Q1 2021 Boise Cascade Co Earnings Call
[music].
Yes.
Good morning.
Name is Jeff and I'll be your conference facilitator today.
At this time I would like to welcome everyone to Boise Cascades first quarter 2021 conference call.
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 you would like to ask the question during that time simply press Star and then the number one on your telephone keypad.
Questions will be taken in the order. They are received if he would like to withdraw your question press the pound key.
Before we begin I can.
Mind, 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 expectations today they.
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 from the results anticipated.
Please refer to Boise Cascades recent filings with the S E T.
It is now my pleasure to introduce you to Kelly heaps.
In the coming senior Vice President CFO, and Treasurer of Boise Cascade. Mr. <unk> you may begin your conference.
Thank you Jeff Good morning, everyone I would like to welcome you to Boise Cascade's first quarter 2021 earnings call and business update joining.
Joining me on today's call are Nate Jorgensen, our CEO, Mike Brown head of our wood products operations, Jeff strong head of our building materials distribution operations and Wayne ran of course, our CFO, who will be retiring a week from today. After nearly 36 years of outstanding service to Boise Cascade.
Turning to slide two I would point out the information regarding our forward looking statements. The appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA I will now turn the call over to Nate.
Thanks, Kelly good morning, everyone. Thank you for joining us for our earnings call today I'm on slide number three.
Our first part of sales of $1 8 billion were up 56% from first quarter of 2020.
Our net income was $149 2 million or $3 76 per share compared to net income of $12 2 million or <unk> 31 per share in the year ago quarter.
First quarter 2020 results included $15 million of pre tax the accelerated depreciation and $1 7 million of other closure related costs or <unk> 32 per share after tax due to the permanent curtailment of hydro production at our Rockville, North Carolina facility.
The first quarter 2021, total U S housing starts increased 10% compared to the same period last year.
Single family housing starts the primary driver of our sales volumes increased 20%.
Given the extraordinary market conditions caused by stronger than typical demand during the winter months and ongoing imbalance between industry supply and product demand for wood based commodities both businesses delivered tremendous financial results during the period.
Our wood products manufacturing business reported segment income of $97 1 million in the first quarter compared to $3 8 million in the year ago quarter.
Wood products continued its focused on increasing manufacturing production rates in response to the strong in product demand, particularly for DWP.
Our building materials distribution business reported segment income of $122 million on sales of $1 6 billion for the first quarter compared to $29 3 million of segment income on sales of $1 billion in the comparative prior year quarter.
Bmd's sales of income were strong throughout the first quarter as our retail lumberyard customers rely on our broad base of inventory and high service levels to minimize their working capital investment given the historically high commodity product prices Kelly will walk through the financial results in more detail and then I'll come back and provide an outlook before we take your questions Kevin.
Thank you Nate.
Wood products sales in the first quarter, including sales to our distribution segment were $432 3 million compared to $320 1 million in first quarter 2020.
As Nate mentioned wood products reported segment income of $97 1 million in the first quarter compared to $3 8 million in the prior year quarter reported EBITDA for the business was $110 4 million up from EBITDA of $33 4 million reported in the year ago quarter.
The increase in segment income was due primarily to higher plywood lumber and AWP sales prices as well as higher I joists sales volumes.
These improvements were offset partially by higher wood fiber and other manufacturing costs.
In addition, first quarter 2020 results included accelerated depreciation and other closure related costs of $15 million and $1 7 million at our Roxburgh North Carolina facility as previously mentioned.
BMD sales in the quarter were $1 6 billion up 56% from first quarter 2020.
Sales volume and sales prices increased 34% and 22% respectively.
The business reported segment income of $120 2 million or EBITDA of $126 million in the first quarter. This compares to segment income of $29 3 million and EBITDA of $34 6 million in the prior year quarter the.
The increase in segment income was Duke was driven by of gross margin increase of $115 3 million, resulting primarily from improved sales volumes and gross margins on substantially all product lines, particularly commodity products compared with first quarter 2020.
This margin improvement was offset partially by increased selling and distribution expenses of $20 5 million.
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 $12 million in first quarter 2021, compared with negative $7 5 million in first quarter 2020 the.
The increase was due primarily to higher incentive compensation driven by our exceptional financial results.
Turning to slide five.
Our first quarter sales volumes for I joists were up 20%, while sales volumes for LVL were down 7% compared with first quarter 2020.
Demand for AWP continues to be strong in 2021 fueled by increased housing starts and a higher proportion of single family starts.
Pricing in first quarter for I, joist, and LVL were up 9% and 5% respectively compared with fourth quarter 2020, as previously announced price increases took effect in certain temporary price protection arrangements expired.
We expect AWP prices to continue to increase sequentially during 2021, reflecting pricing actions taken in late 2020, and thus far in 2021.
Turning to slide six our first quarter plywood sales volume in wood products was 303 million feet compared to 318 million feet in first quarter 2020.
The lower volume for plywood sales reflected our continued work to optimize the veneer into <unk> productions.
Excuse me AWP production Rolling curtailments at our Elgin plywood facility as we manage environmental permits and log supply availability.
On a short term disruptions related to COVID-19 and of significant winter storm in Louisiana During February 2021.
The 556 average plywood net sales price in first quarter was up 108% from first quarter 2020 co.
Well I would demand and pricing continued to strength in pricing reached historical levels during the first quarter.
The strong plywood price momentum continues with prices, thus far in second quarter, approximately 35% above our first quarter average.
Moving to slide seven.
Bmd's first quarter sales were $1 6 billion up 56% from first quarter 2020 by product area Bmd's commodity sales increased 106% General line product sales increased 19% and <unk> increased 21%.
Gross margin dollars generated improved by $115 3 million in first quarter compared with the same quarter last year the.
Gross margin percentage for BMD was 15, 1% 250 basis points from the 12, 6% reported in first quarter 2020, and up 210 basis points sequentially.
The impact of the escalating commodity price environment and first quarter is evident in our sales mix and gross margin percentage expansion.
Bmd's EBITDA margin was seven 7% for the quarter up from the three 3% reported in the year ago quarter also due to improved leveraging of selling and distribution costs the trajectory of commodity products pricing during the back half of 2021, we will have a key influence on Bmd's financial.
<unk>.
I'm now on slide eight.
This slide shows the continued rise in lumber pricing in the first quarter of 2021 and into the first part of second quarter.
<unk> demand when coupled with capacity constraints continued to create supply demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products.
<unk> movements from current levels will likely be determined by the strength of end market consumption and the industry operating rates.
Moving to slide nine.
On that slide one can see of similar pricing pattern for the for the random lengths composite panel index, which continued to increase during first quarter of 2021 and early second quarter due to mild winter weather better than expected demand and continued industry operating challenges.
On slide 10.
We have set out the key elements of our working capital net working capital excluding cash income tax items and accrued interest increased $149 million during the first quarter representing of seasonal use of cash the increase in accounts receivable was driven by exceptionally strong sales in March 2021.
<unk> increased in both segments, particularly BMD as we work to maintain service levels and keep pace with the current demand environment.
The inventory growth and also extended terms offered by major vendors led to the increase in accounts payable.
As is normally the case, we also used cash to pay out incentive compensation and customer rebate accruals during the quarter, reducing accrued liabilities.
The statistical information filed as exhibit 99, two to our 8-K has the receivables inventory and accounts payable data broken down by segment for those interested in the detail.
I am now on slide 11, we finished first quarter with $457 million of cash our total available liquidity at March 31 was approximately $802 million, which reflects our cash and availability under our committed bank line.
We had $444 million of outstanding debt at March 31, 2021.
We expect capital expenditures in 2021 to total approximately $90 million to 100 million.
Included in our capital spending range is the completion of the log utilization Center project at our fluorine plywood and veneer plant and the new door Assembly operation in Houston.
In addition, our Nashville team has done a great job growing sales since our 2018 acquisition and our 2021 capital spending plans include of project currently underway to expand our distribution capabilities in that market.
Our capital expenditure range could increase or decrease as a result of a number of factors, including acquisitions efforts to accelerate organic growth exercise of lease purchase options are financial results future economic conditions availability of engineering and construction of <unk>.
Sources, and timing and availability of equipment purchases.
Our effective tax rate is expected to be between 25 and 27% in 2021 with ongoing federal legislation activity expected to increase tax rates rates in 2022 and beyond.
We also estimate remaining between 130% of $150 million of income tax payments during second quarter 2021, as we extend 2020 income tax filings and pay estimated payments on 2021 income.
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 through 2021, we will take a prudent approach to capital allocation when evaluating organic and M&A opportunities.
As we have demonstrated in the past if our cash exceeds opportunities ahead of US we will utilize mechanisms to return cash to our shareholders. Our overarching objective remains to successfully grow our business, while generating appropriate returns on shareholder capital I will turn it back over to Nate to discuss our business outlook.
Thanks, Kelly I'm on slide number 12, where there continues to be a heightened level of economic uncertainty low mortgage rates could continuation of work from home practices by many of the economy.
Demographics in the U S of created a favorable demand environment for new residential construction, particularly single family housing starts, which we expect to continue in 2021 and then into next year.
Furthermore, with homeowners spending more time at home repair and remodel spending may remain elevated as homeowners investing in existing homes.
The April Blue chip consensus for U S housing starts is $155 million for 2021, although we believe the current U S demographics support the higher level of forecast at housing starts in many national Homebuilders are reporting strong near term backlogs supply induced constraints on residential construction and repair and remodeling activity may continue to extend built on.
<unk> and limit activity.
In the face of strong end product demand wood products has done an excellent job of focusing on the needs of their customers and continues to make every effort to increase production rates.
We also continue to focus on innovation to reduce our cost as well as establishing products and services to address market opportunities in the commercial use of mass timber.
And the distribution of arena BMD has done a terrific job of executing the responding to market opportunities at both of the local and national level.
Effectively managing the impacts of the commodity price changes will remain at the forefront of our distribution team during 2021.
Strong demand when coupled with capacity constraints in the first quarter 2021 have created supply demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products.
As of wholesale distributor of a broad mix of commodity products and the manufacturing of certain commodity products, our sales and profitability are influenced by the changes in commodity product prices.
With uncertainties in demand of difficulties in judging the appropriate operating rates commodity wood products pricing is likely to be volatile on the months ahead, we will react appropriately.
As we wrap up our formal comments on what express my appreciation for the focus of our associates have maintained on safety of supporting the needs of our customer and supplier partners. During these extraordinary market conditions.
Our proven values of integrity safety respect the pursuit of excellence have served us incredibly well as we have navigated through the pandemic and we will continue to be our foundation moving forward.
We will continue to make sure we use our operating and financial strength of the benefit of our customers suppliers communities and shareholders.
I'd like to take this opportunity to thank and congratulate Wayne on his upcoming retirement and has nearly 36 years of outstanding service and dedication of Boise Cascade.
The impact of Wayne has made on the Companys clear his fingerprints are on many elements of our strategy and to put the company on a strong financial position to further our work on our strategy.
Beyond the numbers Wayne has brought a level of passion commitment and drive for excellence that is found throughout our organization the.
The same attitude and approach that shows up in waves work across the Boise community as well.
I will certainly Miss Wayne's energy and experience the Boise area will clearly benefit as he will continue to build upon its terrific work on the community.
Wayne a set of very high standard for our organization and I have full comments on this and Kelly to continue to build upon the success of moment momentum generated from Wayne and others Wayne.
Weighing all the best for you on Wendy in your well deserved retirement.
At this time, we'd like to open the call with any questions. Jeff would you. Please open the phone lines.
Secondly, at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Thats Star one on your telephone keypad, we'll pause for just the moment to compile the Q&A roster.
Your first question comes from the line of Mark Wilde from BMO capital markets. Your line is open.
Hi, Good morning, guys, it's Jesse Barone on for Mark.
<unk>.
<unk> on retirement wave all of the well wishes.
First question have you guys seen any kind of demand destruction or any deferral of projects from the high commodity prices.
Especially kind of on the R&R side.
Hey, Jesse it's Nate let me I'll start that one.
I think in terms of any kind of demand destruction, we really haven't seen it on the on anything on the single family as I mentioned in my comments I think the single family theirs.
The momentum and actually it seems to be accelerating as we go through the course of the year consistent with who we might expect on the building season.
In some areas and maybe some of the multifamily light commercial projects Theres, maybe a little more hesitation there.
But I'm not sensing any demand destruction, perhaps just simply delaying some of the.
Some of the decisions.
In terms of again multifamily and light commercial.
On the repair and remodel.
We haven't seen anything significant across our system I think the sales and pace.
Cadence on repair and remodel remains steady and.
And obviously, we work closely with our partners further downstream to make sure. We are current with their expectations moving forward, but the current demand environment on repair and remodel to your question remains steady and strong at this point in time.
Great. Thanks.
Then just on the AWP side could you kind of give us the state of your current order books, and what kind of backlog look like.
Then on the housing starts side does uwp have the capacity to kind of support higher levels of housing activity kind of.
The one $8 million to $2 million range.
Yes, good morning, Jesse it's Mike Brown to answer the first question about the order files.
To close I think like many others in this particular segment continued to be extended.
I think most of the industry is really on allocation at this point in time.
So we have ongoing demand stretched out for a number of months in front of us. So you order files of very very strong.
As it relates to the your kind of your question about industry capacity in general and whether it could meet demands of one point of idle thereabouts million housing starts.
I think based on what we're seeing today across across the industry.
Sure.
That would be quite quite a challenge.
Given the current situation with most of most manufacturers of already on allocation of approximately $1 5 million should housing starts increased significantly above that.
There would be increased pressure to try and get the one of the major major limiting factors would be the raw materials are needed to to make more or AWP.
Great and then last one from me is can you guys kind of give us a sense of kind of the channel inventories.
And if kind of freight and logistics hub.
Played a role on difficulties on kind of rebuilding those inventories.
Hey, Jesse this is Jeff.
On the inventories I would tell you they are lean everywhere all the way through the channel and then on the free side is absolutely playing a big part on that on a replenishing inventories across the board.
Great I'll turn it over thanks for all of the details.
Thanks, Jeremy.
Your next question comes from the line of Kurt Yinger from D. A Davidson your line is open.
Great. Thank you and good morning, everyone.
Alright, correct Kurt Good morning, I, just wanted to start off on AWP pricing I mean, just with the flurry of announcements from some of the moving pieces around timing could you just talk about where you expect to be in terms of year over year improvements in realizations as we kind of exit 2021, and how youre thinking about.
Maybe.
I guess, some trickle over into 2022 there.
Yes, sure Kurt I'll start on that one so so yes, maybe just to level set we have had three price increases. So we had one in August we had another one announced in January and then in late March we announced one debt.
It will be effective the start of June and so as we indicated in our in our script, we expect sequential pricing to improve from here Kurt.
And now also that being said if I were to direct in Q1 to Q2 I'd have you think about 2% to 3%.
These price increases as we've talked about before they do take time to make their way through the channel.
Because of the price protection arrangements, we have the.
Typically that the roll through is kind of of nine to 12 months exercise. So as these things continue to work their way through the system. We would expect to kind of see that Ben we're not going to see all of that benefit frankly until we get out into 2022 based upon the announcements we've had to date.
Got it okay. That's helpful. Thanks Kelly.
And then.
Very strong volume performance in BMD, even kind.
Of against the tough comp last year can you just talk about some of the factors playing into that and how your approach to maybe maintaining and managing inventory as it played into that relative to what you're seeing from competitors.
Yes, I think I'll start with that Curt and then ask Jeff maybe to add any additional comment.
I think overall the the demand environment.
<unk> remained strong across the number of products and services and we're seeing that.
Certainly on commodities as well as general line and obviously the DPP as we've talked about.
I think the.
The consistency and the predictability they think that we bring to our to our business in BMD is really important. So I think our we don't try to speculate on inventory we want to make sure we're.
The products and services necessary to support all of our brands all of our franchises across all of those product categories, and I think that consistency and predictability has been incredibly important force to date and that is our plan as we as we move forward and in Oregon as the organization again in support of our customers and our suppliers moving forward.
I think in terms of of our.
Our balance sheet has remained obviously very strong and we continue to make all of the necessary investments.
The growing our current facility set as well as looking to expand where appropriate and.
I think as.
Kelly made in his comments our expansion of National I think represents how we think about the opportunity.
Not only in new locations, but again, how do we continue to invest in our legacy locations to make sure again, we have the the capabilities to service and support the or the marketplace again across all of our products and services. So again I think that's been incredibly important for us and again I think we will continue to take the use of that kind.
Kind of proven script as we move forward as an organization.
Okay. Okay. That's helpful. And then just on on production and capacity I mean, what are your kind of most focused on in terms of being able to improve your throughput on the wood products side is it really.
Of the near constrain or more labor any color there and then I guess on the BMD side. What are you hearing from your suppliers in terms of the thereabout ability to address some of these material availability challenges.
Yes.
Why in on the production side of things you've already.
And the kinds of couples that are important the queso.
In no particular order.
It's hard to make the types of AWP, we make unless you have the appropriate type of EMEA.
The goal of distress rated vignette.
And so producing more of that is critical to on actually asked but on the people that operate in the sector. So we're focused on trying to do more of that.
There is on unlimited amount of ally on internal veneer that can go into AWP.
That way of working on trying to find ways and means to shift more of what we would normally call plywood veneer into AWP, but there is a limit to that.
We are working on deep bottling some machine changes that we have in some locations.
And instead of a long term goal obviously.
And you.
You touched on the labor issue.
Well that was more of an issue going back six months or so more in the the middle of the pandemic. If you want to call. It that we are still facing some labor shortages, depending on the geography.
So if we could if we could be fully stocked at all locations on the.
All days that would certainly help.
But at the end of the day, even if that was the case.
Raw material inputs certainly going to.
Continue to be a big focus for us as we move forward, both internally and whether we can sort of small from the outside.
Kurt This is Jeff on the BMD side, what I'll tell you is the people that were doing business with the suppliers. They are doing absolutely everything in their power to increase production as much of that can sometimes its held back by lack of raw materials. Sometimes it is held back by a lack of labor.
Does that happen with the COVID-19, but theyre doing everything I can I will tell you we are in constant contact with them. The communication, we're tight with our vendor partners.
And doing everything we can to know what's going on until them.
What we're seeing on our side so.
Got it got it alright, well I appreciate the color guys and good luck here in Q2.
Thanks, Kurt Thanks, Kurt.
Your next question comes from the line of Reuben Garner from the benchmark. Your line is open.
Thank you and good morning, everybody and apologies in advance of five duplicate any questions I had some connection issues.
Throughout the call.
So well the first of all congrats Wayne and Kelly to you, both well deserved Wayne enjoy retirement and look forward to staying in touch.
So.
My first question is on the commodity environment.
What what do you think the risks are or what kind of site insight do you guys have into whether theres a lot of double double ordering going on right now with no inventory in the channel on some transportation issues popping up as that of big sort of risk and maybe why prices are as elevated as they are right now and we.
You could see.
A pretty hard rollover at some point or is that not maybe as common as it is it would seem.
Hey, Robyn, it's Nate maybe I'll start that one.
I think on commodity pricing.
I think we're running on a waste of describe whats the whats taken place there.
And I would say, it's nearly impossible to predict given whats what's taken.
Place and really the momentum and energy that remains in the market I think the lumber print last night I think even further accelerated off of just the against stunning numbers.
So I think as we look at.
It's kind of kind of taken a step back as the kind of the demand equation and what does that look like in on the supply side and I think on the demand side as we've talked about the momentum and energy feels quite good as we move forward here through really 2021.
Especially on single family, which as you know consumes even more framing of materials then.
The multifamily starwood.
The repair and remodel of <unk> remains strong so I think on the demand side, it's hard to see anything kind of get in a way of of.
Thanks here over the next couple of quarters on the supply side. There are limitations of what can be done and we've talked about some of those specific to our business just in terms of.
Raw material input.
<unk> COVID-19 related challenges and I think those are replicated across all commodity producers and.
To your point logistics is playing a role in this as well.
The challenges of.
Of getting.
Truck.
The kind of across the system.
As well as rail challenges in a few markets.
Create even more tension on on our retention system. So we see again, it's very very hard to predict again these historic levels.
But in terms of even when you step back on some of the fundamentals they still seem to be in place, but again, we're going to obviously manage and monitor and watch it carefully we've got the right team. We've got the right tools to make sure that were as far out in front of the conversation as possible.
So on that note made.
On the on the.
BMD side of the business.
If anything are you guys doing to mitigate.
Downside risk.
As I guess.
The possibility of the market turning the other way.
Are you keeping debt I guess can you tell us where inventory stands from a volume standpoint relative to normal and that will help mitigate or are you doing anything different with contracts or discussions with your customers or or have you guys taken the same approach you always have where you're constantly in the in the market every day and it will work itself out.
Hey, Reuben this is Jeff.
We're kind of taking the same approach we are in the market every day, we're going to buy and sell every single day like we always have.
We will continue to buy to our sales pace as we always have done we do have many tools at our disposal to really help identify and mitigate risks we've been at lots of planning of lots of discussions on doing that and then it's something we've dealt with the board will deal with again as we move forward.
Got it and I'm going to sneak one more in and you might have already answered this but can you remind us what what's going on in the LVL.
The volumes there lagging the the I joist and what we're seeing in the broader housing market.
I know, there's the answer I just can't remember what it is can you tell us what the disconnect is there.
Yes.
Mike.
So you would appreciate and I think we discussed this may be last quarter as well it's the.
The ongoing theme has been debt.
With the very strong demand full of single family housing.
The ability or the need maybe it's a bit of way of putting it to find.
Material that otherwise might normally the two by fours of two <unk> to the more exact people are turning more and more of two to two I joists and as a result.
When our customers ask us specifically put orders in that you would've had moved more to an I joist.
Based on the file then I sort of of LVL slash of I Joist combination. So we moved out of production.
To where our customers were asking.
So as a result of LVL was down somewhat.
Joyce were up.
And so at the end of the day, that's sort of what the market is demanding and the type of houses that are being built and where they are being built sort of required us to change out production to meet the demand of our customer base.
And sort of beaten the nutshell.
Got it thanks, Mike I was thinking it was coming out of the the.
Using the veneer out of the plywood side not necessarily.
LDL I forgot the components of thank you for reminding me and congrats on the quarter and good luck to you guys of import.
Thanks, Robyn Thanks, Jeremy.
Your next question comes from the line of Jonathan The Hall from Portland Engineering. Your line is open.
Yes.
Hi, Good morning, Thank you for taking my questions. This morning.
I was wondering on.
What has been a greater impact.
On the on the high cost of just.
All of these raw materials out of the market lately could you say, it's more of the the <unk>.
Raw material shortage from landowners or is it more of a challenge on the distribution side.
Which is of the greater influence do you think.
This is Nate Jorgensen I guess I would.
In terms of what we're seeing on on pricing.
I think ultimately it's the the marketplace working.
We're obviously seeing very strong demand environment.
That continues to accelerate and again part of that demand as single family housing starts which consume more.
Material framing material than a traditional multifamily start so I think thats an important equation today in terms of access to logs I don't think thats eliminating factor across the system, it's really the converting capacity that exists across much of the manufacturing.
As we talk about a little bit about just the.
Some of the impact of COVID-19 in terms of staffing in some of the disruption that's happening across our system among other systems.
Continues to be part of the equation I think it has improved here over the past maybe 30 days, but still is representative of what we're having to manage through on on a day in and day out basis I think the other component is in terms of manufacturing there is a lot of.
Input materials that are part of that and the supply chains across many products and services are very stressed and some of that is based on logistics, but there are other factors as well so.
In some respects.
Almost the lowest lowest common denominator in terms of what the capacity is and I would say that production has been has been probably the primary challenge in terms of the kind of the distribution.
Other its wholesale distribution.
On the on the retail side again, I think the business remains active.
But in terms of the ability to support the marketplace.
See that as a significant issue so I think much of it.
Is centered around manufacturing and again, given all the challenges that the.
Associated with that.
Okay. Thank you.
Let's see.
One other quick I'm kind of asking this next question on behalf of of a friend of mine.
With the.
I guess on more on the raw material side with the price of logs.
Yes.
If those.
The supply of logs is constrained like how much is the how much of the change in price of logs affecting you guys.
If it is.
Kind of a shortage in those raw materials.
Are there any kind of plans or kind of mitigating the risks from the.
Some landowners and log prices.
<unk> to skyrocket significantly or maybe that not really much of an issue.
Yes, Jonathan I guess I'd answer a question like this.
So of different geographies have different challenges specifically as it relates to log pricing.
Gathering I'm not sure where you're from the I'm gathering you probably understand this already but.
I am actually I live in White City I'm right across from one of your facilities here and it looks like Theres plenty of logs in their in the yard. So that's my main reason for asking it looks like okay.
I hear about shortages and I'm looking across the street go on that looks like a lot of logs in there.
Cool alright so.
My first comment is not relevant to the youll location, but in the south Eastern United States.
There are many articles that have been written recently around the abundance of log supply.
That will be like that probably for deca, Idaho as it relates to the Pacific northwest in your backyard so to speak.
Log pricing.
Has started to go up Youre correct.
And we are out in the market buying logged every day.
More recently and I will say in the last 30 or 60 days, maybe pricing has become elevated again more specifically in certain geographies.
So on the area, you're specifically talking about of the has inched up some but in other parts of our again it has escalated significantly more.
Our philosophy has always been debt, we will buy in the market loves.
<unk> to be delivered now or this year, but we also buy what we call timber under contract, which we can harvest out of our number of years, depending on the <unk>.
Details of that particular purchase.
We're not having an issue today buying logs.
But they are getting more expense, even more so in some locations rather than others, but log supply in and of itself today.
Is not a major issue behind us being out to produce what we want to produce.
Alright.
Thank you.
Let's see.
Okay.
Pretty much.
I believe all of my other questions have been answered.
From previous previous answers so thank you for that.
Gratulation is on the quarter.
Things continue to look up.
Thank you for taking my call Yeah for sure. Thank you. Thanks Jonathan.
Your next question comes from the line of John Babcock from Bank of America. Your line is open.
Hey, good morning, Thanks for taking my questions first of all I just wanted to congratulations everyone on the strong results for the quarter and also to weighing on his retirement.
So then I guess, just starting out with the first question here.
I was wondering if youre worried at all about housing affordability is impact on demand over the next one the two quarters.
Or pent up demand is too large for us the initiatives.
Hey, John its niche of Oregon said I think on <unk>.
The ability I think that is.
Something we're watching.
Obviously, the look at across many commodities markets across the lot of different price points in terms of the type of home obviously prices are accelerating.
The things that have been.
Helpful. I think in terms of affordability things like interest rates.
Or something that we're monitoring and managing closely.
But I think of it in terms of affordability.
Today, the marketplace seems to.
The two.
Picking that as stride as I look at.
Again, some of the public builders in terms of what they've been able to accomplish on growing their backlogs logs expense of expanding their margins.
Look at least short term like.
The marketplace is prepared to kind of take on those of those.
For those of the higher prices, but affordability is something we're watching carefully and obviously at certain parts of the marketplace that may push people to the sidelines and if so that would potentially have an impact on the overall marketplace, but today affordability is something we're watching and but it doesn't seem to be materializing the marketplace at least.
Today.
Interesting.
And the next.
How does your cost to serve gone up given the market tightness on wood and if so what's that added cost burden on your P&L.
Yes, John its Mike.
If you think about the.
The log supply and other raw material supply, we buy some lumber obviously that goes into some of our products.
Yes. The has certainly been some increased pressure on our profitability from from raw material inputs.
I think you've probably heard the answer I just gave to the gentleman previously about loan pricing so.
I'd say in the southeast essentially flat.
In the Pacific Northwest depending on location. It has has increased.
Yes.
Low single digit sort of on average across the Pacific northwest.
And the cost of buying lumber that goes into a good land facility as well as al. So it's on flange I joist facility in Canada, obviously, we're at the.
The most of your of the market when it comes to those so that has been quite a quite an impact.
So.
When you put that roll that altogether, yes.
Yes, It has had an impact on on on our profitability, but.
On paid to the run up in commodities and the increase in AWP pricing it really hasnt been a major major impact on how April of profitability.
Thus far I will say, we love to go in the future of course.
I think one other.
That question was.
I was going to say John one other point I would add is it.
Certainly we talked about scarcity of transportation and challenges.
With getting wheels under product. If you will certainly there is some cost escalation going on in transportation because of that but generally speaking we passed we pass that through so that hasnt had a large impact on us, but it is certainly causing stress in the system.
Gotcha, Yeah, I think the other part of the question that was also related to the manufacturing side you know just.
I mean, I assume you know the mills are running pretty full out which typically.
The improved cost absorption, but I was just wondering given some of the stresses. These days you know if youre seeing any sort of the call us on the manufacturing side that might be going out the absence. Some of these other transportation of raw material costs on Christmas.
Not really John I mean, we have out of the rule maturities that I didn't mentioned so I.
I think couple of nice people would realize that things like our.
Resin cost is increasing.
And it has not gone through the roof, but again, if you think about.
How about on overall cost structure.
It is increasing but it's not dramatic not a dramatic increase thus far in certain locations. It would be like the solid sort of in the claims facility we have been.
In Canada, but on the average across across our manufacturing locations.
Cost structure, it has inched up somewhat.
Not dramatically when you think about.
The increase is relative to the pricing of the products that we're producing.
Okay. Thanks for that.
Then just last question I had I was just wondering what the.
Boise Cascade is doing across plywood in AWP.
The veneer from an operating expense keep up with demand.
A little bit of color on this earlier, but if you could just kind of go through that that'd be helpful.
Yes, sure so yes.
Over the last decade, or so I guess I'd say, we spent quite a lot of money, both acquiring and <unk>.
Revamping our existing facilities.
And so.
We add today somewhere between 90%, 95% self sufficient in veneer supply.
We did buy veneer on the outside and that has been impacted somewhat.
Close.
Of the number of issues. One is there was the particular supplier in the southern United States that had a fire the impacted us as well.
On the AWP manufacturers.
And there is some belief and I kind of quantify this debt some of the veneer that would normally be available too.
The AWP.
He's going into plywood because the return on plywood. These days is so high.
What we're doing.
Continue to do is sort of what I indicated earlier.
Last year as an example, we finished another dry of rebuild one of Vail then hit facilities of plywood facilities in the south Eastern United States, We continue on to try and de bottleneck a number of different.
Machine centers that are involved in veneer production.
And we are always continuously on the look for opportunities to to avail ourselves of more stress related veneer. That's in the marketplace. Unfortunately, there's just not a lot of it at the moment, Jon So that's really.
Probably the principal issue that we will continue to address as we move through this year and probably into the following year.
Alright, well thanks for all of the helping the best of luck and amount of the second quarter as well.
Thanks, John Thanks, Ken.
Your next question comes from the line of Kurt Yinger from D. A Davidson your line is open.
Yes, thanks for taking my follow ups.
Kelly.
Quickly in your prepared remarks, you touched on I think 35% sequential improvement in plywood realizations was that an average quarter to date number or kind of on a more spot basis.
So what I quoted there for you Kurt was our realizations of thus far in the second quarter or about 35% above our first quarter average. So our first quarter average was $5 56, and so I was just trying to give you some color on where we're at thus far in second quarter.
Compared to first quarter average okay. No that's great. Thanks, and then.
On the BMD side, I mean with what.
What I suspect will be some seasonal improvements in volume and obviously the continued inflationary trend in commodity prices at least through early may here is there any reason to think that gross margins can at least approximate the Q1 level if not look more like Q3 of last year.
Curtis needs I think as you look at.
On the commodity side the.
To your point, obviously, its accelerating and when.
When you look at the.
The commodity.
The ability and margins and then compare that to obviously, what we're experiencing on the general lining DWP.
The the momentum and BMD should should be strong again, consistent with that with that product mix and continuing on what we're seeing on on price realization, but Kelly let me let me maybe ask you to provide a little more color on that.
Yes, no. That's a good question, Kurt and I would say.
It's hard yes, certainly prices remained strong and certainly commodity prices have ticked up as we move into the second quarter here.
<unk>.
From my perspective.
It would be hard for us to perceive hitting.
Hitting the gross margins that we did in the third quarter of 2020. It was you may recall from the commodity price charge that was of.
That was a scenario where it was straight up for a number of weeks as we where we started the third quarter to where we ended the third quarter. So I would not I would not steer you towards the 16, 4% gross margin we had in the third quarter of 2020.
Okay. Okay. That's fair thanks for that.
And then just my last one on capital allocation. So you ended the quarter.
Little over $450 million of cash and you'll probably add to that over the next couple of months here can you just remind us what you would kind of consider a comfortable level of cash to hold on the balance sheet and how that might be affecting.
How youre thinking about the timing of of the supplemental dividend or returning cash to shareholders generally.
Yes, sure Kurt I'll take that one for starters so.
We had another great discussion with our board of directors yesterday in terms of how we think about capital allocation and maybe just to remind the audience kind of how we think about it.
Okay.
We first and foremost want to invest in the asset base, we have and we've put out the range of $90 million to $100 million. Currently and then we're very committed to our quarterly dividend and we announced another 10 cent quarterly dividend yesterday, and so then once we get beyond that.
It's about.
Looking to grow the company in a prudent and thoughtful manner, whether that's organic or whether thats through M&A opportunities and so as.
So as we think about that Kurt we're always trying to manage what's potentially in the pipeline for <unk> organic growth of our M&A compared to what our cash balances are.
And.
And as we've said in the past.
Our anticipated uses in the near term are less than what we thinks.
Available to us in terms of.
The cash on the balance sheet, then we will look to return cash to shareholders and we have mechanisms to do that and so maybe then to backup to the original part of your question what do we normally think about carrying.
We've got leverage targets out there that we are certainly below today.
And then we would in a normal environment carry something like $150 million of cash we were above that.
At the present time, but we're continually just trying to evaluate what's ahead of us.
And what's appropriate to keep for potential opportunities versus do we have excess that we should return to shareholders.
Got it got it okay, well I appreciate all the color there Kelly in the.
Thanks for taking my follow up guys.
Thank you Kurt.
Next question comes from the line of George Staphos from Bank of America. Your line is open.
Hi, everyone. Good morning, I just wanted to follow I'll follow up with a separate question on a jump off.
<unk> Q&A started.
Congratulations to everybody as well and most importantly to Wayne Thanks for everything waned in the past.
Not a fair question, perhaps but.
How long do you think the lumber markets on the panel markets broadly.
And keep at the current operating stances and rates with margins as high as they are.
When do you think.
If you had to.
Gauge.
We're on our seats what would you look for.
To see that there might be some more meaning.
Meaningful supply response relative to what's currently terrific supply demand balance for the producers.
Maybe if thats not somewhere you want to go is there any way to equate what youre seeing in this cycle are recognized the prices our records, but equate what youre seeing in the cycle relative to say.
2005, 2006 late 19 nineties anyway.
You could give us something to buy which we can calibrate.
Over the next couple of years to look at how supply might respond on what we should be expecting thanks, again and have a good quarter.
Yes, Thanks George.
Nate let me.
I'll take a stab at that.
I think the in.
In terms of where we're at from a historic perspective, I think if you look at.
The current.
Lumber and I think more specifically the panel index today todays numbers are twice what the historic level was.
Prior so we are we are kind of beyond even what was <unk>.
Even fathoms debt not long ago. So I think in terms of people kind of reacting to the current marketplace I think.
US and I suspect others people are just trying to get.
The right level of context around what is what is likely going forward and then what we tried to do George is continued just to go back to the fundamentals what is the demand equation look like what our expectations going forward on a long term basis, given that in terms of capacity and other decisions those are non measured in quarters, but years.
So we'll continue to look through the lens of what is consistent with our strategy and what we want to grow and what we want to support but also look at the longer term demographics and certainly the pandemic has had some some positive influences on that but I think in terms of us kind of overreacting to the current marketplace.
Given its historic levels, that's not likely something we're going to we're going to do we will continue to be very guarded and very thoughtful on what is the long term demand equation look like how do we think about our share of how do we think about our position relative to our services and capabilities and then again, we'll kind of the good go from there so I'm not sure if that's.
Really helpful for you, George but but again ultimately I think today's pricing today's realizations on commodities are studying and but in terms of our planning assumptions as we look longer term.
I think we're looking through the lens of more historical pricing as compared to what we're experiencing today.
No I mean, obviously there is no answer and so we recognize the challenge in trying to answer the question that was very helpful and especially the commentary about looking at longer term and being disciplined on supply demand.
I'll leave it there thanks again, and we'll talk to you soon.
Thanks George.
Next question from the go ahead.
Now again, if you got one more question operator.
Yes, Sir we have one more from Jonathan Hall of Portland Engineering. Your line is open.
Hey, guys.
I had some more questions just listening to some of the the previous.
And I think maybe Curt you already touched on this but.
For the distribution side of things.
Could you say it was was the bigger challenge is kind of the manufacturing capabilities or was it the transportation I think the example, you said it was like wheels on your product just kind of ex.
The example.
Jonathan This is Jeff I will tell you that.
It was tough to get the material produced with all of the raw material supplies on everything that we're short, but it was equally the tough to get wheels underneath of material and move it so.
Both of them were very difficult to work your way through them.
Okay, Yeah. Thank you.
The next was kind of what I've been hearing in that's been affecting all of <unk>.
Lot of companies is the labor market shortage I don't know if you guys experienced anything with that just having trouble trying to hire people.
Or you're desperate for operators or engineers or are you looking to.
Hire more people internally or maybe.
Contractors.
So to say.
Yes, Jonathan it's Mike.
I think it would be fair to say not only for Boise Cascade, but maybe more generally in the in the employment market.
But there are significant challenges in getting enough people.
To come to work all day every day.
Yes.
It's geographic.
To some degree and maybe more of industry specific in certain locations.
But we consistently have open positions and we were doing our base to try and fill them.
That's really.
Independent of where the you might call them annually paid positions all of salary positions its a pretty challenging labor market at the moment.
And so we're always looking to bring more people on sort of increase of our bench strength.
I think like many of his upset already there is a significant level of pain over depending on the geography.
You asked about the contract is.
And I'm guessing you are aware of this.
We use contractors in pretty much every one of our locations full of specific.
Specific items when they need it whether they happen to be engineering or construction related.
And so yes, we use both internal and contracted related.
The supply as and when needed.
It is a bit of a challenge for sure in certain locations.
Okay.
Okay. Thank you.
The.
Just kind of from my earlier questions.
You mentioned that the you had seen the cost of.
Materials in the northwest co op.
Can you comment as to how.
How much you have seen those costs been affected lately by wildfires because it seems like just everybody over in the northwest now just like well it's the.
It is June.
When are they going to start and it usually just.
It does it does hurt the the the <unk>.
<unk> industry around here quite a bit.
And just how do you see that effect Boise Cascade.
I guess I'd answer your question like this <unk> affect everybody, including Boise Cascade and obviously the communities close to with the way the pie has occurred.
Sometimes not always depending on where the price.
That can result in a <unk>.
The increase in availability as Im sure Youre aware of because some of those.
Locations need to be harvested reasonably quickly to take advantage of the of the available fiber doesn't always happen that way.
But because of various issues that we weren't going to.
But as it relates specifically to Boise Cascade.
I can't really tell you it wouldn't be appropriate to give you numbers on.
Specifically, what the changes are in.
And our cost structure other than to say that on occasions that helps us because there is the availability of raw material that is unexpected.
But as a general long term trend.
Pfizer now the good thing for our industry.
I mean, that's ultimately a reduction in total supply.
And that is that makes it more problematic for us.
And I think I'll, probably leave it at that.
Okay.
No that's fair thanks, Thank you.
I did have on more but I don't think its I don't want to take up too much more on you guys of time.
Yes, Thank you Jonathan.
Nate if you don't mind I would like to make just a quick comment.
As we wrap up.
Since our IPO it has been.
Great pleasure to work with the.
The sales side group, that's covered us and I appreciate all of the help and support in getting our story in front of the investors I think the company has made great progress since the IPO.
Migrating our business mix, both on the manufacturing side and in growing our distribution business.
Im credibly good about the current state of the company and I think we've done a really good job through the succession process of.
Also having the right people on the right chairs and sofas.
So if I think about the business going forward and I'm.
Part of the reason I'm, leaving as I feel exceedingly comfortable about where we are from the balance sheet mix of business and frankly, the leadership of the company and again I just want to express my personal thanks to the team that's covered us.
It's been a great group to work with and appreciate all of the non deal Roadshows and conferences and paying attention on calls like this and helping us kind of a story out spend much appreciated all of the best to all of you.
Great. Thanks.
Thanks, Thanks, Wayne, maybe just close out of the call.
We appreciate everyone joining us on the call. This morning for our update and thank you for your continued interest and support of Boise Cascade B B.
Safe and be well. Thank you so much.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect presenters. Please stay on the line for the post conference.
Okay.
Yes.
[music].
Alright.
Sure.
Sure.
[music].
Yes.
[music].
And the team.
Hum.
[music].