Q3 2020 Boise Cascade Co Earnings Call
At this time I would like to welcome everyone to the people, we see Cascade's third quarter 2020 conference calls.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer period if.
If you would like to ask a question during that time simply press Star then the number one on your telephone keypad.
Questions will be taken in the order. They are received if you would like to withdraw your question press the pound <unk>.
Before we begin I remind you that this call may contain forward looking statements about the company's future business prospects and anticipated financial performance.
These statements are not guarantees of future performance and the company undertakes no duty to update them.
Although these statements reflect management's expected expectations today, they are subject to a number of business risks and uncertainties.
Actual results may differ materially from those expressed or implied in this call.
For a discussion of the factors that may cause actual results to differ may differ from the results anticipated. Please refer to Boise Cascade's recent filings with FCC.
It is now my pleasure to introduce you to Wayne Rancourt Executive Vice President CFO and Treasurer, Boise Cascade Mr. Rancourt you may begin your conference.
Thank you Chris Good morning, everyone I'd like to welcome you to Boise Cascade's third quarter 2020 earnings call and business update.
Joining me on today's call are named Jorgensen, our CEO, Mike Brown head of our wood products operations and Nick Stokes head of our building materials distribution operations.
Turning to slide two I would point out the information regarding our forward looking statements. The appendix of the presentation includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income segment EBITDA.
I will now turn the call over Tonight.
Thanks Wayne Good morning, everyone. Thank you for joining us on our earnings call today I'm on slide number three.
Quarter sales at 1.6 billion were up 25% from the third quarter 2019.
Our net income was 103.2 million or $2.61 per share compared to the net income of 27.2 million or 69 cents per share in the year ago quarter.
Total us housing starts increased 11% compared to the same period last year single family housing starts the primary driver of our sales volume increased 17%.
Given the extraordinary market conditions caused by an ongoing imbalance between industry supply and product demand for wood based commodities, both businesses delivered outstanding operating and financial results during the period.
Our wood products manufacturing business reported segment income of 66 million in the third quarter compared to 15.6 million in the year ago quarter Wood.
Wood products continue to focus on establishing pre COVID-19 manufacturing production levels as product demand exceeded supply during the third quarter.
Building materials distribution business reported segment income of 107.9 million on sales of 1.4 billion for the third quarter compared to 38.7 million of segment income on sales of 1.1 billion.
Comparative prior year quarter.
BMD sales and income were robust and our long term strategy and commitment to consistently carry a broad base of in stock products supported by high service levels and a solid financial position continue to deliver value to our vendor and customer partners in the supply chain as well as our shareholders.
I will walk through the financial results in more detail and then I'll come back to provide our outlook before we take your questions.
Thank you Nate I'm on slide four wouldn't product sales in the third quarter, including sales to our distribution segment were 363.7 million compared to $325.1 million in third quarter 2019.
As Nate mentioned wood products reported segment income of 66 million in the third quarter compared to 15.6 million in the prior year quarter.
Reported EBITDA for the business was 80 million up from EBITDA of 30.8 million reported in the year ago quarter. The increase in segment income was due primarily to higher plywood sales prices offset partially by higher wood fiber costs as well as lower net sales prices a VW P.
In addition, selling and distribution expenses and general and administrative expenses increased 2.0 million and 1.7 million respectively.
BMD sales in the quarter were 1.4 billion up 25% from third quarter 2019.
Sales prices increased 25% with relatively flat sales volumes.
The business reported segment income of 107.9 million or EBITDA of 113.6 million in the third quarter.
This compares to segment income of 38.7 million and EBITDA of $43.9 million in the prior year quarter.
The increase in segment income was driven by a gross margin increase of 86.7 million, resulting primarily from improved gross margins on commodity products compared with third quarter 2019.
This margin improvement was offset partially by increased selling and distribution expenses.
In general and administrative expenses of 14.3 million and 2.5 million respectively.
The amounts for unallocated corporate costs and other items impacting our reported adjusted EBITDA can be found in the tables of our earnings release.
The net of those items was negative 15 million in third quarter two.
2020, compared with $10.7 million in third quarter 2019.
The increase was due primarily to higher incentive compensation costs, and approximately $3.2 million of business interruption losses, and wood products facilities that were absorbed at corporate in the third quarter as part of our self insured risk retention program.
Turning to slide five our third quarter sales volume for I Joist was up 5% and sales volume for our LTL was down 2% compared with third quarter 2019.
Demand for E.W.P. strengthened through the quarter and we're seeing strong E.W.P. demand continue into the fourth quarter.
Pricing in third quarter for I, joist, and LDL were down, 2% and 1%, respectively compared with second quarter 2020.
Wood products announced list price increases for both LD all in I Joist in August we would expect to see the benefits of the list price increases phase in over the next several quarters.
Turning to slide six our third quarter plywood sales volume in wood products was 316 million feet compared to 343 million feet in third quarter 2019.
The lower volume for plywood sales reflects our continued work to optimize minera into U.W.P. production as well as periodic short term disruptions related to Cove at 19.
The 428 dollar average plywood net sales price in third quarter was up 69% from third quarter 2019.
Plywood demand and pricing continued to strengthen and reach historic levels during the third quarter.
However industry plywood production effectiveness appears to improved imports have increased and the long lead time for waters has subsided as we moved into fourth quarter, which is resulting in pricing retreating from a typical levels experienced in third quarter, particularly in the southern Elas.
On slide seven BMD is third quarter sales were 1.4 billion up 25% from third quarter 2019 with prices up 25% and volumes relatively flat.
By product area.
Mds commodity sales increased 54% general line product sales increased 6% and he W.P. sales increased 6%.
The gross margin percentage for BMD in the third quarter was 16.4% up 340 basis points from the 13% reported in third quarter 2019.
Gross margin increase resulted from improved gross margins on commodity products compared to third COVID-19, as well as in an increased proportion of sales occurring out of warehouse rather than direct.
Empties EBITDA margin for the quarter was 7.9% upfront.
Up from the 3.8% reported in the year ago quarter.
Slide eight shows the sharp rise in lumber pricing in the second and third quarters strong demand when coupled with capacity constraints in third quarter 2020 created.
Supply demand imbalances in the marketplace, and historically high pricing levels for commodity lumber and panel products.
However October 2020 composite lumber prices and panel prices have declined by approximately 35%.
And 10% from the peaks reached in September 2020, and our at risk for further price erosion coming.
Commodity product pricing will continue to be volatile as we move through the fourth quarter and head into winter.
Pricing movements from the current levels will likely be determined by the strength of end market consumption and industry operating rates.
On slide nine one can see the same pricing pattern.
Or that random lengths composite panel index, which has begun to decline in the fourth quarter as many manufacturers that work toward restoring the production to near.
Pretty cold at levels imports have increased in customer orders are able to be filled in shorter time frames.
Moving to slide 10, we have set out the key elements of our working capital.
Company net working capital, excluding cash income tax items accrued interest and dividends payable.
Decreased $44.4 million during third quarter accounts.
Accounts payable and accrued liabilities increased from second quarter due to seasonally higher purchasing activity and higher incentive compensation accruals for 2020.
Both businesses reduced inventory during the quarter distribution inventories decreased due to stronger than expected demand and higher inventory turns while manufacturing inventories decreased due to strong end product demand lower log inventories and reduced production levels in response to periodic short term disruptions that many locations due to covance.
Teen and hurricanes in the southeastern us.
This statistical information filed as exhibit 99.2 to our 8-K has the receivables inventory and accounts payable data broken down by segment for those that are interested in more detail.
I'm now on slide 11.
We finished third quarter with 504 million of cash our total available liquidity at September 30 was approximately 849 million, which reflects our cash and availability under our committed bank line.
We had $444 million of outstanding debt at September 30.
During the quarter, we issued 400 million of 10 year notes with a 4.875% interest rate.
Proceeds from the offering were used to retire our $350 million of.
Five and five 8% notes due 2024 as well as a $45 million secured term loan.
In connection with these transactions, we recognized a pre tax loss on extinguishment of debt of $14 million during third quarter 2020.
In addition, we have announced our intention to terminate our qualified defined benefit pension plan as part of the plan termination process. During the third quarter, we repurchased two BMT locations that were at least from the pension plan for approximately $11 million.
The 11 million was recorded as pension contributions in the quarter.
We expect to fully eliminate the liabilities of our pension plan in fourth quarter 2020, upon which we will record the related noncash accounting adjustments as required by the application of pension settlement accounting rules, we do not expect any further cash contributions to terminate the pension plan.
In response to the uncertainty of the impacts of COVID-19, we reduced our planned capital spending for 2020 from our previously expected range of $85 million to $95 million to now a revised range of $60 million to $75 million we.
We expect our capital spending excluding acquisitions to be approximately 80 to 90 million in 2021.
Our effective book tax rate is expected to be between 25 and 30% going forward.
In light of our higher than targeted cash balance we are paying a supplemental dividend today of $1.60 per share to our shareholders, which was previously announced.
After payment of the supplemental dividend, we remain well positioned with sufficient cash in reserve to support internal growth initiatives anticipated working capital uses as well as opportunistic acquisitions as we move into 2021 are.
Our objective remains to successfully grow our business, while generating appropriate returns on shareholder capital.
And with that I will turn it back over to Nate to discuss our business outlook.
Thanks, Wayne I'm on slide number 12.
There continues to be a heightened level of economic uncertainty given the pandemic low mortgage rates continuation of work from home practices by many in the economy and demographics in the US have created a favorable demand environment for new residential construction, which we expect to continue into next year.
Furthermore, with homeowners spending more time at home repair and remodel spending may continue to strengthen as homeowners invest in existing homes.
The Blue chip consensus for US housing starts was last published and an expectation of 1.32 million for 2020.
Although we believe that current U.S. demographics support a higher level of housing starts and many national homebuilders are reporting strong no near term backlogs the impacts of Koby 19 on residential construction are uncertain a.
Re acceleration of COVID-19 cases could prompt state or local officials to reinstitute restrictions that could limit or constrained building activity.
Aside from higher it must be input costs, you know I joist, we continued to see favorable cost improvements and efficiencies in our manufacturing operations.
Wood products continues to make an effort to restore production rates to pre Kobin 18 levels in response to strong end product demand, particularly for you to BP business.
As previously announced we will continue to evaluate plywood market conditions log supply availability operating cost environmental permits and other factors influencing our Elgin plywood operations as we approach 2021.
And the distribution arena BMD has done a terrific job of executing and respond to market opportunities at both local and national level.
Effectively managing the impacts of commodity price changes will remain at the forefront for our distribution group in the fourth quarter.
As a wholesale distributor a broad mix of commodity products and a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices.
With uncertainties in demand and difficulties in judging the appropriate operating rates come.
Commodity wood products pricing could be volatile in the months ahead will react appropriately.
As we wrap up our formal comments I want to express my sincere appreciation for the focus our associates and managers have maintain on safety taking care of one another and the communities in which we operate as well as our customers and other key relationships there.
Their performance through the pandemic as well so the recent hurricanes in Louisiana and the wildfires in the west has simply been inspiring.
We will continue to be guided by our values of safety integrity respect in pursuit of excellence, we will successfully get the other 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 for a year and your continued support and interest in Boise Cascade. We would welcome any questions. At this time, Chris would you. Please open the phone lines.
Certainly in order to ask a question you will need to press Star and then one on your telephone.
Please standby will be compiled acuity roster.
Our first question comes from George Staphos with Bank of America. Your line is open.
Hi, everyone. Good morning, Thanks for taking my question and congratulations on the progress in the quarter.
I guess the first question I had.
Perhaps for Nick given the drop that we're seeing in some of the commodity prices in particular lumber and given how in general line has excuse me commodity has grown in terms of the overall mix of the business what you do differently in.
In terms of managing working capital risk into.
Into the fourth quarter into the first quarter and if you had a gauge.
Just a normal sort of level of risk management or heightened risk management.
Relative to past periods, how would you you frame it Nick for us in terms of how you're managing the business.
Good morning, George.
I think the fundamental backbone of our strategy has been and will continue to be.
Making sure that we have product available for our customers on a daily basis and.
There's there's.
Ongoing reasons in terms of customer service and those kinds of things and quite frankly, it represents an opportunity in environments. Like this one it's got some risk but.
If you think about everyone's expectation in terms of declining prices.
There is opportunity if you have commodity products on the ground that you can get to your customers Tomorrow, you can keep the wood flowing in turn and so fundamentally we start with the premise that.
We want to have product available.
We start with the promise of trying to to make sure. It flows out in flows in everyday and hopefully the the inflow doesn't exceed the outflow and obviously you do that with pricing certainly in the broader context, given what we've had in terms of the magnitude of the of the pricing vol.
Tilley.
As we came into the tail end of the tail end of the third quarter, we recognized the given extended order files and pretty frisky prices that there was probably a little more risk out there then.
In normal times, whatever normal means and so we adjusted the inflow a little bit in terms of that again, we want to make sure we had product for our customers out there.
Understood.
So it sounds like more of what you normally do me with a little bit of extra emphasis on on risk management, just given where prices.
Yeah, I think Thats, a fair way to say it.
No.
Maybe playing my audience not intentionally so but what benefit are you, meaning you guys. I mean, what benefit do you think you're getting if at all from having your own fleet and in general what sorts of tensions are you seeing right now in terms of logistics costs and and freight costs and it's a broader question to everybody.
[music].
George This is Nick again from a distribution standpoint, we do have our own fleet, but only about half of what we deliver.
Is on our own trucks through rest of what we rely on dedicated in contract carriers to do that and really from a.
From a cost standpoint, there's there's little bit of movement back and forth, but it's not significant if you think about the cost of payroll drivers kona owned versus rent.
Transportation through the third quarter.
Ill, let Mike talk a little bit about it from the manufacturing side from the mills, but transportation for the third quarter was was a challenge it was scarce, but it wasn't a showstopper and it wasn't impossible to find trucks and we did we kind of worked through it pretty well.
Got it.
Yeah, George this is Mike.
Reiterate today.
What Nick said, obviously, there was some interruptions with the fires in the in the west and the storms in the southeast primarily in Louisiana.
Taking it all into account after things past, we've had a little bit more challenging low.
Locating trucks on a timely basis, but not dramatically that's not been our biggest challenge of recent times and.
Pricing has been lets say relatively constant so.
So not a big issue going at the moment.
Okay. My last one I'll turn it over.
To your right on on wood products I mean, the gross margin was extraordinary.
Threeq versus Threeq, congratulations to you and the team.
Anything that we should remember that perhaps we're forgetting about in terms of comparisons versus last year or anything in particular that.
Well beyond pricing, obviously from a manufacturing standpoint that you got so much to the to the bottom line at the gross margin level. Thank you.
Yeah, George Yes, good question it Wasnt just great pricing.
As you probably recall from our previous quarterly calls.
We took some fairly aggressive steps early on this year to cut back on expenditures.
Things like out obviously capex is one of them, but also on things like how much we were spending on maintenance and our focus on cost control generally.
At the end of the day, those things that put us in a very strong position.
Obviously in conjunction with outstanding pricing.
So we had.
The best of both well did you want to call it that.
Very strong pricing and really very very strong cost control.
Thank you very much.
Thanks George.
And again, ladies and gentlemen, it is star and then one on your telephone keypad. Thank you for your question. Our next question is from Mark Wilde with Bank of Montreal. Your line is.
Hey, Good morning, Wayne morning, Mike [laughter].
Morning, Nick Good morning.
Mark you know Nate I think you all a bunch of people lunch today.
Okay.
We start to Nick or to Nate.
Nate Yes, Mark no question there.
Just the outstanding performance in the quarter.
And while we had a number of things strong tailwinds.
The fingerprints of 6000 associates are absolutely all over those results. So we're we're grateful for the work and the results were delivered yeah. It looks like even with the the payout of the dividend today, you're essentially net debt free.
If my math is correct.
Yeah, we were Mark we were trying to be somewhat conservative with the unknowns that are still out there for 2021, and then in combining with the.
10 cent quarterly dividend it gets us to an even to buck payout for the year, which were pretty proud of yeah I.
I guess one question that I have is the impact on the distribution business in the fourth quarter potential of this rapid correction in lumber prices you know what how we might think about that rolling through the business I think we got at some of this with George's question.
Well I'll, let Nick speak to this but I would tell you from my chair I think the data we have available this round relative to the data we had available in the second half of 18.
Is considerably better and I think the way next guys to have visibility into what's going on in pricing.
Has improved and so.
I think really to Nick's point at the latter part of August in early part of September Dave.
They really started.
Managing the risk of.
Have a rollover and through October I think have done a nice job of managing that.
Obviously in November and December have yet to be seen but I think what panels holding up and.
And at least the way Nicks team has managed the lumber declines through the month of October I'm, feeling better about it than I did in past cycles. When we've had sharp sell off even though this one has come from us from a higher point and I'll, let Nic step in but I think his comment earlier about.
Being in the markets every day and having a really good feel combined with the data has has been very very helpful. Over the last six to eight weeks.
Yes, Mark Good morning, this is Nick I would.
To Echo Wayne's comments, and maybe add a little color certainly we don't expect a 16%.
It's an experience in the fourth quarter and Thats well outside of our historical range in Eurs familiar with what our historical ranges have been as anybody. So I would guide you there a bit I think the other thing relative to the current environment as inventories are relatively lean throughout the supply chain.
No.
Both at our level were lean I think to the lumberyards or lean.
I think builders aren't.
Quite frankly builders were delaying a little bit towards the tail end when when the high high prices were happening and everybody is really aspiring to to lower inventories.
I listened to a couple of calls last week, two public companies and heard words like we intend to stay lean we're going to manage based on sales expectation, we're only going to cover our immediate needs. So I think thats the framework by which everybody's operating and as long as demand holds up the flow through will be really pretty.
Good.
And so.
There is a little bit.
Theres, a little bit of buying and selling tail end of last week.
As I told the board last week this is a.
Or in chapter eight of the 12 chapter book and I don't know if the euro is going to get shock or is going to find the gold and get the girls. So we'll see.
Okay, and just kind of related to that.
Any sense from where you guys are sitting.
As to whether the kind of the supply and the inventories can get back to some kind of a normal level as we move through the winter months or could we hit.
Next spring.
Building season, and still be quite tight because it seems like the current level of single family starts is still quite strong. So it's from the outside it would seem like we may have a hard time catching up through the winter months.
All.
The way I think about it mark is kind of in our three product buckets. If you will.
From a general line standpoint, many of our key suppliers are on allocation as we speak.
And depending on the severity of the winter that I'll give him a little bit of traction, but if demand holds up inventories won't be able to build in the off cycle. When we may very well have similar situations come next spring I think with DWP I'll, let Mike and.
Norway and talk about kind of what we expect there.
In terms of commodity wood products, you know SB has so far held up from a price standpoint, and an extended order files to lumber guys, particularly in the south the order files of eroded when prices of retrench pretty dramatically.
And.
One of the producers on the lumber side to side too.
On a stick what's the game plan and build it I think there's more capacity out there on the on the lumber side.
To take advantage of the demand if you will so.
Very good question we're.
We're planning to make sure we have adequate inventory and look for opportunities to to add to those over the winter cycle, when and where appropriate.
I guess the last one for me is just on the E.W.P. side, given the large numbers that you gave which were up kind of mid teens on single family.
Should we expect a significant acceleration in your MWP volumes or is it a matter of you'd just being a supply constrained at this point.
Yeah, Mike its Mike.
So I can tell you that we're doing everything we possibly can to produce as much DWP as al infrastructure will allow us.
And.
We have a reasonably.
Extended a little to fall we went on.
The allocation would sometime ago and I expect we will be in that position for some time to come.
100% sure when that might end, but.
But I think through the next month or two I think that that could easily be the case and of course, it will depend as you pointed out.
What happens with housing starts for the remainder of this year and into early next year.
I can speak for.
Our attempts to bring on additional staff not only in L.E.W.P.E. mills, but he'll then yes last plywood mills.
And we've made some really quite significant progress since the last call we had.
But on average we're operating probably at around 90% of capacity.
So we still have more people that we need to bring on and train.
So I think they will be on the WP so at least for the.
The reasonable foreseeable future.
I think it will be.
Quite challenging with the order files that are there and the housing starts the continuing to happen Diana Diana.
Okay. That's helpful I'll turn it over Mike. Thank you.
Thanks, Matt.
Your next question is from Rubin Garner with the benchmark company. Your line is open.
Thank you good morning, everybody.
Morning, everybody.
Maybe just a follow up on that but.
Engineered wood products question so yes.
To clarify you're running at 90% capacity in the third quarter.
Given the the fourth and first quarters are a little.
Weaker from a volume perspective, if I remember correctly.
Can we expect that your.
Thank your year over year growth rates might have a chance to accelerate given what we've seen in the market and I guess kind of a second part of this question is over the last few years smaller median home sizes and the location of some of the construction is kind of limited to digest opportunity are you guys seem that.
That trend reversed with some of the construction strength in some other markets like the Midwest and northeast.
Yes.
So.
Yes, you are right about usually Q4 and Q1.
Have low demand levels for you WP, just because of the seasonality.
Yes, I can't I'm, not very good at predicting the future and particularly not the weather, which has a pretty large impact on.
On what can happen, but.
But given that the preponderance of stocks that are occurring in the southeast if we have good good winter.
And we will we run will every some chains that have particularly the knicks this quarter in the following quarter could be a bit above what we would normally see today.
To my point earlier, we're running as hard as we possibly can and will continue to do that no matter, what the stock, which we would like to build some more inventory. So if we don't sell it we will be putting more inventory on the ground has to move into the what we call. The traditional part of the building season next year.
As it relates to your question about I joists and what's happening.
Yes, I think everybody has seen the trains of course, you know year over year from a number of years now.
With.
I joist penetration has dropped off somewhat.
We're not seeing a change in that.
At this point in time.
We had the slab on grade and being.
Thing.
Significant proportion of the construction, particularly in places like Texas.
And a somewhat smaller footprint housing starts.
I think there is.
There was a bit of pressure on joints, but I will tell you interestingly and this may be because of the price of lumber.
That the demand for I joist at the moment is very strong.
And I think that's probably likely to continue for the wall because of the benefits to accrue from using that type of.
Building material.
And Mike if I could follow up the.
What does.
How does this all translate from a pricing perspective, I know you put out an increase in in August is it is it possible because you and I am assuming your competitors are pretty tight.
Tight as well I mean, it could we see maybe more pricing announcements than we normally would for engineered wood products. So that you guys are able to invest and increasing your capacity or at least.
Yes, I guess help me walk walk me through how this compares to a normal kind of environment. If there is such a thing yes.
Sure. So yes, you are correct not only Boise cascade, but.
Companies in this sector has implemented price increases in loss number the number of months I.
I think the question about what the future holds is as much as anything about what happens between now and let's say the end of Q1 Q2 next year.
And with them if the demand is very strong and I think we all hope it will be.
Then of course, whether it's possible the rest of the industry I think there will be.
Some close attention to whether there is opportunity for another increase.
Yes.
As it relates to.
To to what that might be and when it might be I couldn't really say at this point in time and as you will know.
The the level of increase is really market specific depends on some markets can be more robust than others.
Was there I'm sorry was there another bit to question that Ruben I missed no no that was that was helpful. Mike and then last last one for me is I guess on the commodity pricing side.
I guess, a two part question does.
No.
I think last quarter when you mentioned it in an estimate of what what level of normal capacity, you and maybe some of the others in the industry, we're able to run their their mills because of the different constraints.
With the virus is I think if I remember correctly, you said, maybe 80, 590% of normal capacity do you feel like Thats kind of the same or has it gotten better or worse than the last few months and then to that end does that kind of put a floor on how low pricing can go and I know it may be different with lumber.
Panels, but can you is there a new normal we can expect that might be higher than we've seen in the last few years until there's yes Toby.
So the dumb issue is resolved all assuming demand holds up and thats.
Robust as it's been over the last six months or so.
Yes, Reuben this when I say.
I think it's gotten marginally better or or it did through September and then since labor day. The contagion rate has started to go back up so I think some of the operating practices are still helping and as Mike said some of the labor availability issues in terms of being able to hire people have.
Has improved but in the last four weeks in a number of places that covert contagion rate has accelerated so we'll we'll see what happens on the production side and how much impact that has as we move into winter, but community contact rates in a number of places are are becoming more problematic, which is evident from.
The broad National news.
The other thing that Mike Didnt touch on Anita VPN, It probably goes across most of the products.
Is the mix of housing starts has changed so to the extent we go to a million 351 million threeeighty as many expect in 2021.
Higher proportion of those are likely to be single family starts.
And then a number of cases, it's people that are moving out of urban areas.
That have pretty good personal wealth and so to the extent you see single family starts a typical single family start will usually use about three times the amount of product a multifamily start users.
And to the extent you have people that are that are starting those homes.
And it's a result of work from home and they're higher income people like in tech jobs moving to cities outside the Bay area.
Yeah, you may see a change in the median home size that would would also provide a tailwind but that mix of.
Heavier to single family and lowered the multifamily is likely to create incremental demand as we as we get into 21 as we've seen late this year.
That's perfect. Thanks, Wayne I appreciate it and congrats everyone quarter stay safe and a good luck through the rest of the year.
Thanks, Robyn thanks for.
Our next question is from the Curtsinger with D.A. Davidson Your line is open.
Great. Thank you and good morning, everyone.
Good morning.
Good morning, I, just wanted to start out in wood products with a two parter.
First could you just touch on the divergence we've seen here between plywood and no less.
And how you think about the sustainability of that trend and then second.
Steve was a decent headwind in Q3, but could you remind us what kind of lag you have with inventories and how that might further I kind of pressure the cost side in the fourth quarter.
Yes, good morning to you so.
So yes, it's an interesting set of circumstances as you point out we that wish to be holding up so robustly and plywood.
Actually taking significant hit.
The way I look at it is a bit like this let's think about plywood. So.
[music].
The run up in plywood prices sort of in parallel with that we see.
It was pretty much as we would expect however, recent times if you look at.
Whether its done.
Domestic production in certain locations and geographies thinking more principally in the southeast.
It has been a bit more production.
And so supply has increased domestically.
In addition to that.
Imports from Brazil.
Basically pine sheeting plywood.
Have dramatically increased in the last three months or so.
And year to date the last numbers I saw this was at the end of September Brazilian imports.
Were up by about 18%.
Yes.
All of which really occurred in the last three months so.
Thats, obviously, bringing more supply.
Supply into the market.
And as you would appreciate that can have a pretty dramatic impact.
In the marketplace and why hasn't always be declined.
Well I think there's probably a couple of.
Comments I'd make around that.
One is.
There's been a number of.
Impacts.
On the production. So there's a talk of Razen that I wish the producers, though some of them use called MD.
And with.
With the storms that came through Louisiana. The production of that was impacted so I know some producers not whole producers.
Have been impacted in terms of the ability to run some of their locations.
So there's a little bit more restriction.
On the availability of LSB.
And with those sort of you have one being somewhat more restricted and the other one having additional supply show up.
Then you get the divergence I think that we've we've seen at the at this point in time.
As it relates to always be and its impact on us now inventory levels.
We generally held a significant amount of of at least the inventory for web stopped production for al I joists.
And yes, we did have some challenges earlier in the year, because everybody had curtailed reduce their production.
But we don't have a problem at this point in time in terms of the availability.
Pricing mechanisms such that you have sort of trial behind and then we catch up and I would speak prices.
With a full we again would sort of have a lagging impact on our cost structure.
If you think about it it's sort of like $100 on the index represents like 10 cents a foot now.
On our screens what that is.
So it does impact our cost structure.
But it's relatively speaking not a huge impact cause it's something but it's not the level of impact that that.
The drop in plywood prices has on wood products profitability.
Got it okay. That's that's very helpful. And then just switching to Elgin and I realize it's a fluid situation, but it sounds like the majority of that production is plywood, but if you had to.
Really cut back there.
The impact of a near sourcing at all for you WP production in the west.
Not really not so much that historically speaking the Belgian plywood facility has played basically no role in engineered wood products.
Activities because of its distance from made fit which is where a lot GWP facility in the western United States is located.
In the last maybe year also.
We have taken some space right had been here from Elgin too.
To watch video made fit.
But the way I look at it is more along the lines of it.
It's it's not a significant impact if we we have run that facility at White city will make that without the need.
From Allergan.
Which indicates that it's nice to have but not absolutely necessary. So we.
We will continue to you have to evaluate that and that as I'm sure you've probably read from some of the announcements yes.
We're taking a very precaution, we sort of view of what might happen in Elgin has been no decision to shut the mill. We're just making sure that people are aware that we have a number of issues that we will have to resolve in a timely fashion forward too.
And not to be curtailed for shorter shorter or longer period of time and im reasonably confident that.
The steps that are being taken over the last few weeks in particular.
We may be able to find a way out of this malaise by early next year.
Got it Okay Thats encouraging and then just lastly on the $80 million to $90 million of Capex next year.
Any discrete capacity or efficiency investments worth calling out on wood products side, and then within DMD bigger ticket expansion plans with doors shops or anything along those lines.
So I'll I'll speak to the wood products stuff again.
The.
So we have.
In some respects unfortunately sort of fallen behind a little bit on what I'd call maintenance Capex.
As you'd appreciate this year with kind of.
The availability of contractors and the necessity to run the machinery is as rapidly as quickly as we possibly could.
I, certainly put us a little bit behind on out what I called maintenance Capex spending.
As it relates to is there a significant amount of of the wood products Capex, that's allocated to to add additional throughput capacity.
The answer is really not very much at all.
I mean, we will be will be hopefully able to change out some older equipment for new but it won't have a dramatic impact on the throughput of.
Have any of our facilities per se.
Most of that work has.
Pretty much come to come to a halt mobile.
Well being concluded might be a bit of way of putting it.
And what hasn't being finished yet I hope to see that sort of.
Wind up by the middle of next year.
Got it and then okay I'll, let Nick answer your question, but I think in general you should expect.
Spending later this year and into 21 to continue the the door initiative as well as.
Build out the real estate footprint Nick's got a number of markets that he'd like to get into that we're serving with long truck calls today and then we were we will Opportunistically also look.
To take ownership of some of the real estate footprint.
Where we have flexibility under some some leases to do so when we think it makes sense financially we will likely deploy some.
Cash to own properties, rather than lease again, where that financially make sense.
Got it okay. Thanks, Wayne and I appreciate all the details I will turn it over.
Our next question is from Paul Quinn with RBC capital markets. Your line is open.
Good morning, and thanks for let me getting here with a couple of questions Mark.
Good morning, Paul.
Just to start maybe E.W.P. side, taking a look at your slide five and noticing LDL prices down basically going down for the last seven quarters.
Right I understand that I'm just.
Just on the I totally side.
I suspect you got a quite a bit of.
Headwinds with Wuxi and lumber prices.
Traditional lag between when you see.
Significant inflationary costs and then and.
And then whether you're able to gain back price on that on the self sale of the <unk>.
In terms of your sale price.
Yes, Paul this is Mike.
Yeah the.
The drop in LTL pricing at a time I think is.
As really being a reflection of what's been happening in them in the marketplace say prior to.
Cove, it really heating.
So.
When housing starts were somewhat lower.
I guess I could put it like this there was sort of an abundance of LDL supply relative to the housing start number.
And of course that brings pressure on pricing.
And.
As a result.
We took some action.
In certain locations.
Which basically brought down our pricing.
Along the lines of.
We wanted to make sure that we have customers certainly had available product, but also we it's a very competitive marketplace.
And we have to make some adjustments there to maintain the volumes that Tim.
We wanted to have.
As it relates to two I joists and.
Okay costs versus price.
Yes.
As I pointed out a little earlier.
The the input costs for.
I will be web stock.
Yes, they have made a difference year over year.
And it's not insignificant for sure.
But we have a have a an average.
That we use and usually it takes about a quarter will say for that to work its way through we the Apple down the way we work with them out.
Yes supply.
So as things went up and we try out a little bit behind and should they stay up I guess will we sort of catch up and then of course as it goes down we have to wait a while for that too.
To get into place.
The reality is that the.
AWB pricing is not based.
Directly on input cost, it's a market driven situation.
In each market is a little bit different and we compete with different.
Companies in different places so while a lot of input costs might have gone up in some.
Someway hopeful that doesn't necessarily give us an automatic making mechanism by which to one to adjust pricing. That's been the way that AWB pricing has worked for a long time, it's not I will certainly not a commodity and thats.
The approach.
You asked about lumber.
Yeah, we any use lumber in aselage solid.
Flanges and now Canadian location.
And we do use some lumber cost for rail glue them being facility.
And both of those locations have sort of taken it on the change in the last few months in particular, but.
But if you think about those two specific mills relative to our overall he WP capacity in the sales generated is relative to the title.
It's not insignificant for the two mills.
Relative to the overall profitability of the division, it's it's not that larger number.
Great. That's very helpful. And then Mike I think you did a great job explaining the difference between plywood and will it be just curious whether you seen any kind of substitution dr. plywood from traditional fees or given the price differential now.
Not quite yet, but I am hopeful.
Yes.
With its great because it is.
You should think light assembly.
Have you got some plywood is underlayment again wouldn't [laughter], leaving.
[laughter] area.
Maybe last one just on the BMD side, we saw a mix shift to higher commodity in Q3, I take that as a onetime or given the I guess commodity prices.
Thanks, It go back to sort of a 40% overall.
Hi, Paul Nick Stokes here, I think thats. The the answer certainly the inflationary effect on commodities roost was shoe Juno indexes door up three 400.
So in.
No.
Skewed data I don't think there's anything fundamentally going on other than that.
But it hurting Paul the other than the inflation, it's been commodities have been running at about 42% of sales for BMD.
Yeah right.
Excellent excellent results, thanks, very much guys.
Appreciate it.
Your next question is from Mark Wilde with Bank of Montreal. Your line is open.
Just a couple of follow ons.
Is there any likely impact on Boise Cascade from some of this consolidation, we're seeing going on over in the pro dealer channel.
Hey, Mark its Nate let me I'll take a shot at that and and Mike and Nikin can jump in.
So, but both the some of the consolidation that youve referenced.
We would we have seen the consolidation take place in the lumber yard space over the last couple of years, obviously the announcement.
A couple of months back we would expect that trend likely to continue just like we've seen that Frank.
Frankly on the on the national builder side of things as well. So we have a strong relationships with both of those entities, we expect that going forward and we expect the consolidation theme to continue as we head into 2021. So it's something I think we're prepared for and something again, we're expecting as we head into 2000.
Wanted be out frankly.
Okay and the other one I had.
Just as a follow on it seems like we're seeing.
More competition coming out in the composite decking business and I, just I'd like to get your thoughts on what you're seeing in terms of volume in that business and and new entrants coming into the business. It's been a kind of a high growth high multiple business.
Hi, Mark next year.
I think we have a pretty.
Slanted view of that in terms of the overall industry.
We have a primary relationship with leading with leading brand and so we're probably not as in tune with some of the the new manufacturing entrance I would tell you that we continue to be.
So really pleased with our supplier partner in terms of we we do have.
They continue to innovate our business there continues to grow but to your good point I think the whole category is growing.
And certainly the the challenges associated with wood treated decking through the spring and the summer probably accelerated that a little bit in terms of people's desire to upgrade into into composites. So we don't have a very good view of the overall industry there to be candid.
Okay Fair enough good luck in the fourth quarter and into next year guys. Thanks.
Thanks, Mark Thanks, Mark.
Your next question is from George Staphos with Bank of America. Your line is open.
Hi, Thanks for taking the follow ons.
Maybe a question for Wayne Wayne reminding you might have already covered this last quarter and I forget but is there an amount of spending to the point that Mike was mentioning really brought.
Brought back spending obviously in the environment that we've been in you've had lower spending higher pricing great role how much of that spending might be reintroduced to the TNL next year and as a way to put a number on that I remember you may be mentioned this on the last conference call apologies. If you did not forget but if you had a number or some way to go.
Grill that that would be great and then a question on imports.
Yes, I think Mike Mike can probably speak to the maintenance I mean, obviously with Covidien, we're seeing much lower numbers on TNT.
And with profitability.
We've got much higher incentives being accrued this year I think in terms of the capital spending side as Mike said, we'll get back probably closer to a 50 million dollar spend and would next year, assuming the engineering resources are available.
And assuming can.
We can manage the outages from a customer demand standpoint, particularly on the E.W.P. side.
But but again I tend to think of the businesses around.
50 ish million of capital in wood to continue to make modest productivity improvements and reliability improvements.
And then in Nics business I tend to think of it. It has scaled today in the 25 to 28 million range.
And then a couple of million dollars a year for righty.
And part of the reason the spending numbers re accelerated this year as Nick was able to.
Make a real estate purchase northeast of the Nashville market and so he is investing in the real estate footprint in the Nashville area, which is part of the reason that the.
The capital numbers went back up to 60 to 75, we've been able to reaccelerate. Some projects that were on hold earlier in the year.
If you had to think about.
I know you don't want to do this line item by line item or would we expect it but broadly if you think about things like TV and other expenditures that have been curtailed for.
For obvious reasons no if we were in a normal year.
Somebody else said whatever that might mean.
Earlier on the call how much spending would we see how much of an increase would we see ex im nothing about capex I'm just talking about your.
Your spending yeah, I think the TNT and Kelly hubs I think us on the call. Our controller I think the team. These savings is probably in the $8 million to $9 million range. Okay.
For the year and beyond.
The offset to that is with our EBITDA likely to come in well North of 300 million I would tell you we're going to have.
More than that I'll point, yes.
Yes, we will have more than an offset to that on incentive compensation this year relative to where our normal incentive compensation target payouts would be.
Thanks for that and then the other question I had no and I'll I'll wrap up from my side.
The Chileans and the Brazilians have been talking about shipping more product into North America for couple of quarters now.
At least from our vantage point.
Aside from just the level of pricing that was reached by plywood earlier.
In the year in the third quarter in particular, why do you think we're seeing that level of import now really ratchet higher is it purely price or is there. Some other constraints that you saw that we might not have seen it in terms of why it's accelerated thanks, guys and good luck in the quarter.
George I would probably mentioned two things as it relates to the Brazilian imports.
I think currency is playing a major role I think the prices we had in the U.S. and then there's tariffs in Europe, but usually.
Go on sometime around April.
The Brazilians and others will usually ship into Europe in the first quarter and somewhat into the second quarter before the tariffs take impact. So I think the combination of those three factors as part of the reason you're seeing an acceleration.
In the fall it's been far pronounced this year, but I think it's because of the record pricing. We saw on August and September and there were some delays in shipments out of Brazil.
So I think now they're they're shipping in response and and my assumption is that we will see some.
Backing away as we move through the balance of this year and into the first quarter, because I would expect with the.
Pricing changes that have occurred in the southern new asset that will redirect some of that volume to Europe early in the year before the tariffs go on.
And.
With that Chris I think we're.
But.
By the time you are welcome.
Unless there are other questions in the queue I guess I would.
Maybe turn it back to Nate to wrap up.
Great. Thanks, Wayne and thanks, everyone. We appreciate everyone joining us this morning for update and thank you for your continued interest and support of Boise Cascade, Please be safe and please be well. Thank you.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect. Thanks, Chris.
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