Q3 2021 Boise Cascade Co Earnings Call
My name is Chris and I will be your conference facilitator today at this time.
I'd like to welcome everyone to Boise Cascade's third 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 a question during that time simply press Star and then the number one on your telephone.
Keypad questions will be taken in the orderly seed if you would like to withdraw your question. Please press the pound key.
Before we begin.
I remind you that this call may contain forward looking statements about the company's future prospects and anticipated financial performance.
These statements are not guarantees of future performance and the company undertakes no duty to update them.
These statements reflect management's expectations today, they are subject to a number of business and uncertainty.
Actual results may differ materially from those expressed or implied in this call for a discussion of the fast Act.
The results to differ from the results anticipated please refer to Boise Cascades.
<unk> filings with the S E C.
It is now my pleasure to introduce you to Kelly Hibbs, Senior Vice President CFO and treasurer of Boise Cascade.
<unk> you may begin your conference.
Thank you, Chris and good morning, everyone I would like to welcome you to Boise Cascades third quarter 2021 earnings call and business update joining me on today's call are Nate Jorgensen, our CEO, Mike Brown head of our wood products operations and Jeff strong head of our building materials distribution operations.
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 and good morning, everyone. Thank you for joining us on our earnings call today I'm on slide number three our third quarter sales of $1 9 billion were up 18% from third quarter 2020.
Our net income was $91 7 million or $2 31 per share compared to net income of $103 2 million or $2 61 per share in the year ago quarter.
Third quarter 2020 results included a $10 $5 million after tax loss on extinguishment of debt or <unk> 27 per share as we refinanced our senior notes.
In third quarter of 2021 total U S housing starts increased 8% compared to the same period last year.
Single family housing starts the primary driver of our sales volumes increased 5%.
Our associates' performance was simply outstanding during the quarter in face of historic declines in commodity prices and ongoing challenges related to COVID-19.
Our wood products manufacturing business reported segment income of $122 1 million in the third quarter compared to 66 million in the year ago quarter wood products benefited from higher plywood pricing levels and improved.
TWC sales realizations and volumes compared to last last year's third quarter sequentially.
Sequentially sharp plywood price decreases were offset partially by continued AWP price increases some resulting from prior period pricing actions.
Our building materials distribution business reported segment income of $16 6 million on sales of $1 7 billion for the third quarter compared to $107 $9 million of segment income on sales of $1 4 billion in the comparative prior year quarter.
<unk> results were negatively impacted by historic declines in commodity wood products pricing.
Higher sales volumes and gross margin on our engineered wood and general line products helped to mitigate the negative impacts from the commodity price declines.
Kelly will walk through the financial results in more detail and then I'll come back and provide our outlook before we take your questions Kevin.
Thank you Nate.
What's the product sales in the third quarter, including sales to our distribution segment were $497 3 million compared to $363 $7 million in third quarter 2020 as.
As Nate mentioned wood products reported segment income of $122 1 million in the third quarter compared to $66 million in the prior year quarter.
Reported EBITDA for the business was 136 million up from EBITDA of $80 million reported in the year ago quarter. The increase in segment income was due primarily to higher AWP plywood and lumber sales prices as well as higher AWP sales volumes. These improvements were offset partially by higher wood fiber cost and lower margins on.
Inventory purchase for resale through certain customer programs.
BMD sales in the quarter were $1 7 billion up 20% from third quarter 2020 sales prices increased 23% offset by a sales volume decrease of 3%. The business reported segment income of $16 6 million or EBITDA of $22 6 million in the third quarter.
This compares to segment income of 107, 9 million and EBITDA of $113 6 million in the prior year quarter. The decline in segment income was driven primarily by a gross margin decrease of $105 million, resulting from a sharp decline in commodity prices during third quarter 2021, the negative.
Impacts from commodity price declines were offset partially by higher sales volumes and gross margin percentages for AWP and general line products as well as decreased selling and distribution expenses of $7 8 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 $9 2 million in third quarter 2021, compared with negative $15 4 million in third quarter 2020.
The decrease was due primarily to lower employee related expenses of $3 million most of which relates to incentive compensation. In addition, third quarter 2020 results included approximately $3 2 million of estimated business interruption losses absorbed at the corporate level related to disruptions at wood products facilities as part of our self in.
<unk> risk retention program.
Turning to slide five.
Our third quarter sales volumes for I, joist, and LVL were up 21% and 2% respectively compared with third quarter 2020 demand for AWP continued to be strong through the quarter fueled by increased housing starts pricing in third quarter for I joist, and LVL were up 16% and 14%, respectively compared with second quarter 'twenty.
'twenty one as previously announced price increases continued to take effect in certain temporary price protection arrangements expire.
Turning to slide six our third quarter plywood sales volume in wood products was 314 million feet compared to 316 million feet in third quarter 2020, However, plywood sales volumes were down 7% sequentially due to rolling curtailments taken to assist in balancing supply and demand and additional pandemic related disruptions.
During third quarter.
The 561 per thousand average plywood net sales price in third quarter was up 31% from third quarter 2020.
However, not unlike other commodity wood products plywood prices declined sharply during the third quarter decreasing 36% sequentially as.
As we exited the third quarter plywood pricing has stabilized but price realizations, thus far in fourth quarter is still approximately $30, 30% below third quarter average levels.
Moving to slide seven.
<unk> third quarter sales were $1 7 billion up 20% from third quarter 2020 by product area Bmd's commodity sales increased 7% General line product sales increased 20% in AWP increased 57%.
Gross margin dollars generated declined by $105 million in third quarter compared to the same quarter last year. The gross margin percentage for BMD was seven 9% down 850 basis points from the 16, 4% reported in third quarter 2020.
Bmd's EBITDA margin was one 3% for the quarter down from the seven 9% reported in the year ago quarter. The sharp decline in commodity prices during the quarter as evident in BMD results, However, higher sales volumes and gross margin percentages for AWP and general line products as well as decrease.
Selling and distribution expenses of $7 8 million helped to offset the impact of falling commodity prices.
Demand remains healthy commodity prices have stabilized and bnb as commodity inventory was well positioned as we exited the third quarter. Given this backdrop, we anticipate gross margin for gross margins returning to normalized levels in the fourth quarter.
Im now on slide eight.
This slide shows the sharp decline in lumber pricing, starting late second quarter and continuing through the majority of the third quarter before finding stability in September.
Turning to slide nine although lagging the lumber price declined somewhat the random lengths composite panel index reflects sharp price declines in the third quarter as well.
Entity product pricing could continue to be volatile as we move through fourth quarter pricing movements from current levels will likely be determined by the strength of end market consumption in industry operating rates, both of which could be influenced by seasonal impacts of winter weather supply chain, uncertainties and ongoing challenges with labor.
On slide 10, we have set out the key elements of our working capital net working capital excluding cash income tax items accrued interest and dividends payable decreased to $147 5 million during the third quarter accounts receivable inventory and accounts payable all decreased with the with the deceleration of sales and.
Quarter as commodity pricing fell.
An increase in accrued rebates contributed to the increase in 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'm now on Slide 11, we finished third quarter was $787 million of cash our total available liquidity at September 30 was approximately $1 1 billion, which reflects our cash and availability under our committed bank line, we had $444 million of outstanding debt at September 32021.
We expect capital expenditures in 2021 to total approximately $90 million to $100 million our capital spending in 2021 includes completion of the log utilization Center project at our fluorine plywood and veneer plant a new a door a new door assembly operation in Houston and expansion of our distribution capabilities in the Nashville.
Market looking forward to 2022, our current expectations are for capital spending excluding acquisitions to range from $100 million to $130 million.
Our 2022 capital expenditure range is purposely wide at this time as availability of engineering and construction resources and timing and availability of equipment purchases is expected to have an influence on 2022 spending in.
In addition capital spending could also increase or decrease as a result of a number of factors, including acquisitions efforts to further accelerate organic growth exercise of lease purchase options, our financial results and future economic conditions.
Our effective tax rate is expected to be between 25% and 27% with the potential that ongoing federal legislation activity increases future tax rates.
Our board recently approved a <unk> <unk> per share or 20% increase in our quarterly dividend effective with our December dividend payment. In addition in light of our higher than targeted cash balance. The board also approved a supplemental dividend of $3 per share our second supplemental dividend of 2021.
After payment of the supplemental dividend, we remain well positioned with sufficient cash in reserve to remain focused on the execution of our strategies, including future organic and acquisition growth opportunities. 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 am on slide number 12.
The demand environment for new resident residential construction continues to be favorable supported by low mortgage rates continuation of work from home practices by many and demographics in the U S. We expect strength in residential construction activity to continue for the remainder of 2021 and into next year.
October Blue chip consensus for U S housing starts is $1 $5 9 million for 2021, and one $5 7 million for 2022.
In addition, the age of U S housing stock and limited home inventory availability will continue to provide a favorable backdrop for repair and remodel spending.
Although we believe the current U S demographics support the level of forecast the housing starts and many national Homebuilders are reporting strong near term backlogs labor shortages and supply induced constraints on residential construction activity may continued extended build times and limit activity.
In addition, the pace of residential construction and repair and remodeling activity may be affected by the economic impact of cost of building materials and construction housing affordability mortgage interest rates wage growth prospective homebuyers access to financing consumer confidence as well as other factors.
Demand for AWP remains strong and pricing efforts on AWP maintain traction and will help offset impacts from lower plywood pricing.
As always we will continue to focus on innovation as a means to mitigate rising input costs and help address labor shortages.
Bnb the demand environment remains good across our customer base and our inventories well positioned.
We are excited our Houston door Assembly operation International expansion, our operational and appreciate all of those in BMD and our corporate teams who have contributed to those efforts.
Our balance sheet remains continues to afford us the ability to continue our pursuit of further growth opportunities within BMD.
As we wrap up our formal comments I want to express my appreciation for our associates the last year and a half has thrust upon us many challenges never before experienced.
Credibly proud of how our associates of our associates as we continue to navigate in a climate where patients and flexibilities amongst.
Our proven values of integrity safety respect and pursuit of excellence continue to serve us incredibly well and will continue to be our foundation moving forward.
We will continue to make sure we use our operating and financial strength to benefit to the benefit of our customers suppliers communities and shareholders.
Thank you for joining us today and for your continued support and interest and we welcome any questions. At this time, Chris would you. Please open the phone lines.
Yes, Sir.
Our first question comes from Mark Wilde of Bank of Montreal.
Your line is open.
Good morning Ali.
Good morning, Mark.
To start out guys I wondered if you could just talk with us about AWP pricing I mean, you are.
Sort of sequential increase was quite a bit smaller than one of your big public peers that reported at the end of last week I wondered if you could just help unpack on at least a little bit I mean, how much is timing and mix I think Nate you mentioned the end of some price protection that was out in the market. So just trying to think about the dip.
And also to think about what kind of lies ahead over the next couple of quarters I know that AWP prices always take three or four quarters to roll in.
Yes, Mark so yeah, I can't speak to the comparison of us versus the peer you referenced in terms of what the timing what the announcements they had and maybe what mechanisms. They have down the channel in terms of rebates and whatnot. So I can't really I wouldn't venture a guess to compare on that but in terms of specific.
To US, yes, we did see sequential kind of 14% to 16% across our product lines and we feel good about that and I would say looking forward I'd give you a little guidance here for the next couple of sequential quarters, Mark that would be mid to high single digits. As we move forward from here as we continue to kind of layer on and get.
The benefits of.
The announced increases we've announced and the price protection mechanisms kind of roll off.
And Kelly just to be clear is that mid to high single digits sequentially for a couple of quarters.
Yes, Mark.
Okay is it possible, we don't see a lot of announcements typically around sort of AWP.
<unk> is it possible to get some sense of whats out there on the horizon I mean, I know that a big privately held company from from or.
Put a new facility in South Carolina, a little while ago, I think that it's up and running but but can you give us a general sense of what is out there.
Mentally in your business lines in AWP.
Good morning, Mark It's Mike good to hear from you Mike.
Yes so.
Yes, the facility that you just referred to.
I would say that.
They are up and running but certainly not running at any way need capacity from what I hear.
I'm not aware of any additional incremental AWP capacity, if now of any significance that is being thought about or brought online at this point in time.
I would say that most that are in the AWP manufacturing.
<unk> continued to struggle with the same issues that many other others are struggling with namely.
Not always being able to get the the workforce that's necessary to run all of the equipment.
As Wade will they might like.
And particularly in AWP area I've spoken about this previously.
There is a shortage of the type types of EMEA. The types of five it is necessary to go in to make those sort of products.
There has been a little bit more of that.
Become available since plywood prices declined but it wasn't a huge.
Transformation is sort of shifting availability, so maybe a little bit more about AWP is being produced now.
Let's say six months ago, but there's no big projects that I'm aware of that are that are on the horizon to add additional capacity.
That's helpful. Mike I haven't seen anything but again, it's it's.
A little harder to kind of track I think in engineered wood, but the last question for me.
Distribution results were.
Quite a bit weaker than we expected can you just talk about the drag from from falling commodity prices.
Any.
Losses on inventory that you might have taken during the third quarter.
Yes sure Mark This is Kelly I'll take the first crack at it and then others can jump in.
So you may recall from our comments when we were speaking to you about the second quarter, we had.
Roughly $12 million LCM that we recorded against Bmd's inventory at June 30.
And then then I would tell you and if you look at the commodity price graphs that you are well attuned to.
Prices fell substantially from July through August before finding some stability in September so I would say in terms of.
So there was a lot of wreckage in our income statements and BMD in July and in August as we were turning our inventory and I would say the team did a nice job of liquidating turning that high priced inventory.
So when we get to the end of September we don't have an LCM.
We've moved our high price inventory and we as I alluded to in the comments. We're we feel good about our position and that we can return to normalized levels.
Gross margins as we move through the fourth quarter.
Okay. That's really helpful color Marc maybe just another quick comment on that is I think as we look at the quarter. It's.
As Kelly described I think we are.
We feel good about our inventory position.
I think as we think about.
Probably the dependents.
Our customers will have on distribution, we see that continuing to grow people I think are a bit more measured on their working capital and I think that.
Speaks incredibly well it supports our distribution business. So as we move forward of the quarter, we feel good about our inventory position.
But also feel good that the.
Maybe some of the dependency from the marketplace will actually increase as we close out 2021.
Okay. That's helpful I'll turn it over night. Thank you great. Thanks Mark.
Thank you.
And as a reminder to ask a question you will need to press star one on your telephone with your question. Please press the pound key.
Our next question comes from George Staphos of Bank.
Bank of America.
Your line is open.
Thanks, Hi, everyone. Good morning, Thanks for the details.
Doing well, Hey, George How's.
How's it going congratulations on the quarter.
I wanted to dig in a little bit to AWP and what youre seeing given the very good pricing traction that you're getting.
And those are getting in the market relative to any competing activity maybe loss of share if any at all to traditional dimensional lumber. Since obviously lumber prices are lower are you seeing any effect of that in the market right now and then kind of related question.
Our customers are having to deal with labor shortages, there, obviously getting higher prices on their homes and they are happy about that but at the same time there is some.
Bob.
Boomerang effect that could happen from that on demand at some point, but so what are your customers doing in terms of their plans for building next year that could either benefit or retired some of the business trends that youll be seeing in 2022.
So let me I think that there is a two parter there Mark sorry, George Let me take the first one and then maybe I'll pass it to Nathan on the second one so the first one in terms of AWP pricing relative to the <unk> for example, and do we see some sort of a shift if you will away from AWP and that sort of environment.
We really don't we.
The demand environment, the order file for either BP is still solid.
And as you referenced labor is a challenge and so the national homebuilders for them EWC on the job side is a much more efficient product to install and so we just really don't see we really don't see them transitioning back might there be some small things on the fringe that might change that might shift a little bit now and again I suppose but.
On a broad scale, we really really don't see it.
Hey, George maybe on your second question.
Maybe some of the trends are kind of what customers are describing to us I think what we're experiencing as we close out 'twenty, one and head into next year is probably more consistency.
Terms of the kind of the cadence of housing starts I think builders have done a good job of kind of matching.
The industry's capabilities on a range of products and services to their to their demands and so I think that stability and cadence has frankly improved as we close out 'twenty, one and I expect that to be a theme as we head into 'twenty two.
In terms of.
There are markets and kind of what we're hearing are experiencing from them is I think the.
Things that Theyre looking at things all of us are looking at relative to interest rates.
And portability and such but but in terms of the momentum and the confidence I think across many geographies across many price points in single family multifamily even like commercial I think there is some good confidence as we close out this year and head into next year and again I think thats getting supported.
By a range of builders across a number of segments. So I think we feel good about whats in front of us in 'twenty, two and I think it will have a similar maybe look and feel as we close out 'twenty, one again around kind of cadence and what we're experiencing in the market.
And then just a quick follow on on that are you hearing from your customers that they're seeing.
A lot of discussion on this earlier in the year and in 2020. The addition of home office space on homes. The addition of rooms in square footage for.
Home schooling facilities, if you needed it and another locked out or are you seeing.
Drive towards different floor plans are smaller homes any other thoughts around that recognizing you said, it's going to be pretty consistent and then I had a quick one on mass timber what are your expectations for the growth there and if you could talk a little bit about your relative level of interest which seem to be relatively high last quarter on mass timber in the developments there. Thanks.
Sure.
Yes, I think in terms of kind of the home footprint and what people are looking for I think the flexibility and.
Kind of the Optionality continues to be a theme I think it's maybe settle down a little bit as things like schooling have gotten maybe a little bit more normalized and maybe theres a little bit less pressure than there was six months ago or certainly 12 months ago.
But I think in terms of the flexibility of the home and what their home needs to deliver beyond the living space. It also has to include to your point, maybe a home office some schools that kind of the recreation component. We think some of those trends have been in place and we will continue to be in place and it's something that we're kind of watching that carefully and closely.
In terms of mass timber I'll make a quick comment or two and then hand it over to Mike Brown.
We continue to see mass timber is.
An important solution in terms of light commercial.
Hi story.
<unk> in the marketplace, we think it solves a number of problems on the job site as well as obviously.
The carbon capability that wood construction brings as compared to steel and concrete, but Mike do you want to add any comments in terms of kind of where we're at and how we're thinking about that opportunity as we move forward, yes sure.
I guess, George I would add that we're sort of watching with great interest.
Investments that are being made by some others.
Across the United States some some.
U S based companies and some from offshore and we certainly looked at it with great interest at some of the opportunities that are that have come to market over the last six months to 12 months.
But at this stage, we're sort of in that watch and wait and evaluate.
Position.
We believe we firmly believe that there'll be opportunities in the future, whether we decided to do it through organic or through acquisition is just a matter of timing and.
We'll see how that progresses over the next 12 to 24 months.
Alright, Thanks, I'll turn it over guys. Thank you. Thanks, Thanks George.
Thank you.
Up next we have Susan Mcclary of Goldman Sachs.
Your line is open.
Hi, everyone. This is Charles Perron for Susan today, Thanks for taking my question.
Firstly I just wanted to circle back on the BMD and looking at the EBITDA margins going into Q4, you mentioned that margins should return I think at normal levels and given the recent stabilization in commodity prices do you think margin performance similar to Q4, a year ago is realistic at this point given the current conditions.
Yes, so if you looked at Q4 a year ago.
BMD reported gross margins of 13% and EBITDA margin of.
Five 5%.
I would say if you look.
For us a lot of it is going to be about.
What is the.
That's not what the relative value is commodity pricing, but very much what is the trajectory is it up is it down is it sideways.
So that will have a large influence on our results in the fourth quarter for BMD.
But if we find it's the stability we've seen so far in the fourth quarter holds.
And then and I suspect DWP and general line will remain firm.
Yes.
I would say.
Gross margin of 13% that might be.
That's probably achievable thats, a little bit higher than what we've seen in some normalized periods, but certainly well we should be well above the third quarter results that we just posted.
Got it Thats very good color. Thank you very much Kelly.
Just a follow up on the.
DIY demand.
Some of your peers have commented on and pick up of activity post Labor day I was wondering if you have seen similar pick up in activity on the <unk>.
<unk>, so far and what our expectations as well going into year end.
Hi, Charles It's Nate Jorgensen.
To your point on the do it yourself.
We see the third quarter was a bit of a rollercoaster in terms of they were.
Somewhat vacant early in the quarter and I think.
There was good strength and stability as we finished the quarter with.
What that customer segment, and I think we're experiencing that today.
Just a range of products and services across the.
Each of our geographies geographies. So I think in terms of our expectation on the repair and remodel segment, especially the.
The professional Remodelers, we feel good about how they are thinking about the balance of this year and into 2022 as well so.
But again that little bubble that we experienced in Q3 with that specific customer is largely behind us and feel good about the momentum that's what's today.
Thanks, Mike for that and just if I can squeeze one last one.
Looking at your Capex guide for next year, it looks like it's up quite nicely versus this year and I understand the variability in there as you mentioned in your prepared remarks, but any project that you want to highlight or any area of your business, where you think you want to be adding capacity given the current market conditions.
Yes, So Charles let me, let me start and then I can let others jump in as they see fit so so I would not I would not referenced that increase in terms of adding capacity what I would reference it as is really part of our capital allocation strategy, which is to invest in our existing asset base.
And what products, we're certainly going to try to accelerate a little bit in some replacement and infrastructure type spending and thats all about for US is you commonly heard us supporting our internal veneer capabilities and so there is there is some projects in the southeast we want to get done. There is there is some replacement infrastructure work in open.
At our Oakdale plywood and veneer plant for example, and then we do plan on replacing a dryer at our Chester South Carolina facility.
So we so we do expect to get maybe a little bit of cost savings and some efficiencies, obviously, if youre doing that spending, but it's not about growing capacity and then on the BMD side typically one of the big buckets for them is going to be rolling stock. So tractors trailers <unk> and then we're going to have racking and paving and then we have a few.
Organic opportunities that are embedded in BMD spending in 2022 that we think are going to happen. It's a little too early to specify what those are.
But for them.
It's a fair bit of rolling stock and a little bit of organic growth in existing markets that we have today I would say given the broadness of the range that purposeful as I mentioned in the comments just because of the supply chain challenges that we see throughout the world today and for example, rolling stock.
<unk>, we I suspect that we may be challenged to bring in as many tractors and <unk> that we would like to just given given the constraints in the chain.
Totally makes sense I appreciate the color. Thanks for the thanks for that Tom.
Matt.
Thank you.
And again to ask a question. Please press star one on your telephone.
Your question please.
Okay.
Next we have Rubin Gardner of benchmark your line is open.
Thank you good morning, everybody.
A couple of questions on BMD.
Maybe.
First on the volume front and if you answered this in your prepared remarks, I apologize if I missed it but the volume.
Decline that you saw.
Looks like.
Matt It largely came on.
Sort of the commodity product that you sell how much of that I guess can you just talk about the volume decline what was the driver. There was that you guys just kind of being cautious with inventory with where prices were and maybe missing or intentionally missing out on some business to not lose money just talk to me about the.
The BMD.
BMD volume in the quarter.
Hey, Reuben this is Jeff I'll start on the commodity side like you spoke of.
Towards the second end of the second middle of Suncor in the second quarter, you can see where the market was going and so I would tell you absolutely we took our foot off the gas, but what were purchasing trying to get our inventory for the big decline and we spent the entire quarter trying to move that inventory out and repositioning ourselves on AWP and general line products.
We are in an incredibly constrained supply environment.
And with management plan like we have it really really is hard to grow and to take shares our ability to really expand it would be limited I think we did a great job with what we had but our opportunities are limited there.
Okay, and then on the margin front in the quarter.
Can you remind us what the lag is to from the commodity moves to when it flows through to your business. Some reason two weeks is sticking my head so in other words.
The price decline for commodity started especially for lumber started late in the second quarter.
And the stabilization kind of that started in September you wouldn't have seen much of that you basically.
Dealt with a declining environment the entire quarter in your P&L is that right.
Yes, certainly yes. The lag you may have heard referenced in the past is maybe a little bit more light on our wood products business in terms of plywood have on order files and so we didn't see the the substantial decline in July in our wood products results, but in terms of bnb as you know our distribution customers are obviously very educated in the us.
Understand where the market is.
So, yes, that's pretty real time as the market starts to tip over our inventory loses value.
Pretty pretty quickly and we have inventory on the ground and we've also got inventory rolling out. So it takes us some time to get out of the way of that.
And with her.
There is some shadow inventory out there.
Inventory that maybe you guys have on the yards or your customers have on the yards that's already spoken for whats the supply demand environment really like today.
<unk> industry from a commodity standpoint.
Yes Ruben.
Ruben it's made I think in terms of the.
Some cases customers may have projects.
Ill go and place orders for products and services and Thats, maybe not uncommon in areas like multifamily or hotel motel construction, where they'll buy kind of blocks of material and that will be delivered over a series of weeks and months. So sometimes that is the maybe the element of inventory.
That is.
The sold but hasnt, yet maybe shifts.
I think in terms of inventory levels overall.
I think.
Again, there are certain products and services that remain very constrained as Jeff described general line DWP remains challenged I think across the channel and so we don't expect that likely to really change as we finish off this year and head into next year and I think in terms of commodities.
Relatively balanced based on what we can see today, obviously there is.
Seasonality would be.
Will factor into it but I think customers are looking at year end and making sure that they're measured in terms of what their what their inventory footprint is in some cases for tax reasons and so we see maybe a little bit more.
Deliberate approach as we finish off this year, but again in terms of overall confidence on demand as we close out this year heading into next year on the.
The residential construction as well as commercial I think again, there's good confidence and good momentum as we close out this year again, recognizing whether it could have some impact on that as well.
Great. Thanks, guys congrats on the quarter and good luck navigating through the rest of the year.
Thanks Jordan.
Okay.
Thank you.
Next we have a follow up from Mark Wilde of bank of Montreal.
Line is open.
Thanks, Yes, just a few follow ups actually.
First on the on the building materials side.
Are there any pieces of the building materials market, where aside from kind of commodity lumber panels.
I actually started to see an easing in any of the supply constraints.
Hey, This is Jeff Mark I would tell you we really have not it is just continued on and with no. One that's on top of that we're seeing the transportation issues really ramp up as well, which is causing more and more problems.
Okay.
That's great to hear but that's good.
Good to understand.
Mike can you talk about.
Order of magnitude of Covid disruptions.
Third quarter, and what you've seen so far in the fourth quarter. It seems like you've had some issues over the last several quarters, particularly down in Louisiana, but maybe down in southern Oregon as well.
Yes sure Mark.
Yes.
Quite correct. So in the third quarter I would say.
The month of August.
August.
My memory is correct.
First month that we've had since the start of the pandemic in terms of number of direct Covid cases, obviously that needed to be quarantine.
Through our contact pricing. So it was a really really pretty tough, but I would say in general since then there's been a steady decline in the number of cases, so were in a better position you want to COVID-19 that today than we were a couple of months back.
In terms of how that impacted our manufacturing operations yeah.
Certainly it did reduce our potential to produce oil products.
That.
You understand the way we run our integrated model so.
I would say is a very very very high level.
With them.
Maybe we lost.
95% of our production, but it was sort of spasmodic and different mills at different days different weights and so what we tended to do was juggled. The crews that we have in each of the locations.
Each of the machine centers to maximize the production that we could with the people that we had.
So it wasn't at the end of the day it wasn't a huge impact to our manufacturing on a product on a volume basis.
But.
Our associates did a tremendous job.
A huge amount of overtime and.
I think thats really how we managed to get through the quarter without seeing a more significant reduction in our manufacturing volume.
Okay, and Jeff did it have any impact would you say in the.
Third quarter in Houston.
Business.
I would tell you on the business itself, but the impact was really to the associates did an impact on what we could do but they are always felt like there's a few people out and so we are relying on the other people to pick up pick up for them and they did that so just kind of what Mike said as well or.
Our associates at an unbelievable job carrying that water for each other but no real impact to the business other than that.
Okay, Alright, that's helpful last one I'm just curious where you are seeing kind of this continuing trend of consolidation in the wood products sector and I wonder if thats, having any impact.
On your business, particularly the distribution business.
Conscious that one of your longer term kind of strategic partners was involved in a transaction earlier. This year. So does that can you just talk about any kind of potential ripple effect. This processes is having on your business.
Market's Nathan I think in terms of the consolidation I think that's something that we've obviously to your point <unk> seen and really have the expected kind of throughout the channel.
I think for us.
For Boise Cascade, I think one of the things that.
Think we've been able to deliver us.
A level of consistency and predictability on both businesses for a period of time and so when there are changes in the channel and consolidation I think we represent and level of consistency and predictability that I think our customers and our suppliers really depend upon as we go through this so my view is that we'll likely see.
More consolidation more things happen, but in terms of I think our consistency in terms of who we are what we do.
Putting our plug in our balance sheet to work I feel good about how we're positioned and what we can do in support of our customers as we move forward.
Okay, Alright, that's very helpful. NATO good luck in the fourth quarter and looking into next year, great. Thanks Mark.
Thank you.
And we have a follow up from George Staphos of Bank of America. Your line is open.
Hi, guys just a couple of cleanups for me.
One if you hadn't mentioned already can you just talk a little bit about what you think would cost will be into the fourth quarter and to some degree if you have any kind of view.
It could change quite a bit into the first quarter and then can you update us on what Youre seeing right now in terms of imports.
Plywood from South America and to you.
K markets. Thanks, guys. Good luck in the quarter.
Well I think George it's Mike So last question first.
So if you look at the import volumes of recent time from Brazil as they have declined.
<unk>.
So that would be last data I saw was September and I think the input volume from Brazil was like 55000 cubes that was down.
About two thirds compared to the highest volume, which I think was a couple of months before that it was like a 165000 cubes.
In maybe July so it's come off very very considerably. However, if you look at the year to date number.
It's actually up like 30% year over year. So a lot of volume timing I was saying that in the first half.
Of the year.
Hey, Mike Whats going on there do you think I mean, it wouldnt just going into Europe at a later part of the year.
Relative to what is typically the seasonal trend or is it anything related to the trade case.
And the certification issue that exists.
You know between U S, and Brazil, or something entirely different work or not clear.
Perfectly fine answer as well.
Yes, yes, and yes.
Yeah.
Yes, I think.
What I would what I would say George is ocean freight as we all know has just stepped.
Just unbelievable.
Container cost these days so on a landed basis that while our pricing was terrible for plywood relative to the paas.
That's certainly turned the importers up.
Now the Brazilians in particular, but on a landed on a landed basis with the cost of freight.
Included in that in the final delivered.
Number.
Really impacts have been very severely they did have at some point in time in Brazil, they're going back a few months. They had some very significant COVID-19 related activities and that sort of overlapped with the reduction in plywood prices here in the U S. So some mills in Brazil curtailed quite significantly so that reduced the total volume and then to your very good point.
Yes, it's about that time of year again.
The resilience not only the Brazilians, but particularly the brazilians than they realized a year because as that.
Quota.
First 600000.
<unk> made as a plywood enters Europe is.
Is.
Paraphrase or tax free I think thats between six and 8% so there's that going on as well so a combination of factors.
So I guess, we will see what happens going into next year.
And then you've got the.
Wood costs, I think you're probably referring most specifically to low cost yes.
Log cost in this out at pretty much flat.
It has been flat and continue to be flat.
I would say.
As some of the saw mills start to ramp up and you've heard the saying all.
<unk> announcements.
We'll wait and see.
That plays out there could be some some specific geographies that have additional pressure.
And I don't see it ramping up significantly in the very very near future, but they could be a little bit of increase I'll say over the next five to 10 years as all these mills come online.
I mean, there's been a there's been a steady creep in the south.
<unk> for a change I would say, but from your standpoint, nothing significant nothing too.
Just your operating plan that you wouldn't adjust operating plan per se on that but nonetheless, nothing thats significant in your view in terms of calling a new trend.
Okay.
I would not do that George I think created the right wood.
Okay.
I was young.
And then in the Pacific Northwest.
Obviously.
Quarter over quarter.
Quarter, three last year relative to quarter three this year.
Pacific Northwest log costs were up very very significantly.
So to kind of plateaued, we say at the moment.
Obviously with lumber pricing coming off which is really the major determinant of log prices.
We might see a little bit of creep down.
I don't think it will come off very significantly anytime soon because we're starting to see a little bit of increase in lumber pricing. So I would expect.
I would probably suspect that the Pacific North West.
Pricing is going to be relatively flat or consistent going into 2022.
Thank you very much.
Thanks George.
Okay.
Thank you.
I see no further questions in the queue.
I'll now turn it back over to Kelly for closing remarks.
I'll take this is Chris it's Nate Jorgensen.
Just to quickly close we appreciate everyone joining us this morning for our prostate and thank you for your continued interest and support of Boise Cascade, Please be safe be well. Thank you.
Yeah.
Okay.
[music].
[music].
[music].
[music].