Q3 2019 Earnings Call
Good morning. My name is live you know vehicles were supposed to alliterative today at this time I would like to welcome everyone to Boise Cascade third quarter 2900 conference call.
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Before we begin I am I need I just call me contained forward looking statements about the company future business prospects and anticipated financial performance is statements are not guarantees a future proof of performance in the company under taste no duty to update.
Although it is statesmen reflects management expectations today, they're subject to a number of business risk and all sorts of T.'s.
Actual results may differ materially from those expressed or implied in this call.
For discussion of the factors that may cause actual was all to do for from the result dissipated.
Please refer to Boise Cascades reason filings with it as you see.
And it's not my pleasure introduce you to win way in Court Executive Vice President vehicle and Treasurer Boise Cascade. This around cord you may be can you call friends.
Thank you live yeah. Good morning, everyone I would like to welcome you to Boise Cascade third quarter 2019.
Burns, calling business update joining me on today's color <unk>, R.C., Oh, maybe jorgensen R.C. I'll I'll, Mike Brown had them or what products operations and mix so out of our building materials distribution operations.
Turning to slide too I would point out the information regarding our forward looking statements.
Index at a presentation includes reconciliations from our gas net income to eat it and adjusted either die and segment income to segment eat Oh, well now turn the call over to Tom.
Thanks Wayne.
Running everyone.
Thank you for joining us for our earnings call today I'm on flight three our third quarter sales of $1.3 billion were down five per cent from third quarter 2008, Jane Arnett income was $27.2 million or 69 stands per share up from 35 cents per share in the year ago quarter.
Third quarter 2019 resolve include a 1 million dollar after tax loss or three cents per share from a non cash pensions settlement charge.
Third quarter 2018 results included $16.7 million of net after tax losses, or 42 cents per share from a non cash pensions settlement charge and impairment and sale related losses.
Are operating performance in both businesses was solid considering the limited demand growth and ongoing weakness in the plywood pricing environment.
Consistent with our strategy the volatility of our earnings has continued to <unk> to decline as we emphasize growth and distribution and engineered wood products.
Are wood products manufacturing business report is segment income of $15.6 million in the third quarter compared to $13.9 million in the year ago quarter, what products third quarter 2018 results included 11 million dollar.
Pre tax charges for asked that impairment and style related losses.
Our building materials distribution business reported segment income I'm $38.7 million.
Early sales of $1.1 billion for the third quarter compared to $23.5 million, though segment income on quarterly sales of $1.2 billion in the comparative prior your quarter Wayne will walk through the financial results in more detail and then I will come back to provider outlook before we take your.
Questions.
Thank you Tom I'm on slide for.
Wouldn't product sales in the third quarter, including sales to our distribution segment, where 325 million down 19 per cent from third quarter 2000 insane.
Approximately one third of the decline in sales is due to asset sales or closures in the last 12 months.
As Tom Mansion Wood products reported segment income, a 15.6 million and the third quarter compared to 13.9 million and a prior year quarter.
Reported eat adopted a business with 30.8 million down from the 32.7 million of either to have reported in the year ago quarter as Tom mentioned earlier third quarter 2018 results included impairment and assets sale related losses of $11 million.
When excluding the 11 million dollar loss wood products segment income decrease due to lower plywood prices.
Partially offsetting the negative plywood price bare hands were favorable input costs or oriented Ram board loggers and lumber.
Business also had lower employee related expenses, and lower depreciation and amortization expense than in a year ago quarter.
B.M.D. sales in the quarter 1.1 billion down one per cent from third quarter 2018.
Sales prices declined 11% sales volumes were up 10 per cent.
Excluding the impact of the acquisitions made in the last 12 months the sales decline M.B.M.D. would've been approximately 4%.
The M.D. reported segment income 38.7 million or even 43.9 million.
This compares to segment income 23.5 million and eat a 28.3 million in the prior your quarter.
The increase in income was driven primarily by a gross margin increased $13.3 million.
Salting from improve gross margins on commodity products and higher sales are genuine products compared with third quarter 2018.
Gross margins on commodity products in the prior year quarter were negatively impacted by sharply falling prices.
The increase in gross margin during third quarter was offset partially by a 13.3 million increase in selling and distribution expenses.
The amounts for on allocated corporate cost and other items impacting our reported adjusted either can be found in the tables of our earnings release.
None of those items was negative 10.7 million in third quarter, 2019, compared with negative 18.2 million and third quarter of 2018.
Third quarter 2019 results included a 1.3 million noncash penson settlement charge compared with an 11.3 million noncash pension settlement charge in third quarter 2018.
As we moved through the balance of this year our earnings comparisons to 2008 teams could be made with due consideration of the restructuring activities undertaken in the last year. We have included a summary of last year's.
Items in there and the earnings impact in the appendix for the presentation.
Turning to slide five our third quarter sales volumes for laminated veneer lumber were up 4%, while I Joyce we're down to per cent compared with third quarter of 3018.
As a reminder, E.W.P. consumption is influenced not only by total housing starts but also by the next to the single family a multi family starts median single family homes size as well as the home Foundation type.
Or else volume trends continue to attract pretty closely with single family starts while R.I. Joyce volumes are declining modestly we believe the decline in our I enjoy sales is due in part two decreases a median home size and then increasing proportion of slab on grade new home construction.
Both Lv Allen I, Joyce third quarter pricing with one per cent from the year ago quarter, reflecting pricing actions taken in early 2018 and ongoing management of our customer programs.
It's burning to slide since our third quarter plywood sales volume and wood products with 343 million feet compared to 368 million feet in third quarter 2018.
The lower volume for plywood sales reflects the sale of the monitor applied would facility during the first quarter 2019.
Also we continue to work to optimize the near empty E.W.T. production into limit production of plywood, where it results in cash losses.
The 254 dollar average plywood net sales price in third quarter was down 29 per cent from third quarter 2018.
October 2009 teams plywood pricing with similar to the third quarter average or about 15% below average levels experience in the fourth quarter of 2018.
Moving to slide seven B.M.D.S third quarter sales with where 1.1 billion down one per cent from third quarter 2018.
Byproduct area B.M.D.S commodity sales decrease 16%.
General line product sales increase 18% and he W.P. sales increased 2%.
Gross margin percentage for B.M.D. and third quarter was 13% 270 basis points from this 10.3% reported in third quarter 2018.
Gross margin increase resulted from more normalized gross margins on commodities products and higher sales of general end products compared to third quarter of 2018.
The prior year quarter was negatively impacted by sharply falling commodity wood products prices.
As a reminder, general line products and U.W.P. that we service through our branches tend to have higher gross margins, but also higher associated sales in handling costs.
B.M.D.S eat it down margin was 3.8% for the quarter up from the 2.4% reported in a year ago quarter.
Looking forward, we anticipate that commodity products pricing in the fourth quarter of 2019 will remain low but will be more stable compared to the volatility experience in fourth quarter 2018.
On slide eight we have set out the key elements of our working capital.
Honey networking capital, excluding cash income tax items and accrued interest decrease 75.8 million during the third quarter, both businesses meaningfully reduced inventories in response to market conditions and in anticipation of as long as sales activity as we move later into the building season.
Statistical information file does exhibit 99.22 are eight k. has a receivables inventory and accounts payable data broken down by segment for those that are interested in more detail.
I'm now on slide nine we finished third quarter with 306 million of cash or total available liquidity September 30 was approximately 672 million, which reflects our cash as well as the availability under our admitted bank line.
Or capital spending excluding acquisitions is expected to be between 85 95 million this year with a similar spending level anticipated in.
2020.
Continue to expect are effective book tax rates to be approximately 26% going for it.
Well tournament call back over at the time to discuss the outlook and our recent dividend related actions.
Thanks Twain I'm on slide 10, the October consensus for 2910, U.S. housing starts is 1.25 million, which is flat with 2018.
The consensus estimate for 2020 implies only modest growth to 1.27 million starts.
We believe important economic drivers behind the demand for new construction like job formation premade in place.
Ever affordability issues in many metropolitan areas and the availability of construction labor continue to influence the pace of activity.
We expect limited revenue growth over the next 12 months from an overall increasing product demand. So we are sharply focused on growing or distribution revenues organically and through opportunistic acquisitions in.
In wood products are focused remains on driving an operational improvements and getting additional veneer into higher value, where staveley price engineered with products.
Despite weakness in commodity wood products price thing, we continue to invest in our operations and our people to position both of the businesses for success than the years ahead I am pleased that even with the tough backdrop are execution has generated considerable free cash flow this year and built up our cash balance in light of our our.
Parading performance and the balance sheet position are bored supported raising our regular quarterly dividend by 11% to 10 cents per share as well as paying a supplemental dividend of one dollar per share again this year.
After payment of the supplemental dividend, we remain well positioned was sufficient cash in reserve to support in turtle growth initiatives anticipated working capital uses as well as smaller opportunistic acquisitions as we move into 2020 objective remains to successfully grow our businesses while generating approach.
Returns on shareholder capital, we would welcome any questions at this time operator would you. Please open the lines.
<unk> as sort of mine have to ask a question you will need to foster style.
<unk>.
Telephone.
So we try your question. Please press the pound key at least.
Okay.
Okay.
You know first question to coming from the line.
Bank of America.
[noise] hi, everyone. Good morning, Thanks for the details.
And congratulations on the performance.
First question I had and I realize it's not necessarily in name.
The current outlook and terms, how you think starts and construction and the economy will develop necessarily but.
Given what you've been doing with working capital is there a point where demand, let's say it improved much more quickly than you would like be I class problem would stress for operations stress. Your your inventory in the chain and if so what you know where would that be.
George's when I think if you look at our 306 million cash balance that we had at September a.
A big portion of that as a liquidation of working capital. So one of the reasons when our board took a reasonably conservative position on the supplemental dividend.
It is our assumption is that as we move into this spring building seems than 2020.
We are likely to see a rebuilding of inventory balances.
And given the capacity withdrawals that have occurred both in lumber in an L.S.B.. We think there was.
Pretty decent chance or run out of a difference supply demand balance as we get into the spring building season.
Allowing cash on the balance sheet to deal with what we assume will be a rebound and required working capital.
That could be as much as $50 million to $70 million next spring.
Okay.
Thanks for that way.
And then the other question that I had.
Are you, saying any impact on your business recognizing its later in the year and and she's only not necessarily when you see something tension within your business related to supply chain, but are you seeing any effect from some of the other curtailments that have occurred in the panel.
You know markets.
Flung back into anything in terms of plywood demand plywood demand expectations and the like.
George we've seen a modest improvements I wouldn't tell you I don't think there's a normal level inventories yeah back into the supply chain, but it's it's getting closer to a normal balance and I would tell you both imply wait and I think from what I've read in L.S.B.
I think the order of files are back out for two to three weeks, which is a more normal process. So I think some of the ready availability short lead times that people are experiencing earlier. This year allowed people to run down inventories with pretty high confidence that they weren't going to get caught on price and we're going to happen challenge to get material and I think with the announcement.
<unk> that have come in the last few weeks.
That confidence level around lead times.
[laughter].
Started to diminish and I think with all the files out at two to three weeks.
A little bit of restocking and the channel and more normal supply demand ever. So I do I do think we stabilize on price largely in response to the supply withdrawals that have been announced.
Okay <unk> altered over there it'll come back thank you.
Thank you.
Our next question coming home to line up.
Good morning.
Morning, Mark <unk>.
Time, I wondered well first I want to say to next.
Going to buy your guys sandwiches today 'cause that's another break ordering distribution.
[laughter] turn banks, Mark I may even by thanks, Mark I may even buy him a beer too.
[laughter] would go good with the sandwich.
So you guys about the the numbers.
The home builders and the the commentary we'd done seen out of the home builders.
Improved over the last four to six months what are you seeing in terms of kind of pulled from the home building sector right now.
Haymarkets nature organs, and I think the I think the mood and tone from the home builders, especially the probably the some of the production builders continues to improve I think there.
As they look as they finish off 2019, I think they've been consistent that they expect to have a good finish into your wet weather permitting and I think their expectations as a head into 2020 continue to improve.
There's no question they continue to be focused on the entry level part of the market and they continue I think to to match their services and product mix around that entry level market as compared to you to perhaps the move up luxury side of things. So I would say the tone as we finish the c. or certainly as compared to this time last year is improved.
And but I think in terms of expectations for 2020, <unk> will continue to look for that entry level humble continue to look for probably a smaller footprint as a result, but again the tone remain so favorable for the for the larger builders. Yeah. Mark. This is I would add that you know if you think about you know.
We're looking at a relatively small increase in starts next year that I think we'll be pretty well off sound from a demand perspective by a decline and how size.
And so you know as we looked at overall demand. It if in fact are those two things together it looks pretty flat.
Okay in time for a second question I wondered if you could just kind of update us on your thoughts around growing the distribution business I think I've heard in the past is sort of three different kind of strategies one is the footprint.
In what you've been doing another one is kind of extending kind of the product lines and individual D.C.'s and then the third would be kind of potential acquisition that would put you in some new market. So maybe you can a kind of yeah confirmed that that's still kind of those are the three buckets and then just to give us a sense of how you're thinking about.
For those.
Sure. So you know I really I don't think the buckets of changed I think the speech has been pretty consistent in some respects to do it as well as we do mark so.
[laughter] I'll be good but you know I think we're we continue to make progress in each of those areas. We you know there there's really a a variety of aspects going on I think just a regular business planning we continually are focused on existing products to new customers in new products to.
Resisting customers a lot of work in the division right now Oh that expanding service levels into markets that we serve but maybe not as quiet as high a level just simply due to geographic removable from the location and then we continue to look and feel acquisition opportunities and frankly I think.
We stepped up our activities a bit on adjacent businesses as well both in terms of organic growth and continue to look at acquisitions Wainer, Nick anything you would add to that.
Yeah.
Alright. The final one for me then it's just you you've had a new competitor I think just start up in the last several weeks down in the southeast you know how do you think about the potential impact of that as we move into 2020.
I suspect they been seeding the market already so it's probably not like starting from zero.
Yeah, Hi, mock this is like brown.
Yeah, you're right the roads the facility has.
That.
Okay.
Have you can hear me a bit of a called.
Okay. So yes, if suddenly seen some activity in the marketplace, they're studying deployed tracking and a number of areas, but they had some existing customers that I believe they going to focus on.
If anything because of their business model, we would expect to see some pricing pressure at moving into next year.
We haven't really seen any major impact of that yet just some localized discussions more than anything else that were aware of but moving into 2020 as they ramp up that facility I'm sure that there'll be more activity on that front.
Okay. That's helpful turn it over.
<unk>.
[noise] next question coming from the line chip delay.
Research.
Hi, Chip, Hi, guys, D.C., hi at least <unk>.
Good.
Great. So it must my <unk> be you know that has been a tail wind or.
Here and it looks like finally, it's moving higher about you know usually look on the benchmark north central price because barely batch during the past couple of months, whereas you know we've seen very strong in queens or some other regions. How should we think about kind of the regional makes that affects you more I would assume for example, the southeast prices moving higher you know <unk>.
A lot more to you then the benchmark most people are tracking.
Oh toward this this is Wayne I think for the input costs for O.S.B., it's probably going to be tracking more closely with north central we tend to use aspin as our web.
In terms of the overall impact on apply wouldn't markets, there's probably more pressure coming from X.S.L.S.B. capacity in the south southeast.
We've seen some pricing improvement in the west and there's been more deferential on west coast pricing versus the south than has been there traditionally and that's really jumped out with the L.S.B. guys are.
Thought is with the closures announced by Georgia Pacific and then <unk> that Norbord announced that we'll see a little better balance and panels in the south going forward, but that's.
Probably the pressure on plywood price as a reminder, we.
Consume about five times or it didn't say, we sell about five times as much plywood as we consume all S.B. So that the pressure on climate price is is more important than the benefit we get from having gibault is beyond the web bye bye orders of magnitude.
Okay that is very helpful. The other thing I want to understand will be better was about your organic volume growth in a building material distributions I. I mean, you you didn't know 10% volume growth and I think and it was around three percentage points. So clearly that's well above where the market. These can you talk a little bit about what drove the center.
You know what <unk> feeding I think you mentioned before bringing you you know a new product six weeks and customers. For example, if you can elaborate build up and how should we think about you know potentially outperforming you know housing starts into 2020 on volumes.
Good morning, this is Nick Stokes.
Clearly you can see from the statistical information that most of the or a bigger chunk of the share growth quarter to quarter came in the general line business.
Modest increases your knee W.P. and some sales decline zone, a dollar basis for commodities.
Volumes of commodities actually we're we're close to flat and what you saw in the shift to mix was the price deflation of some of those things in the neighborhood at 25%.
So as we think about our strategy in terms of adding to the product lines in and out perform in the market. If you will.
We continue to have a strategy of being closely aligned with manufacturers, who have leading brands and what we offer those guys is a strong in exceptional service platform. Both in terms of logistics as well as sales support of the <unk> the folks to out go out and drive.
Product gross and certainly to wage point earlier.
Balance sheet to invest in those inventories.
What we aspire to do and what you saw a little bit in the third quarter was a little bit a share gain on some of those products and will continue to focus on those kind of activities.
Great. Thank you very much.
Thank you.
[laughter].
Hi next question coming from July Nasty.
No.
Thanks, Good morning, everyone.
Morning.
So the restructuring of your manufacturing foot putt has clearly paid dividends and I'm. Just wondering you know do you feel that that footprint is currently what you need for the foreseeable future.
Yeah. This is Wayne.
I hope not.
We haven't a very.
Rudimentary kind of small operation today, that's looking at the commercial side of the business.
We've made some inroads into multifamily and into like commercial and the building codes recently changed to allow up to 18 story would construction.
So over time, we would love to find a way to get more of an errand into engineered would an engineer would into additional and uses that aren't directly single family housing related.
Again, I think that's going to be.
A longer cycle impacts, but that's where we're spending a lot of time, both on the innovation fun and trying to understand the market dynamics, where it's more of a specified product rather than more of a commodity sell if you will.
And again I think we will look at modifying our manufacturing footprint as those opportunities developed but.
Relative to the the changes we made an 18, we think most of the facilities that didn't align with what we wanted to do strategically we took care of an 18.
And we're happy with the veneer operations the day and with any luck, we will be able to continue to migrate into U.W.P. and if plywood structurally is in in slow decline re purpose that veneer into higher value products that are more stable and frankly that are more specified into the end used and a service component not.
To commodities, though.
So maybe you can elaborate on how you might get into commercial Wayne like would that be open web trusses or some kind of hybrid trust, which is part and metal part would.
And you know C.L.T.
An 18 story would structures is exciting, but I don't necessarily see being first movers, there, but maybe I'm wrong.
Well I'm not sure we'd be at first mover into C.L.T., I mean, and I'm going to take the Liberty being the finance Guy to speak for Mike I think the place where we've probably got an opportunity is dimensionally, we use large presses to make our L.D.L.
So if you think a large structural elements in a tall would building for example.
Perhaps and and again I don't want to quit too much emphasis on that perhaps we could do a three foot by three foot by 40 foot column made out to L.V.L. that would make inappropriate support for an elevator shaft in a tall with building.
And if you were using a continuous press and making I'll be I'll never be exceedingly difficult to do so part of what we're trying to do is look at where.
We might be able to take product innovation, given our footprint in manufacturing, particularly <unk>.
Are there other applications that might be appropriate into commercial structures and again I think a lot of this <unk> may start in hotels restaurants, low rise, but as the file would buildings.
Become more prominent in North America, obviously, if we can play there we think that's an additional outlook, but we've got product development work, we're going to need to do that to get there yeah. Dave. This is Tom I would add that you know we're still it to some degree at the beginning of this processing part of this product related but part of this market channel relate.
So there's just a lot of ground work that we're going to have to go through that goes all the way literally from the mills true to the general contractor to assess where opportunities are relative to the strikes that we have internally and so we're very much in the middle of that process and it doesn't the good news is well, it's a small have heard it.
As point it isn't the first time, we did this I mean, when we got into the engineered would business. We spent a lot of time working on software and figuring out the service platform and for US today that tie between manufacturing and distribution is exceedingly strong in the software and the technical service in the field.
It is an important part of our value proposition in the market and I would envision that if we're able to successfully do this in commercial that it will probably a similar along develops cycle, but could add substantially side of the company over time.
Yeah, those those tall would structures and that there is and number them in Portland or are wonderful I love, Okay and then.
I guess I'm thinking like a hedge fund guy, but it seemed kind of granularity to say we can find acquisitions in next six to nine months I'm. Just wondering you know is or are there things in the pipeline.
Ah Okay.
Okay. So Wayne was responsible for that that wording.
And the reason the next six to nine months is <unk> a number of conversations here that we expect to use a fair amount of cash for working capital in the spring.
And again, we think both businesses are performing well so we.
Would expect over the next nine months to to generate cash but.
That was basically to put a time horizon that if we were wrong about the pace of acquisitions and the use of cash.
That's a signal that we will revisit the topic with our board on on on an ongoing basis and if it turns out we get to the end that second quarter.
And we have access cash that isn't to the fish and from a return on capital standpoint.
We will re look at it and again, if we don't need the cash in the business and if we don't see.
Inorganic opportunities.
Hopefully the fact that we've done to supplemental dividends.
In a row sends a message that we're going to try to be efficient on the cash that we retain and if it turns out we've got more cash than we need to grow both businesses will figure out a way to return it yeah, having said that Steve there's a huge amount of work going on here in both businesses on growth.
And we're going to be responsible and thoughtful about how we deployed capital, but we certainly have you know there was magic lets the wrong word, but there was thought about what we distributed in a supplemental dividend and what we kept.
And we we continue to work hard on on growth and if we can make some of the things come to fruition.
We would prefer everything else equal if we have good projects to deploy the capital internally.
Gotcha. Thanks for elaborating and then last question I promise to try and paraphrase Wayne I think this year you said that if we enjoyed any commodity price strength. It would be supplied driven and I'm. Just wondering if you feel that remains the case for 2020.
Yeah, again, frankly, I was a little bit surprised that we didn't see more improvement in late September October .
With some of the capacity withdraws, but I think they actions that have been taken particular in western Canada on lumber and I know S.B. and the two recent announcements on O.S.B. in the south.
Probably establish a better supply demand balance going into the spring of 2020.
And we've had threw out 2019.
I guess I would leave it there but I.
I think a number of people have have looked at the fact that we're probably unlikely to go back to 1.4 to 1.5 million housing starts anytime soon and I think this.
Change in geographic location on the the mix of homes.
And the type of home being built I think people are being more realistic about the amount of demand that's likely to be out there.
And again I feel better about the supply side, but I do think the supply side will continue to be that determining factor I think that demand side is actually at this point reasonably predictable short of.
Some major economic shock I think the demand side has been pretty stable.
Okay. Thank you for taking my question.
<unk>.
Hi next question coming from the line off.
Yeah.
[noise] thanking the morning everybody.
<unk>.
So maybe on the distribution margin for one another strong a quarter. There you know even dumb margins in the high threes or midnight Three's. The last couple of quarters can you talk about how to.
Is there anything.
One time or or.
[noise] any specific drivers to that or or how should we think about what that margin profile that this this looks like on a on a Billboard basis is this kind of a new baseline or is there anything going on that makes it kind of a a near term.
You know performance.
Reuben. This is next so so I would tell you that the third quarter.
It was really a bit of.
The dynamics around or margins and the third quarter were a bit different and it was kind of a numerate or in denominator issue.
The mix of products the shift from commodities.
Two more of a general line strong Max.
That drove the the gross margin number and certainly the commodity price deflation effect that Max and quite frankly, we had a bit of a tailwind on the lumber side in the third quarter and as we've articulated in the past.
No. It's it's not so much about the absolute price for the distribution business at it as it is the trajectory of change and we had a bit of a tail wind on lumber not so much on panels.
Terms of future guidance I'll turn this back over it away and and let him talk about that.
Yeah, I think Nick hit it on the mixed issues.
And we had it in a script that comment that we tend to have higher gross margins in higher pop acts on the general line and you get the P. category.
The other portion is if you think about it from a return on capital.
As a general rule the general line products turned more slowly than the pure commodities and we sell <unk> less of those products on a direct basis.
So the velocity is lower.
And frankly, you need a better than that margin to get the same return on capital that you'd have on some of the commodity things that have a higher and then towards run on high velocity. So you know to extend were successful in growing into Jason sees that are heavy too general I'm products I would expect out to caused gross margin percentage.
Didn't move up I would expect the op x. percentage to move up as well and and frankly over time, we would need is slightly higher eat at Dom origin to support the return on capital is that we're accustomed to.
Got it very helpful. In in that kind of actually leads into my my second question. So <unk> were there any well I guess the mix shift that you you saw how much of it was just because commodity prices are down versus maybe are you seeing outside volume or indoor price growth in.
In any of your non commodity products at a distribution.
I think both Ruben contributed I think the deflation on commodities as a major factor but.
Nick a loaded too we've got.
Very strong channel partners onto the underside and a couple of cases picked up some additional.
Distribution sites with some of our existing vendors and enjoyed sales growth <unk> as a result of those products coming into the into more branches and I think his team continues to do a really good job of ladder, realizing new products, where it makes sense and as I said they'd had a couple supplier conversions.
Provided.
A considerable incremental revenues and the third quarter and they continue to work on those opportunities with a number of their key vendors.
[noise], Okay, and then the sequel more in anything to think about as we move into 2020 from inflation or <unk> prospective outside of you know the commodity would prices whether to freight labor you know other other products any other sources of pressure and or help.
As we look into next year. Thanks, guys.
I wouldn't really call anything out I think you've probably touched on the one that you <unk> you, notably excluded I'd I didn't get there's price inflation is probably the meaningful peace will likely come in commodities and and for our would business. The question is if I must be moves up we may see an increase in our I Joyce input costs.
And it may or may not move up sufficiently to provide any lifted plywood pricing.
On the other costs I think we're doing okay on handlers and drivers that's an issue and the economy with the economy being type where we've seen some wage inflation.
But the rest of our input costs I don't really see anything meaningful in 2020 and turned to change on long cost or or other.
Elements at this point.
From price perspective, I think the only place you know I don't seem but as we talked earlier I don't see.
Many factors are going to put a lot of pushed on to pricing upwards on commodity prices on the other hand people are operating at cash costs. At this point I don't see a lot of downward pressure. There we were worried about anything on on the price I'd it'd be the additional capacity coming up in the U.W.P. side knees mm.
Understood. Thank you guys.
[noise] Hi next question coming from.
Right.
Goldman Sachs.
Hey come on guys.
Oh I'm, Brian <unk> I, just wanted to come back to the the strong volumes investigation. You know you mentioned you know some market share games. They're just wondering how you is that come in more from signing up new products to kind of put in the system and new new relationships with with manufacturer's or is that you think just more.
You know existing products outselling competitors in in the market.
Brian This is neck, it's probably a bit of all three of the other thing that you didn't articulate or ask about was if you think about the acquisitions that we've made over the last 18 months one of the benefits that we anticipated in one or the benefits that we're getting is it.
<unk> mixer products into those newer locations by leveraging the existing relationships that'd be empty house across the country. That's a piece of it.
Certainly the the incremental growth.
On some of the product lines to wage point as a bit a little conversion and it reflects the strategy of continuing to try to broaden the product mix, both new and different as well as laterally isn't good stuff from point a to point b.
How big <unk> anyway, and I think you you mentioned, how yeah, Oh, It's me and plywood Emmy toys made here not down in normal levels, but maybe there are getting there the water bill to certainly got back to normal on on lumber. Nick would you say the same in that channel that were maybe not quite back to normal that on are we getting close to there.
Yeah, I think that's fair, Brian and Wayne kind of hit on the elements associated with that you've got a seasonal impact which.
You know I'm sure many of my customers and many of my competitors are doing the same thing. We're doing is thinking about anticipated volumes through the winter and rationalize in those inventories and I think the other part that again Wayne mentioned is this.
Expectation in the market place that lead times or a bitch shorter supplies were more readily available certainly there's not a scarcity of product out there, but it's in more balance and you know the the toggle switch on this will be what happens with volumes in the winter because people can react pretty quick about getting.
Inventory in the system of winter is less severe end or demands bikes unexpectedly.
Okay, <unk> and waiting to think in response to George's question, you said that in the springtime you might need I think it said 50 to 60 million a cache of working capital and you're talking about it just the normal seasonal build them working capital or are you sort of implying that for 2020, you know working capital could be you said cash in that range for the full year.
I think we can see it or use the cash for the full year I don't know that it would be the 50 to 70, because again some of it will build in second and third quarter and even if we have higher business activity will release, a lot of in fourth quarter, but just as a reminder, we.
Hey out a lot of our incentive compensation for employees, we pay a vendor rebate payments and we have normal seasonal working capital bill related to inventories and I and I think although we'll see we may see some price inflation on commodities in the spring of 2020, and if you combine all three of those.
<unk> <unk> <unk>.
50 to 70 guidance is.
In my mind more than we wouldn't normally expect and again I think part of that is we're coming in.
To the end of this year with.
<unk>.
Current levels were below where we would normally like to be on L.D.L. inventories and I'd always inventories were light N.B.M.D. relative to where we would normally be and we've got a fair amount of deflation into commodities and and again.
Whether or not there's price escalation to know as being lumber.
Remains to be seen but I think just on a pure volume basis, we're probably light or through our system and both manufacturing and N.B.M.D. Then we would normally be then we'll see how much of that gets replaced before December 31st but.
As we calibrated our supplemental dividend, we calibrated within with a thought of keeping 50 to 60 million or dry powder more than normal.
To accommodate incremental working capital.
Okay that makes sense and then south won for me can you just remind me the timing on the floor in project and what you know impact to either die you think it could have in yeah, maybe the first year or the second year of its operation.
Yeah sure. So this is Mike.
The actual project has been on going up a little less 12 months and it has until about the quarter of next year to be completed.
So we his bike they'll yet you know drain and with and capitalism as we got <unk> and what have you as it relates to the operations to say it has made a little bit of any impact on the production of <unk> and subsequent cost impacts, but it's not it's not a major impact on on the facility itself because we're trying to work around essentially.
The.
The production of a lack of production of any and so on a volume metric basis, we we may be down.
I bought the sand entitled volume production next year, Florine, but none of my Dream.
And the and the cost savings anticipated from it any any ballpark on that.
Yeah really well this probably object may bring some cost savings that that is really not the way that this project was justified <unk>.
Facilities vein that now for 50 odd years and the equipment that we're placing was at the end will stick for games of it's useful life.
So if we get some modest improvement in in cost structure, that's likely <unk> Nautica next year it would be in the following year at 2021.
[noise] got here, Okay, Roger get boring is really around conditioning, the logs and processing the logs to prepare them for the <unk> and creating the near so it's that.
Front end process at the Mel we have very good drawing capabilities of flooring that we put in a couple of years ago, but there's a limit on how much money or we can get through the mail.
So the.
The long utilization center as Mike said really in 2021.
<unk> will give us the flexibility of producing more an internal veneer and having it available to support the engineer would operation at Alexandria, Louisiana.
Okay. Okay. Thanks.
Well if off question to from Georgia.
Okay.
Thanks, very much I guess, just a few <unk>, it's a nap so to speak on the questions. Everyone can you talk about what in particular and Caroline was up 18% in the quarter, what some of the bigger driver. There were there you talk about work from Capitol could you talk at all about what you imagine you know cash taxes might look like.
You know directional any or how we might have try to a mile let out a couple of [noise].
Oh and after that.
George's next to the growth in general one is really kind of scattered among.
<unk> I would tell you that.
Maybe.
There's there's some gains in some pre finished trim and related products.
Some gains inciting and there's some games indexing, but it wasn't one thing it was a little bit of everything.
Okay and on the pre finished and <unk> was that new product that you were bringing into the system more that was existing product that was just you know gaining more share of the market are growing more quickly either way to tip the scales, one way or another on that.
Well, we have a mixed deciding products throughout the systems with with many manufacturers will in a couple cases, we were able to convert.
A few locations to a new brand.
And that had a relatively meaningful impact.
<unk> existing brand, we distribute that elected to have us distribute in additional branches.
And and again, because there was an existing footprint that they had in the market. We we were able to step into those volumes reasonably quickly because again we had.
A good service reputation with them in other branches.
Our confidence in our ability to execute and confidence in our balance feet.
So we were able to quickly gets who are run rate and support their activities.
And and by the way we've seen that.
Second third quarter, it's been ongoing for a couple of years and we've got a couple.
In the works I think in the three book pockets and somebody mentioned earlier in terms of what friend.
Existing product lines in the <unk>, we have a couple other vendors that networks with that have clearly come in in the last.
90, 120 days and said we've got more we would like to do with you if you're prepared to take it on and I think we've been really good about supporting next real estate for a friend had account and other things. So that we can ramp the organic growth and we've got the balance sheet to do and then I think in.
A number of cases, we got vendors that have.
<unk>.
In a small number of our branches and with life collateralize across our footprint in more places and again there was in the Priding Arena. There was a sharp example of that but.
That's really what next team continues to be focused on.
Understood.
I'll I'll leave the fighting in general on question to the side, but on on taxes payable and cash taxes for 2020 d. of any kind of.
Directional view or things, we should consider is we're trying them all up.
Yeah I would.
Probably model in the high teams the 20 on cash taxes and 26% for Buck.
Okay.
Last couple of quick ones for me any comment at all in terms of how residuals. We're in terms of swing factory year on year or in a quarter I imagine it wasn't that big but just sort of checking the box. There and then you know in terms of value return to the shareholder.
You know again congratulations on on the dividend.
In the past you've talked about five back you know where we're just say by back is in terms of your pecking order My guess would be it's not that high relative to dividends only because of.
Liquidity factory have with with the common stock and so.
You know I I wouldn't have expected to buy back, but just if you could update us on on your views there and thanks guys. Good luck on a quarter.
The good if you're talking about the residuals as it relates to win residuals, yes correct.
Okay. So we have had a negative impact your every year, we used to date.
And it was much more than any of his certainly I predicted.
So it was urging on that $5 million actually a year on year.
Okay.
Today.
<unk>.
Okay fine.
And.
<unk>.
<unk>.
To to Echo quirks earlier comment we would prefer not to give anything back rather than the regular data if we've got organic sure <unk>.
And opportunities, we're not we're gonna try hard enough to get anything back and and our philosophy on buybacks and again. These are decisions that are bored reviews. So this isn't this is lanes commentary and I'm not going to tell you that I only represent bored at all times.
When we do buybacks, we view it as we are doing it on behalf of the people that are staying in.
And so we try to have some view of what we think the future holes and and wants to actually Q. buybacks, where we have a high degree of competence that it's going to benefit the people that are still n. and your point about the.
Liquidity and the shares.
Levels and other things.
Somewhat enters into that calculus, but I would tell you that bigger part of it is how much confidence do we have.
That we're smarter than the market and we can buy that a discount on behalf of the people that are still in and.
And again we.
Both scary purposes and.
Supplemental mechanism.
No place in our business.
Because the acquisition opportunities in growth opportunities can be lumpy and as we've seen in the last 18 months.
Commodity prices can be volatile and so.
We would prefer to maintain the flexibility to deployed capital to where it makes them all sounds for our shareholders and we are not.
At least some of us are not in the campus as we ought to do the same amount a dollar wise unfair repurchases regardless of price.
Yeah, no wait I understand and obviously the stocks away. It's been perform I wouldn't expect and buy back here, just one or two kind of a reminder, and how you view it and and obviously that was that was very helpful.
Gosh now the only reason I clarified as I have read some other.
<unk>.
Background that view their share repurchase program as a tax efficient way to pay a regular dividend and that is not how we look at chair repurchases.
Understood.
Thank you guys.
Thank you.
Maybe I think we're getting close the time.
Yeah, I mean final one question maybe in the queue otherwise we'll.
Wrap up yeah.
Question coming.
Oh.
Okay.
Wayne I, just I have to follow on the first one is just the impact of these lower west coast log prices on the on the third quarter and how we might think about that.
Going into the fourth quarter, and then next year, because I know, sometimes there's what kind of a wag in here and then I had one other question.
So my.
Yeah, certainly blood prices of down year over year, but they're sort of like Florida, Florida, They should get more or less flat anyway.
So if you just looking from second quarter, the third quarter I've used at in the greatest Pacific Northwest the numbers are more or less flat your every year.
Down Yeah <unk>.
Quite considerably.
<unk>.
And across the Guy in the Pacific Northwest in General, it's about 10% we have different regions. They are clueless.
Going into next year, we've already started to see on the coastal coastal sort of a of Oregon, where we have l. operations that loves prices have started to move up a little bit him, though a lot.
30 to 60 days, but not significantly yet I I.
I anticipate in 2020 look prices will be up somewhat but not not to a matrix did like they were a couple of years back.
Okay.
Last question I had was I wondered if one of you could walk us through kind of this it briefly.
Case on Brazilian plywood denigrating standards.
I can try and give you the best in so I'd I have which is I only one view I guess.
And the the simple the way I understand it is that a group of plywood produces in you know what it's like.
<unk> consortium, if you will and have launched a suit.
I essentially against acidification agencies that are operating within.
Brazil.
Claiming that I think that suit claims.
Or one of the X., which is.
Actually I think around the.
Well <unk> advertising.
And the other claim I I just don't recall what are these bought at the moment, but.
As far as I'm aware of I heard a little bit of news and the <unk>. The last couple of days that it's sort of in a bias.
That.
There has been some additional movement from the.
The defendant's basically trying to have the.
The the case thrown out but there has been though decision by the court at this point in time.
<unk>.
Would throw in you know the the the.
The issue revolves around the P.S. one standard.
And do you know the agencies involved are have long standing players. They are in fact daunted by yet a third party and you know we very much rely on the grading agencies to evaluate these properties of these products and and until we see something to the contrary that's what we have continued.
And to rely on.
Okay, Alright, I take it you are not involved in the action then.
Nope.
Okay, Alright sounds good good luck on the fourth quarter and as we look into next year.
<unk>.
<unk>, let us when we're we're going to wrap up before we do I would just like to acknowledge one of my colleagues Adele Papo, who has.
Assisted me for many many years on her Investor relations activity in is the executive assistant for time, and I will be retiring so I'm.
Reasonably confident a delicate listening in on this call and then has been a big part.
Earnings release process, our web cast and helping me on road shows an investor related activities.
We do have an internal person <unk>, that's going to come in behind a Dell, but I would just like the publicly acknowledge and bank Fidel for all over the years that she's made the I.R. function were reasonably smooth so.
Down if you're listening and I'm sure you are thank you.
[noise] [noise]. Thank you Wayne Ditto for me on his comments.
In closing I'd like to say I'm, just really pleased with our third quarter results given the underlying weakness in commodity would pricing and relatively flat market demand the teams and distribution in manufacturing performed well in a really tough environment I.
Equally please where we are position from up people balance sheet and business plan perspective to drive continued growth and improvements going forward. Thank you for being on the call today and I hope everyone has a great holiday season Goodbye.
Hi.
Girlfriends call. Thank you for participating email disconnect.