Bufetico
Tim Johns is the director of operations at Simpson Strong-Tie in Gallatin, Tennessee. When the company ran out of room there, it didn’t want to leave town, he told the local paper. Learning to make nails and fasteners takes time, and the people who knew how were already in Gallatin.
So the company built a bigger building on Airport Road. The new plant opened on January 15 with a ribbon cutting and tours, the Gallatin News reported: $125 million, 227 employees, machine operators and maintenance technicians and heat treat technicians and engineers. The mayor, Paige Brown, said the company had been providing good jobs in Gallatin for more than 60 years. Johns told the paper: “Because of that, we wanted to keep our people. We didn’t want to move out of the area.”
Simpson Strong-Tie is the name on the plant. The company that files with the SEC is Simpson Manufacturing, and what it sells is the steel that holds wooden houses together: connectors, fasteners, anchors. On Friday I used it as my example of a company whose profit rose eleven years out of twelve while its cash fell twice, without naming it, and I said I hadn’t gone through the lines that explain the gap. I’ve gone through them now.
Profit up eleven years, cash down twice
From 2014 to 2025 the company’s net income went up eleven years out of twelve, from $63.5 million to $345.1 million, with one step back, nine percent in 2024. The cash from operations doesn’t look like that: it fell by more than a fifth twice, in 2021, from $207.6 million to $151.3 million, and in 2024, from $427.0 million to $338.2 million. The 2021 drop came in a year when the profit went up; the 2024 one, in the year it was only down nine percent.
If you read the profit line alone, you file this company as a grower with no cycle in it. The cash line says something ran through it twice. Both lines come out of the same audited books, so the difference has to be sitting somewhere on the balance sheet.
2021, when the profit turned into steel
In 2021 Simpson reported $266.4 million of net income, and the cash flow statement says where the part that never showed up as cash went. Inventory went from $283.7 million at the end of 2020 to $443.8 million a year later, up 56 percent in a year when sales grew 24 percent.
The company’s own annual report for that year says what the inventory was. Since December 2020, it says, the pounds of inventory in North America went down 2 percent. That’s the bulk of what it holds. And the average cost per pound of everything it held went up about 63 percent.
That’s a steel price spike on a balance sheet. The people in Gallatin make fasteners out of steel, and in 2021 the steel on hand cost far more than the steel the year before. Customers paid the new prices, and a big part of that profit went right back into the steel waiting to be made into nails and screws.
The cycle was running through the price of steel while demand for the product held up. Cash parked in steel for a year is a timing difference. It came back the next year. So the dip wasn’t about demand. And one year of this company’s cash, on its own, tells you very little.
The 2024 dip ran the same way, only smaller: $50.4 million went back into inventory, inside a cash drop of $88.9 million.
This year, running backward
The first half of 2026 shows the other side. Net income for the first six months of the year was $215.3 million. Cash from operations was $248.5 million. This time the cash ran well ahead of the profit, and it’s the inventory line again, going the other way: down from $594.2 million in December to $513.5 million in June.
The half-year filing says steel costs were stable into early 2025, started rising late in the year and kept rising through the second quarter of 2026. So the shelves lost dollars while the price per pound was going up, which means they lost pounds by more. In 2021 the profit went into the warehouse, and now it’s coming back out. The same filing names the Gallatin plant as the one bringing more fastener and anchor production in house, heat treating included.
What I do with a company like this
I don’t price it off any single year, and least of all the last one. In a business where the input price moves, the last year is the odd one more often than not. I put the cash the operations produced over the whole stretch, the two bad years included, next to the profit line, and I look at the distance between them. Here the distance is wide and the balance sheet explains it. How I turn the stretch into one figure is for another article.
The margin is a separate story. The last two ordinary years before the housing boom, 2018 and 2019, came in at an operating margin of 16.0 and 15.9 cents on the dollar. In 2021, with steel prices running through the sales line, it was 23.3. If the worst year you’re willing to imagine is better than both of the ordinary ones, you haven’t imagined a worst year. The two cash dips landed in years with good margins, 23.3 in 2021, so the steel cycle and the margin are two different things to look at.
Where this breaks
I’ve told a story about steel from three lines of a cash flow statement and one sentence of an annual report, and it fits. Fitting isn’t proof.
Simpson also changed shape in 2022 when it bought Etanco, a European business, and every comparison that crosses that year compares two different businesses that share a name. And twelve years of growth in a company that sells into house building is twelve years without a housing contraction. What I’ve described is a cycle in the price of steel. The one that matters more, in how many houses get built, is barely in this data. The filing says starts have been slipping since 2021, and a real housing contraction, the kind that cuts a builder’s volume in half, isn’t in these twelve years. And the 2026 inventory release could be discipline, or it could be the company selling down its shelves into softer demand. These lines don’t say which.
The anchors and fasteners Gallatin makes
The new plant makes anchors, fasteners and the tools that drive them. Fasteners and anchors are among the products the company raised prices on twice last year in the United States, on June 2 and again on October 15, in response to tariffs, according to the half-year filing. And the filing puts North America’s sales growth in recent quarters down to those price increases. It says demand didn’t go up. For the first six months of 2026 it also counts an increase in volumes. The same filing says U.S. housing starts have gone down every year since 2021, and that in 2025 the company reduced its workforce as part of a cost-savings plan it says it took on because housing starts were declining; it doesn’t say where. Gallatin’s plant opened in January with 227 people.