Q1 2020 Earnings Call

[noise]. The morning, My name is valley and I'll be accomplished so I that's okay to today.

At this time I would like to welcome everyone to Boise Cascade first quarter 2020 conference call.

All on the type of place I'm used to go there any background noise.

<unk>, because remark that would be a questionnaire for <unk>.

If you like Catholic watching during that time of the parts are and then the number one on your telephone keypad.

Quite you want me, taking on that what did they ever feet.

Withdraw your question <unk>.

Because again I remind you that this call me for came forward looking statements about the copy feature does this topic anticipate if I'd anthem performing.

These things are not guaranteed a future performance and the company I didn't take no duty to update.

Although these statements with like magnets expectations today, they are subject to a number of business risk and it's hard to.

Action was off make different materially from those expressed an empty implied in this call.

Already got you know the fact is that may cause actual results to differ from the results anticipated. Please apart to Boise Cascade recent problems with the S.P.C. It is now my pleasure to introduce you Wayne ran court executive Vice President P.F.L. and Charger Boise Cascade, Mr rank or you may begin your conference.

Thank you very good morning, everyone I would like to welcome you to Boise Cascade first quarter 2020 earnings Com doesn't update.

Joining me on today's color Nate Jorgensen Mercy.

Mike Brown.

One of our wood products operations Nextel head of our building materials distribution operation.

Turning to find two I would point out information regarding our forward looking statements near appendix.

Reconciliation for Mark out net income to eat at 900 adjusted either Huh.

Segment incomes affect many bizarre I will now turn a call over Tonight.

Thanks <unk> good morning, everyone. Thank you for joining us on earnings call today.

I tried number three or first quarter sales at 1.2 billion were up 12% from first quarter 2019.

And I didn't come was 12.2 million or 31 cents per share compared to net income up 11.4 million or 29 cents per share in a year ago quarter.

<unk> net income for first quarter 2020 includes 15 million a pre tax accelerated depreciation and 1.7 million of other closure related costs 432 cents per share after taxes due to the common curtailment over I choice production it rocks from North Carolina facility.

Property performance in both businesses were strong demonstrating the strength of our integrated business model.

What products manufacturing business recorded segment income of 3.8 million in the first quarter compared to 11.6 million in the <unk>. The first quarter 2020 results include the Roxborough <unk> previously mentioned charges.

Or building materials distribution business report a segment income of 29.3 million on quarterly sales of one building for the first quarter compared to 17.5 million of segment income on quarterly sales for 908 million in the comparative your recorder.

We know walk to the financial results in more detail then I'll come back to provide an update ongoing business ongoing response to cover 19 impact on our businesses.

Outlook before we take your question <unk>.

Okay I'm on slide for what product sales in the first quarter, including sales to our distribution segment, where 320 million <unk>.

But first quarter 2019, as an eight mansion wouldn't products from Puerto segment income on 3.8 million and at first quarter compared to 11.6 million and a priori reporter.

Increase incitement income was due primarily to accelerated depreciation of 15 million another closure related costs at 1.7 million.

Roxboro constantly <unk> mentioned.

Reported eat it uh-huh for the business was 33.4 million.

<unk> 25.4 million reported an eight year ago Porter.

Higher U.W.P. volumes and lower manufacturing cost contributed to the improved either diaper foreigners compared with the first one or 2019.

Lower probably wouldn't pricing was a drag on first quarter 2020 compared in performance.

B.M.D. salesman, a quarter, we're 1 billion, 16% from first quarter 2019.

Sales volumes were up 17% no sales prices declined one person huh.

Business reported segment income I'm 29.3 million or either 34.6 million and the first quarter.

This compares the segment income 17.5 million and even 22.6 million and the prior corner.

Increasing segment income was driven primarily by across margin increasing $24.6 million.

Salting from improved gross margins on commodity products and higher sales general line products and he W.P. compared with first quarter 2019.

This improvement was awesome, partially by at 12.2 million dollar increase in selling and distribution expenses.

The amount for 100 allocated corporate cost and other items impacting our report it either.

And he found in the tables of earnings release, the net of those items was negative 8.4 million in first for 2020 compared with negative 7.3 million in the first part 2019.

Turning to slide five our first quarter sales line is for I., Joyce and how the outer up 14% and 8% respectively compared with the first quarter 2019.

Housing start activity was quite strong at the beginning of the year as favorable whether combined with good economic factors to create robust demand for new single family residential construction.

We didn't begin to see much of an impact the covet 19 induced slowed down in the pay some new single family construction until the latter part of marks.

We adjusted R.E.W. female operating schedules early in the second quarter to in tune with the changing demands situation to avoid building accessing mentors.

Pricing and first quarter for I. Joyce was up 1%.

And L.D.L. pricing Miss down, 2% compared with first quarter 2019.

Turning to slide six our first quarter apply when sales volume and what products with 318 million feet compared to 336 million feet and first quarter 2019.

We were able to push a higher proportion of our veneer production into eat have U.P. and the first quarter given the solid demands on them out.

Also the lower of I'll, even for plywood sales reflects the sale of the monitor apply what facility during first quarter 2019.

The 267 dollar average plywood net sales price on first quarter was down 7% from first quarter 2019.

Pricing shove nice momentum throughout most of the first quarter, but Oregon orders began to weaken in March is distribution customers significantly slow, they're buying and work down inventory levels in response to the cover 19 pandemic.

Declined to demand led to a week or prices in April.

Wouldn't pricing thus far in second quarter is approximately 5% below our first quarter 2020 average.

Moving to slide seven.

M.D.S first quarter sales, where 1 billion, 16% from first quarter 2019.

If I ended up 17% pricing down one person huh.

Hi product area P.M.D.S commodity sales increased 11%.

General line product sales increased 23%.

And eat any p. sales increase 14%.

Gross margin percentage for B.M., and first quarter less 12.6% up 80 basis points from the 11.8% reported in the first quarter 2019.

Gross margin increase resulting from improved gross margins on Monday products.

Higher sales or generalized products in either repeat compared to first quarter 2019.

As a reminder, our general <unk> E.W.P. that we service through our branches tend to have higher gross margins.

So higher associated sales in handling huh.

<unk> either dot margin was 3.3% for the corridor.

From the 2.5% reported in here and elsewhere.

Robust construction activity in the first two months 2020 as evidence by seasonally adjusted housing starts of around 1.6 million, so sharp increases in commodity products pricing.

Yeah, I peeked in mid March.

However, concerns and uncertainty about the impact of covert 19 cents and have negatively impacted residential construction activity.

And building products demand, resulting in for 10 months I'm production across the industry.

In a sharp decline in commodity prices.

<unk>.

Panel lumber prices are approximately 15% below the peaks of mid March.

<unk>.

Anticipating a commodity products pricing in the second quarter or.

Well remain at current levels, which will be similar to the price levels experience in second quarter 2019.

Slide Hey shows the roller coaster ride at lumber pricing in the first four month of 2020 most of the major lumber producers have adjusted operating rate.

In response to the demand situation, which should help stabilize pricing once and market consumption is more predictable on a supply chain becomes more comfortable establishing inventory conditions.

I'm slide nine one can see the same pricing pattern for the random links composite paneling X. again never been significant <unk> any of the L.S.B.M. five producers in response downstream supply chain behaviors.

<unk> can we have set out the key elements of our working capital company networking capital, excluding cash income tax items and accrued interest.

Increased 91.5 million during the first quarter, representing a seasonal use some cash.

Seasonal increasing accounts receivable on him and Tories was not really honest that by the increase in accounts cable.

As is normally the case, we also use cash to pay out incentive compensation and customer rebate acquittals during the quarter, reducing a crude liabilities.

Business conditions remain meaningfully week or for the balance of second quarter I.

I would expect are working capital levels to fall by the end of June.

Result in additional cash generation.

Statistical information file that they said that 99.22 are eight k.

Hasn't received both inventory and accounts payable detail.

And down by segment for those interested.

[noise] I'm now on slide 11.

We finished first quarter of a 215 million of cash.

Total available to put it marks 31 was approximately 560 million.

Which reflects our cash and availability under a committed and decline.

We had 440 million of outstanding debt in March 31, with no maturities prior to 2024.

We were originally targeting capital spending in the 80 595 million this year, but we reduce the plans to between 50 in 70 million in light of the expected lower cash flow from the businesses.

Reduce spending level includes funds to complete the log utilization center improvement project that are probably wouldn't have been your facility in flooring, Louisiana.

Well as B.M.D. store shop expansion in Dallas, Texas.

We expect or effective tax rate to be between approximately 25 per cent in 30% going forward with potential adjustments under the cares Act.

I will turn it back over to connect to discuss our code at 19 business update as well as the outlook.

Thanks, Wayne I'm, not so like number 12 or first priority during the crisis continues to be the health and safety ever Associates No certainly do business. It's important that we continue to support community efforts and conduct our business appropriately based upon the guidance from the C.D.C. among others.

And it's just a patient a week or business conditions over the next several quarters free reduced our capital spending plans adjusted manufacturing production levels and implemented a number of access to preserve cash and reduced expenses.

We have further actions identified which will look we will implemented as we move deeper into the quarter. If it becomes apparent that demand environment and economic outlook is unlikely to reverse in a reasonable time frame.

We have the experience of the last financial crisis to lean on and planning our club in 19 response. However, we believe the early actions federal level.

Respond with the fiscal and monetary stimulus is likely to mitigate the depth of the economic damage in short in the past the recovery.

We are already seen actions that possibly reopened portions of the economy's in states, where the curve of in and sections as flattened which provides just hope that we will see a return to normal activity in a much shorter cured and following the 2009 financial crisis.

How much slide number 13.

The Blue chip consensus for U.S. housing starts was last published and an expectation at 1.16 million for 2020.

We have expect that consensus to fall between 1 million and 1.1 million How's he starts over the next several weeks, but the second half of the year, it's very hard to predict the new start rate and in progress completion rate for single family New construction has slowed considerably as we as move through April.

Many builders of scale back their construction of spec homes order cancellation rates have increased from any builders and safe distance seen practices. It extended construction time frames all those factors lesson near term consumption of the products, we produce and distribute.

The Cobra 19 pandemic in a ripple effects negatively impacted B.M.D. sales patient April by approximately 13 per cent per day as compared to March.

Or sales volumes declined is residential construction activity slowed and markets constrained by shelter in place orders in in other markets as a result that build their construction pace adjustments, including heightened construction site safety measures.

We also experienced revenue deflation from lower prices for commodity what products during the month of April relative to first quarter 2020.

We expect covered 19 pandemic impact, resulting sequentially lower sales and earnings in the second quarter in both manufacturing and distribution has stayed slowly reopen their economies.

Because we continue to be categorized as an essential business in the vast majority jurisdictions. We are an excellent position to respond quickly to support customers our customers should demand rebound more quickly than expected.

B.M.D. is maintaining high service levels with the on Brown in market Emma Tories been is helping our customers make effective use up there working capital dollars.

With uncertainties in demand and difficulties in judging the appropriate operating range <unk>, what products pricing could be bottle volatile in the months to head we will react appropriately.

We will continue to be guided by our values of safety integrity respect in pursuit of excellence, we will successfully get to either side of this crisis by centering on the health and safety of our associates and making sure we use our operating and financial strength of the benefit of our customers suppliers communities and shareholders.

Thank you for joining us today, if you're continued support interest in Boise Cascade, We would welcome any questions at this time.

Would you please open the phone lines.

Thank you <unk> from telephone.

Dry your question.

Okay.

Please.

<unk>.

I first question comes on Blind Mcguire I'm, calling this action line or something.

Egg guys good to hear voice hope, you're right while doing well.

<unk>.

Appreciate the <unk>, yeah that kind of comments on the two q. outlook, there and I guess, yeah. It sounds like things, obviously do salary a lot there towards the end of one q. and and <unk> into April that down 13% in in the N.D. I just wanted to clarify when that was quarter over a quarter or year over year. How you were taught.

How about that and then yeah have you seen any we talk a week improvement as we've gotten into early may hear any any signs of green shoots or activity resuming or are we sort of this.

Still trying to find a bought on on on somebody's numbers.

Brian This is when the 13% is the comparison of the daily sales rate in March.

With the daily sales rate in April.

So part of that 13% is gonna be price inflation and some of it will be volume declines.

I would tell you in our case.

The pace load at the end of March and ended the first part April.

And as we've seen some reopening, particularly in the states they've.

Shut down construction is non essential.

Those that haven't changed that designation, we're seeing and pick up in sales activity.

And and I think they the general feel as if people are pretty positive with the state.

Taking the reopening and I think part of what we're seeing in May and the and the volume is a may have been pretty good at first week.

I think part of what we're seeing as more comfort or comforted the dealer level and trying to rebuild they mentors today I would tell ya from the anecdotal.

Stuff I see I think there's a fear of messing out if they taste accelerates people don't want to be caught short and I think they're less concerned at these price levels with getting caught with inventory that would get marked down in the future. So I think part of what you're seeing as an improvement field activity and part of what you're saying is a little more cumbernauld restocking that's a biking.

Oh, it's good to hear and you entered at some other cash actions you might be able to take it if things do you were saying you know please but is there anything any more specific she can provide on what what sort of other options you got.

Yeah, I mean, it's it's the same laundry list that we put together in 2009 and again I would hope that we don't have to take these but you know the ones that have been implemented already are what I would describe as a somewhat easy to do the reduce capital spending.

Why not I fell open positions salary phrase et cetera.

The other suspects that would be on the list. If if that's got a lot worse than if we found herself in something that looked like 2009 and 10 obviously.

We can reduce compensation at the senior management level that already happens automatically because there's a considerable amount of are paid a variable, but we could look and base pay reductions reductions in director fees.

Salary cuts more broadly we would probably eliminate more positions one of the things I think you'll see doing the short term.

Is try to protect salaried position is particularly in.

Talent areas or geographic locations, where it's really hard.

Refill positions.

Just try to protect those salary physicians all the next several months, while we see how this plays out, but obviously that would be on the table.

Speaking personally I would probably try to maintain the the base dividend, but I would be very surprised to see us pay any supplemental dividends or do share repurchase isn't that kind of a downside environment and you know I don't know that we would necessarily be.

Active on the debt retirement side, but we would certainly try to maintain as much liquidity on the balance sheet.

Possible.

Right.

Sorry, but I just did maybe to add to that you know is is a Wayne described we we you know have a number of different scenarios that that we're looking at in terms of of.

That's what it could potentially be in terms of business condition in the business environment as we move forward. So I think we've got you know kind of the right topics in the right metrics in front of us in terms of what would that need to look like and and does Wayne described.

Use some of the same.

Cost reduction actions that we've done prior should should we get to that spot, but I think is we you know kind of finished off April and and heading into May you know, it's encouraging to see you know business levels, you know solar it certainly stabilize and slowly responded. So we're we we feel good about our costs position as we sit today, but we're prepared to to do something different if if required.

<unk>.

Okay that that's not funny for Wayne just a question on on receivables and if if if your customers are.

Skiing for extended payment terms and yeah, just sort of just still overall level potential for bad debt expense to start creeping up if we start to see a either collections you know take ticket back seat to other issues that some customers make they have it in this environment.

Yeah. The general rule were very very conservative on credit in through the last downturn, we hadn't minimal right off and I would expect the same to be true now because we've got the same credit seen in place.

We have had a number of customers that have reached out and then asked about extensions and I think neck in his pain the general responses Ben.

We will keep our promise to you in terms of having the inventory to back you up all tracks and ready to service you and our expectation is that you will.

Continue your promise to us, which is to pass on timing and with in terms and and so far I think that has been receiving reasonably well.

I wouldn't tell you we started to see <unk>.

Modest shift in April and I would expect us to accelerate yeah. If we continue to seeing slow down we did see more activity out of warehouse and laugh.

Customer direct shipments from manufacturers.

And I think particularly in the on the commodity products a lot of the males kind of 10 day terms and then a lot of cases, we allow for 30 day terms.

I would expect us if the activity level slows down.

Through the channel I would expect more the dealers to start relying on two step instead of taking shipments direct.

And we've got a number of our wholesale competitors that or.

Very stressed from a bounty standpoint on some of their upon public comments.

They're clearly ratcheting back personnel inventories.

And we saw in 2009, and 10 that by staying in stock and nothing having on the ground inventories and being able to short.

Short timeframe respond.

This activity and I think that that will probably cushion those two factors will probably help push in some of the fall off.

But as I mentioned, where we're going to do that and support the customers that were highly confident are going to be around him can help.

I'll make sure that we don't end up with significant bad that lost as we are not going to chase.

Business, where where people are being denied credited other wholesalers or.

Where we don't think they're likely to make it through this if it turns out to get ugly.

Yep that sounds great I take your guys have you doing well.

Yeah.

Thank you <unk> Bank <unk> okay.

Thanks, I'd I'd like to just loop back and get a little more color. If it's possible I, just where you see kind of inventory in the channel. It sounded like you were suggesting that there had baby done some inventory rebuilding.

In the channel in the last week or two.

Yeah next you want to touch on what you guys are seeing real time.

Yeah, I think going get more alert.

As we've talked about there's no metrics, but I would tell you there there's I have some pretty strong impressions. This time, just given conversations with customers and suppliers.

Quite frankly, our own order intake.

Wayne articulate we've seen a pretty big shift from people willing to take pretty significant positions and.

Particularly commodity inventories get really young tourist products across the system.

I think that's a function and what our customers are saying, it's a function that aid they don't.

Big appetite for market risk.

And be there just very focused on they're all working capital situation. So I would tell you probably more shows at anytime that over the last many years inventory levels across the system I take are relatively low.

So again, I think you've you've seen a bit a price appreciation.

On the commodity side.

The last three weeks in a couple of cases kind of dramatic price increases over the last few weeks.

I think that's a function of.

Demands starting to to creep up a little bit is this thing opens up and.

A relatively lower level of supply in a reflection that that inventories are low.

I think customers will everybody channel will continue to play it that way, which.

Really plays into our hands in terms of the outer world. So.

That's the best I got their Mark Yeah, that's actually really helpful. Cause I was I was noticing when random lengths came out last night I mean, some of these increases that we've seen over the last.

Three four or five weeks are are really quite dramatic in percentage terms neck.

Yeah, absolutely and you know when we get that kind of price escalation, obviously provides little tail wind for a so what's the marginal side on the sales side. So.

We're happy to see a little it out here in there.

It can you could you maybe give us a little bit of color and just.

Managed so that when we get a big drop the way we saw in March that you guys don't end up taking a big inventory hit on that.

[laughter].

[laughter].

I'll give you the the secret sauce here.

People are.

There, there's there's not a lot of.

There's not a lot of.

For lack of a better way to say at what we tried to do Mark and this is a plan that we've had for years and years and years.

As we try to buy based on what we're going to sell it in the short term.

And when we get a little market.

Fudge that a little bit knowing that we're going to sell more when prices are escalating on one or the escalating.

We've never had strategy nor will <unk>.

Q go out and take big risks on the commodity inventory.

Our commitment to our suppliers at our customer or just to buy every day and the market every day.

The flow steady well certainly when you get some pretty dramatics swings on those prices as we saw.

And.

To March for part of <unk>. The March April and certainly in 2018, we did in fact <unk> have have reserves on some more costs to market adjustments, but.

It's just a function of the strategy that says I that that we should be consistent all the time buying and selling that's where we create value for both squire side customer side.

The guys and gals that do that every day or or making good decisions because you're really talking on the customers that will local markets.

Those are the decisions that are made.

At the location level in terms of the quantities, obviously, we try to leverage.

Our size and scale scope, whether in where we can but it's a focus on the customer and and knowing what the customer's going to have.

For us in terms of water flow.

<unk> last one for me I, just wondered neat if you could talk a little bit from kind of a capital allocation standpoint, I see that you're moving ahead with that Dallas, a door shops, and I know that kind of broadening the range of product out as some of your D.C.'s has been kind of a priority for you guys, but I'd also like you talk about that.

And what the opportunities might be can kind of from an M.A. standpoint over the next 12 to 18 months. When do you can kind of take advantage of the people in the market.

Yeah, Mark I think as we look at our strategy overall and and it's specifically in regards to be empty.

We've been pretty consistent about our our desire to continue to grow that footprint both from a product perspective from a geography per second for perspective.

As long as the categories, including you know no work indoors as you as you mentioned.

So I think as we.

Kind of pressed up against <unk>, I think even more encouraged to run our strategy in our ability to continue to grow the marketplace says Nick described I think we have very strong support from our customers and suppliers in terms of you know growing our position and that will continue to be a really important part of our our path forward here short term and.

Long term so in terms of the you know the confidence in optimism we have around heart distribution business I think again as Nick and I think Wayne described as well our customers are going to be very dependent upon us in terms of warehouse support and we're we're prepared for that and we're looking forward to that as well.

As we move forward [noise].

We want to continue to grow that business.

And as you describe over the next 12 18 months, we suspect there's gonna be some.

<unk> meaningful opportunities different opportunities that will emerge has maybe compared to even three to six months ago.

And I think we're you know well prepared as an organization financially I think we want to be measured Marcus given.

All the uncertainties that are in front of most including when you look at the unemployment a number from this morning. It's yeah. It's stunning you know in terms of nearly 50 per cent of unemployment. So what will be measured as we move forward, but I think in terms of our conviction in belief around growing or distribution platform and continued to invest in that platform.

For a range of products and services, including a experiences where appropriate. We're we're we're concede that's certainly a part of our password.

Sounds good alternate over.

<unk>.

Thank you I next question comes from within Garner the benchmark comedy Okay.

<unk>.

Good morning, guys. They should take my question.

So maybe let's see maybe starting on the general line business very strong growth again in the corridor I think you've had you know a string here of three or four quarters in a row pretty impressive well I can.

<unk> that it's still emanate, but the vast majority of it is is volume growth and and probably share gains can you just give us an update their and can can that continue to to you know going forward and help you may be offset some of the market declines just because it's you know self kinda initiative.

Yeah Ribbon this is Wayne I'll, let next.

Fall on F.I. Memphis up I think part of what you're seeing on the General line is we we've got a couple cheap products that are very important in that section.

Composite decking inciting being too that I would probably point too and we continue have very good results there.

You may recall in middle part of last year, we picked up.

A relationship with a key supplier.

Deciding arena.

And we've had very good growth in a number of our branches in that product category. So part of what you're seeing as a comparison and.

One q. 20 that has those sales.

And that category growth.

Compared to those sales not necessarily being in the past year. So I think some of the.

Quarter over a quarter girls numbers will slow down as we get into the back half of 2020.

But certainly that supplier relationship and not when in assigning category and and again very good performance continuing on the composite decking arena.

Those are two that I'd point to a neck I don't know he would add beyond that are correct, what I said, but I I wouldn't say, that's too bad areas that I that I pay attention to.

No. Good morning. This is Nick again, I think you you hit it on and I think Ruben you touched on the third like of that.

If you take about the acquisitions, we weighed in the first quarter of.

19, we didn't have a Birmingham operation in those numbers are obviously, we do this year. So I think the sum of all those three things is is how you should think about it.

Makes sense, that's a very helpful and it kinda ties into my my next question a little bit as we've seen you know some some aren't our strength, particularly in the D.I.D. I like channel I guess are you got seeing benefits that in your in your.

Plywood business at all in the early part of you two and you know I know you took quite a bit of volume or capacity out.

In that state how quickly can you can you bring it back on it maybe demand not as as bad you initially anticipated.

Mike you're going to take that one.

Yeah sure <unk> this is <unk>.

Yeah, you're right. If you look at the big boxes the quite.

Running really the consistency and recently Friedman demand panel products.

So I kind of explain exactly why all that's happening other than perhaps people did.

Filtering a time had many d. the law like projects that the <unk>.

Undertaking.

Very helpful for us in terms of maintaining the south levels were applied wood products.

And I'd be continuous my eating increase as we get into the into the summer.

The question around can we produce more if necessary.

So we <unk> some weeks ago, we were just reducing <unk> cool, which we have done basically in line with what we put out.

We have the ability in a relatively short period of time to ramp up volume if required.

And that would be the through the folks that are still working with us today.

Yeah that is I have the time opportunity.

<unk> certain locations, we have a cold back list.

We can go to those folks that went on unfortunately laid off and and call them back to work and usually that can be done within.

A week or so if necessary. So I I don't see a huge problem if required in terms of ramping up for volumes to make the demand at this stage.

Okay very helpful. Good luck navigating through this and stay safe everybody. Thank you.

Thanks for three months.

Thank you I get lazy sounded like that's a question. Please sorry, sorry, I didn't want it when you touch tone telephone.

I got a question comes from Georgia, Dan I'm thankful now <unk>.

Hi, everyone get morning, Thanks for the details <unk>. Thanks, while you do it on coded as well Hey, I. The first question that I had I wanted to go back six sense that you can comment on on a question that I think Brian at Teed up so is your way to <unk>.

<unk>.

That you know potential shock absorber, hopefully you never need to get to it.

And this cycle, but what it it might be able to look like what it might be able to buffer. Your your results are castle by yes. In fact, we had to go to that next step and it sounded like.

Given trends you know coming out of April into May yeah that looks to be less likely but I just wanted to confirm that.

Mm.

Yeah, I mean, well, we will see where we are on the run rate, particularly in distribution as we go through may.

I think of the general rule my can jump in here, we're running our wood products facilities basically five days a week 24 hours a day, so as opposed to 24 seven so we.

Well, obviously pay attention to operating range in price was on what's going on on what products, but the key I think Oh and the next several months is going to be what activity levels do we see through distribution.

Yeah, I would describe it to you this way in terms of the cost reductions.

We are not concerned at all about balance sheet and liquidity in cash so in terms of getting through this downturn <unk>.

We don't see any issues from an affordability standpoint.

What we're very focused on has kind of also pay attention to earnings.

And we will make caught.

When appropriate if we think we are taking too much of an earnings decline.

Because obviously, we're paying attention to our ratios I've got to even we want to make sure we continue to cash <unk> interest and dividend.

And again, we we have a less.

And I'll give you an example, and again I'd I'd Nonsame, we will do this immediately but if we were just to spend four o. one k. map for example.

That annualizes out to about $12 million.

Now what I'd prefer that we don't need to go to our employees and ask them to in essence give up $12 million worth of retirement benefits.

I would prefer not to do that but if this look like 2009.

2009, we eliminated our pension and we just entered four one k. confrontation.

And so.

You know again that type of playbook.

Could be relevant if we got into attract Coney and situation that same would be.

<unk> night.

Taking cuts in our base pay along with what we're seeing for reduction variable costs.

And that's a couple million dollars in corporate expensive you do that across the corporate.

Team, we can take several million dollars out of our corporate overhead would I prefer not to do that.

Yes, and I don't think we're gonna need to do that huh.

To preserve liquidity or cash from an affordability standpoint, but we are very conscious of that we don't want our data are ratios to go out of line and we do not want to be.

Borrowing to pay interest or pay dividends. So we would like to maintain as much earnings boring.

As appropriate and again, if if need be we will be at the lower end of that capital spending range and if you see things improving we will probably be closer to the 70 number because his name mentioned there was a couple of things.

That are on the docket, we would like to do to continue to expand the distribution <unk>. So you know if you said scale.

The expense reductions.

It could be anywhere from zero to 20 million to 25 million on an annual lies basis, depending on how bad the situation becomes and we've we've got a list that would build until a meaningful.

Number if we got into that scenario.

Wayne that's great I again, I I didn't I I purposely set it in an aggregate way I didn't you initially for to get granular I appreciate that that candor and you guys have done a great job positioning the balance sheet for things like we're experiencing right now so I mean.

It's unfortunate, but it's great that you've done that yeah, and again <unk> take it. We're just trying to be very very thoughtful preserving the franchise per preserving employee morale and frankly <unk>.

<unk> customers, sending a very strong message.

That if you're concerned about having a distribution partner that can get your product to the market and pay you.

If your product aligned with what we're trying to do.

We are hoping for business in prepared to support our suppliers and help them continue to growing texture.

Maybe George its name maybe just add on that I think it's you know we we see this is a momentum opportunity obviously, a very difficult climate.

But we we think we are well positioned as a as a company to meet this challenge and things, including I think the experience adaptive our team in combination with our balance sheet. So as we think about that the challenges it's an opportunity to a game Cherokee gained momentum and really accelerate coming out of this you know whenever that takes place so that that's part of our thinking.

Terms of making sure. We've got you know kind of the <unk> levels that are in place today and the end of things you know turn South Bend, we're prepared to move forward, but we we think things have stabilized and slightly improved.

And we want to make sure we're in a position to to provide great surface to support test Wayne described both to our customers and suppliers and and that's certainly part of our thinking as well.

No understood and they understood <unk> again, thank you for the the directional guidance on two q. that that's helpful. Given you know for any of the with product business, how much earnings can swing with pricing and demand.

What have you baked in to your outlook, if not just too cute, but you know into the year from you know potential increases and imports from from South America I know in the last few quarters and when it's been brought up it hasn't been a factor, but you know C.M.P.C. on its call today was talking about exploring a bit more.

<unk> <unk> talking about that all they have more poor their numbers yet are you seeing any change in the dynamic there was it pretty pretty humdrum at the present time and and related Lee on the supply side.

It seems like some of your your peers and U.W.P. or having a little bit difficulty running.

Are you, saying that as an opportunity.

You know to either Gainshare outdoor at some point.

You know take pricing up in any W.P., even know prices were flat to down that this quarter.

Mm.

Mike you want to touch on that.

Yeah sure Yeah, good morning too much.

Hey, Mike said, Yeah, Nice South American issue, I guess, I would say, it's pretty much business as usual.

We haven't seen either a great great pull off for a great increase I mean, I I know you're tracking things like what's happening to the Brazilian reale, which is full time record highs.

And and with the fact that L. I would probably seen seen in the states is appreciated the little bit type of recent huh.

If they could produce small I think they would try and ship more.

But as you are well aware that having some very significant social issues with related to kind of annoying thing in Brazil at the moment.

So if they can get it produced and get it on it.

Drawings, and some old, but I don't think that's going to be some tonight tomorrow it might happen.

Have the next quarter will too.

You asked a question about eight w. heat pricing.

I think that would be a barren competitors supply.

Yeah, but [laughter] yeah.

Oh do the pricey one but.

<unk>.

It's a tough market to raise pricing I get it but just wanted to say yeah. Yeah, I think it would be a challenge at this point until I'm given the the situation as it relates to home builders and some of the additional costs, that's airing carrying as well as l.

<unk> has to go out and enforce a price increase at the moment, which is sort of related to your other call me and a question around E.W. Pizza Boy.

I'm out competitors.

I can't speak to all the challenges facing but as it relates to to L. situation.

We have ample amount of any so we're not really impacted by having to buy been you on the outside market, because we're not quite that mostly 100% self sufficient.

Have ample production capacity and we have ample finished putting inventory just service.

<unk> <unk> customers.

And they may be some opportunity he went about competitive sniffles when they sued but I I haven't heard a lot of that of recent plan to be on.

Okay, but I think it's just fair to say that the new capacity that was coming.

Not had a meaningful impact in the marketplace that we have seen today and it works in it that that facility has been slow ramping up 'cause given that declines in demand. This would depend I made a bad time to have a lot of incremental supply shopping to market and at least at this point, we haven't seen much if any impact in the market funds in that capacity.

There were two other thing on my lap. Okay go ahead sorry.

<unk>, maybe I'd wonder if they just said you know terms of when you are these kind of moments where.

For a producer whether T.W.P. or other products you know great distribution really matters at this point in time, given the sure probably the depend more dependent sort of you know out of the warehouse and choice I think about R.U.W.T. franchise.

And the integrated model that we have obviously it with the with C.M.D. in what products. The one where somebody independent distributors. We have I think we're in a really strong position to the service in executing the marketplace maybe better in different then maybe some of the other you to be T. manufacturers are out there. So do your point on share in our ability to services support the market, we feel really good about our distribution capability.

You know certainly it started with the empty.

Okay.

Altered overhead one more question, but just to be Cheryl from rubber. Thanks.

<unk>.

<unk> <unk> da Dave send you a lot as okay.

A good morning, everyone.

So a couple of my questions had been asked but let me just try to get a couple in here. So amazingly both the lumber accomplish it and the panel composite pure poised to exceed the Q2 19 average prices.

And you know according to the charts and most recent random links so.

Presumably the real hit for you guys is on volumes and cost absorption. So can you just help us understand how the diminished Mike <unk>, sorry diminished volume is might impact your your detrimental margins.

Sure I'll I'll take a shot and again, Mike for next time, and I think part of the challenging to to you.

<unk> is going to be potentially price in combination with.

With volume, but so your point, if we ended up flat on 2019 prices I think they.

The biggest detrimental head and would will be running five days a week instead of seven and as I said we.

I have been reluctant to take a lot of salary cost out.

The view that with the state's reopening we really want to see if we're going to go back to.

The full operating schedule.

Later in the here, but that that remains to be seen so I think is.

Typically I would've said that the Sacramento margins and would would on an even thought basis would be in a 20% to 25% range.

I suspect in the short term here it will be more than that.

And we would have.

Yeah back to a number that's closer to that if we start.

Instead of running.

Facilities five out of seven days, if we came to a conclusion that this was going to go on for an extended period of time, we might identify one or more higher costs facilities and take them dark and pull out more fixed costs, but I think on the distribution side is somewhat similar story.

On on the way up we typically talk about four 4.5% incremental either <unk> on revenues.

I suspect that Sacramento margins will be slightly worse than that as we lose volume.

If you look at some of the things that Nick and his team I put in place as we've been growing a business pretty cold dead.

And I think about what our costs pressure look like.

You know pick a number the last time or a 3 billion in revenues.

We had fewer geographic location.

You were branch managers et cetera.

So if we were to see a 25 or 30 per cent drop off in revenues M.B.M.D., we wouldn't need to make structural changes in the picks costs.

To get back to where we were from a fixed cost basis at 3 billion at revenues on the way so.

In terms of guiding on the way down at least in the near term I would think of a number north of four and a half per cent in terms of the Sacramento margins and BMD I think it will somewhat.

Be hard to.

Look at an incremental drop for example of 100 million a rabbit ears.

Because likely to commodity pricing variation in the margin impact on the on the remaining sales. If you said you went from a billion one down to a billion in revenues.

I'm not sure looking at the detrimental margins on 100 million who's gonna be that indicative of versus you know do we lose 40 basis points on margins on the whole book.

But I fully expect margin compression in the second quarter M.B.M.D.. If we lose volumes in April May and then to June and again and would I think you'll see a pretty.

Steep drop off and either die for running down 25, or 30 per cent on volumes that we'll have a meaningful impact on either side generation of wouldn't the near term.

Thank you.

This might sound like a a goofy follow on but.

What are the logistics of going from seven days to five days I mean.

Because you have shifted to go seven days on in two days off or.

At work.

And my Okay, you want it yeah, yeah I'm back on I got cut out thrown back okay. Yeah. So the <unk> the simple way of explaining it in.

Generally all use apply would build an example state so we run a full ship all four she operation, which means that they're eight hours you know shift.

And each shift their three shifts in a day and we have one additional chip that's sorta substitutes on a rolling basis.

So when we go from seven days, a week to five days a week.

We simply real gonna like those deck chairs and and and clearly you end up needing lets people.

But you can you effectively reduce.

The number of people you have but you still end up with rolling configuration M- Most places model.

It's just an ending and in some locations where we have.

A union representing I like please.

Sort of a high rocky or a bumping listed as it's cold.

<unk> on tenure.

That would that time on lasota first they got wall unless somebody that's more senior tenured wishes.

To opt out.

So it does take a little bit of time, but as we indicated weeks and weeks ago now we've effectively the news that cool l. facilities from the seven day operation to fall as a another <unk> run when equals seven.

We have a business market situation not.

D.W.C. So like we have capacity that we haven't been using originally because obviously haven't got any way. Neither 1.41 0.4 in the in house and stuff.

That nothing top yeah. Thanks.

Yeah, no that that's helpful. And then finally when it comes to your operating posture, but we had a point now where cash generation or contribution takes precedence over generating inappropriate return on capital.

This gets back to the preserving the balance sheet versus preserving the piano and preserving the four franchise. So at at this point.

We remain very return on capital focus, but I would tell you were we maintain return on capital focus over three to five years not 90 days so.

Part of what you're going to see in terms of maintaining the franchise and investing for growth, including by the way.

Payroll cost inventory holding positions et cetera.

We think over three to five years, our shareholders won't get paid if we can continue to grow their franchise and take share and that may mean, some optimizing the P.N.L. if you're measuring on at night or 120 day period.

And so if you sat on my return on capital focus.

Absolutely are we focus from a capital allocation on trying to generate compound return for shareholders.

You bet, but we're doing now whether it be over three to five years not let's make sure. We report two or 3 million dollar better number in second quarter than we otherwise would.

We're very much trying to figure out that balance point.

That says how do we take advantage of our financial position.

Service in the market et cetera.

And while it may involve some incremental near term costs.

We think it's strange that sounds we have an opportunity to step on the accelerator.

Crepe rewards for our shareholders that will show up three years from now five years from now.

And we could be more drunk draconian and show better results for 2020.

But we don't think we would get as much leverage and gain into 21 22 123.

As if we stay focused everybody had down working and really really focus on customers and suppliers and frankly, taking care of our people. We think the commitment to our people want in <unk> in suppliers.

We'll perishable shareholders from a return standpoint.

No pun intended great dividends and the next three to five years. If we do this right on the next six to nine months.

Got it so not like I'm, a golfer, but there's a short game in a long game well, thanks, guys stay safe.

Thank you actually.

Thank you.

That's the question comes from John Backpack, I think of American Airlines Okay.

Hi, guys I I just wanted <unk> question actually from George here.

So over all our experience in the past what door business has been that is challenging for producers you know some of this is driven by over capacity and so why is it's a good business for boys to build out and be empty and then generally I mean as it is it that the supply side gives you attract a permanent doors or is it something else.

So on on the B.M.D. franchise like the door shopping.

In Texas, we have a very good relationship with her much ruin a number of other branches.

So this is really extending the franchise, we have with hermit true in in like the Atlanta geography, we're taking that same business model and taking it to Texas.

And again, it's a very good relationship with Thurman true we have the capital available, we think the Texas marketplaces likely it'd be.

A great opportunity for us over the next three to five years.

And and by the way.

We think relative competitive dynamics, we will have a very good offering in market. This year.

And we'll be able to capture share disappearing into 21 that if we delay that marketshare capture maybe <unk> more difficult to achieve.

If we were to delay this till 2022, we think that's actually creates an environment for us.

And that's true and a handful of geography is where we think we've got the feeling opportunities.

<unk>, we think we have an opportunity to take advantage of this back that we can afford to keep them in four is on the ground them keep people in place and high service levels.

We think we can continue to fill out the empties math and and again there is going to be fair trade off if you said, there's a market really need the incremental capacity.

Maybe not but we think we're playing from a position to strengthen and again, we don't think we're going to have a negative impact on margins necessarily from doing that because we think are boundary, there's going to give us a real evangelist suppliers and customers.

Okay.

Nick one one point of clarification here and maybe I'll Miss hearing you a bit we are not going to manufacture adore components.

We're not going to manufacture slabs are framed draw anything like that what we do in our existing facilities and what we intend to do in Dallas is take those components and assemble light manufacture, but more assemble finished door units.

Wayne's coin, it's an augmentation of our product mix at our current customers you buy it in the Dallas situation, where we anticipate taking share it it really adds to the product <unk> service capabilities.

In terms of the things that we can do from a scale standpoint service or customers, but we'll just.

Just just for clarity were not manufacturing door components, we are assembling components and the priest pre hung units that we take double lumber yards.

Okay. Thanks for the detail.

Exactly.

Thank you I'm sure and also the question at this time I like to trying to call back over to New Jersey and plenty Claremont.

Great. Thank you very before we wrap up I want to express my appreciation tour associates were there continue numbers to work safely to take care of each other and their communities in the service our customers. So rapid negative impacts of the pandemic situation of required responsive thoughtful actions in a focus on personal community safety like that likes we've.

Never seen before.

Associates of absolutely runs into the occasion, I'm tremendously pretty should've been proud of all but they were doing.

I like to recognize the incredible efforts of the medical professionals first responders.

And others working tirelessly to go safely to the other side of this outbreak.

Untold number of people showing up everyday and putting those first including those helping on food security and housing issues driven by the crisis. This is the time to calls for unity and compassion.

There are signs that that the economies in many states are slowly beginning to recover his club in 19 shelter in place orders or relaxed.

It's a good time to take it just.

It is going to take time, and we'll need to be done thoughtfully and the weeks and months ahead to stay safe.

Well would help others. When you have the chance we will get through this together have a good we can everyone them. Thank you.

Thank you latency time into San Francisco topic.

I have a great go.

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