And then just thinking about the guide at a higher level, you know, your starts assumption for the year ticked down a little bit. The outlook kind of now contemplates the one-time cost to achieve the targeted reductions. Is there anything beyond the October price increase that's been better than expected or is maybe kind of incremental on the positive side? Just thinking about the operating margin guide. Moving up to the higher end.

Matt Dunn: Yeah. I think, you know, we narrowed up the guide, you know, to a 100 basis point range from a 200 basis point range. We've included the one-time cost. I think the, you know, our volume development has been maybe better than what you hear if you listen to some of the market forecast, whether it's Azanda or John Burns. If you look at our volume, year to date down sorry, in the quarter down 2.7%. I think there's a lot worse numbers out there from the folks that are forecasting the markets, although there hasn't been official census data published.

So I think holding steady on volume, doing what we can on the cost front, and then obviously, we had, you know, the one-time gain that was known. But, certainly, just still felt needed to take these actions on cost savings to ensure we can get where we wanna go in 2026.

Kurt Yinger: Okay. Great. Appreciate the color. Thank you.

Michael Olosky: Thank you. Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore: Yeah. Just a quick follow-up, and I appreciate the color on the gains we're making in some of those, you know, targeted end markets. That are a key focus for growth and continuing to outpace. When you look to '26 and beyond, you know, if not rank ordering, just kind of maybe would you call out two or three that you see, you know, a little bit more opportunity here in the near term, that could help you to continue to outpace those end markets if we do remain a little bit softer? Thanks again.

Michael Olosky: Yep, Daniel. So we let me start with Europe because to be we're very pleased with the development that Europe's made over the last two quarters. Profitability improving, we believe, above market growth. So and we expect that the growth there to continue. And, Daniel, we think growth really, we have got plenty of opportunity. To all five of our market segments. We've got very specific plans in each segment to try to gain share. When you kind of add that all that up, there aren't a lot of singles and doubles.

Meaning a lot of small applications, digital self-displays, shelf space, new products we're launching, small games with customers that we do think will add all up and help us continue to drive above market growth. If you talk about the bigger ones, we continue to think all things component manufacturing is a good opportunity for us. That has been one of our strongest growth drivers the last couple of years. And then we think ramping up the new product innovation activities. We are making good progress here, we expect to continue to make good progress in that going forward.

Daniel Moore: Very helpful. And then lastly, obviously, you've been aggressively returning cash to shareholders and very consistently. Just the language around 2026 share repurchases up to $150 million. Absent, you know, meaningful M&A opportunities, is it, we should sort of think of that as kind of a target, you know, just balancing especially given CapEx probably starts to wind down a little bit, after some of these projects. Thanks.

Matt Dunn: Yeah. I think as we've talked before, we've been in a pretty heavy CapEx cycle with the two facility expansions in Gallatin and Columbus, and that's gonna normalize quite a bit next year. And we'll issue that formal guidance in January, but definitely gonna free up some capital and certainly wanna be continuing to return cash to shareholders. So I would plan on, you know, barring unforeseen events or significant M&A or something like that. That's a good target number for 2026. On share repurchase.

Daniel Moore: Perfect. Alright. Look forward to seeing you down in McKinney in a couple of weeks. Thanks again for all the color.

Matt Dunn: Alright. Looking forward to it.

Operator: Thank you. Our next question comes from, Timothy Wojs with Baird. Please proceed with your question.

Timothy Wojs: Hey, guys. I just had a couple follow-ups. On pricing, could you how much of carryover pricing would you have next year? I think you mentioned $30 million you saw this quarter. I guess, what would you expect in the fourth quarter? And how much carries into '26?

Michael Olosky: Yeah. So big picture, Tim, tariff story, roughly $100 million. Price increases specific to tariffs, a little bit over $50 million. Both of those are on an annualized level. We also implemented our first price increase in roughly four years on our US-made products. Roughly a $50 million impact on an annualized level.

Matt Dunn: Yep. And then just if you recall from Q2's release, we had a little bit of pricing in Q2 from the June price increase. About $30 million in Q3 as we said. Then that leaves you with probably about based on volume, probably another twenty-five or so in Q4. Doing the math in my head, $35 million of carryover pricing in 2026.

Timothy Wojs: Okay. Okay. Great. And then just on the fourth quarter, like, the 100 basis points is still pretty wide for the year. For the EBIT margin guide. It is a seasonally weaker quarter. So just any would you put any finer point on that or just kind of how we're thinking about the fourth quarter? Because that could be up a couple 100, down a couple 100 basis points in that specific quarter. So just anything that could help us there?

Matt Dunn: Yeah. I mean, think the biggest variable is its volume. Right? I think if you look at market forecasters on what keep fourth quarter is gonna look like from a housing start standpoint, there's some pretty dire forecasts out there to get to the numbers that they're saying on an annual basis based on where we are year to date. And so that's probably the single biggest variable. And then from the cost savings initiative, just in terms of, you know, exactly how much we're able to execute on which timing in Q4. We have a little bit of there. But I think it really comes down to volume.

I think the rest of it is largely locked in, but volume is a big enough variable in this case given what's happening and what is already a pretty low volume seasonal quarter for us, which is Q4 typically.

Timothy Wojs: Okay. And then just a last clarification. This $30 million of annualized savings is that in addition to the severance costs? So it's not 10,000,000 of severance and 20,000,000 of savings. It's 30,000,000 of actual savings.

Matt Dunn: Yes. Yes. At least $30 million. Yeah. Gotcha.

Timothy Wojs: Okay. Sounds good.

Matt Dunn: Awesome. Thanks, guys.

Operator: Yep. Thank you. And we have reached the end of the question and answer session. And this also concludes today's conference, and you may disconnect your line at this time. Thank you. And have a great day.