Q4 2021 Boise Cascade Co Earnings Call
Okay.
Good morning, My name is Kevin and I'll be your conference facilitator today at this time I'd like to welcome everyone to the Boise Cascade fourth quarter 2021 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer period, if you'd like to ask a question during that time simply press Star then the number one on your telephone keypad questions will be taken in the order they are received.
If you would like to withdraw your question press the pound key before we get I'll remind you that this call may contain forward looking statements about the company's future business prospects and anticipated financial performance.
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 are subject to a number of business risks and uncertainties actual results may differ from those expressed or implied in this call for a discussion of the factors that may cause the actual results to differ from the results anticipated. Please refer to Boise Cascade's recent filings with the.
C. C. It is now my person introduced you to Kelly <unk> Senior Vice President CFO and Treasurer Boise Cascade. Mr. Hits, you May begin your conference.
Thanks, Kevin and good morning, everyone I would like to welcome you to Boise Cascade's fourth 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 want to start off by expressing my appreciation for the tireless work of our associates, while the uncertainty experienced in the last year has presented us with many challenges are proud of our associates and their unwavering focus on supporting each other and our vendor and customer partners.
Now on slide number three.
Our fourth quarter sales of $1 8 billion were up 21% from fourth quarter 2020, our net income of $169 1 million or $4 26 per share compared to net income of $26 million or <unk> 66 per share in the year ago quarter.
As further described in our early earnings release fourth quarter 2020 results included net noncash items related to the termination of our qualified defined benefit pension plan that negatively affected earnings by $1 10 per share.
And fourth quarter 2021, total U S housing starts increased 6% year over year.
Multifamily starts drove the increase of single family housing decreased 5% compared to the prior year quarter irrespective of the headline starts data the pace of activity in the fourth quarter was unseasonably strong housing fundamentals finished the year on firm footing with total U S housing starts and permits at approximately $1 7 million and $1 8 million units.
Respectively on a seasonally adjusted basis in the fourth quarter.
Our wood products manufacturing business reported segment income of $98 4 million in the fourth quarter compared to $40 8 million for the year ago quarter.
Wood products benefited from improved <unk> sales realizations compared to the last year's fourth quarter Wood products continue to focus on manufacturing production levels. In response to continued strong end product demand for AWP during the quarter.
Our building materials distribution business reported segment income of $138 million on sales of $1 6 billion for the fourth quarter compared to $67 $1 million of segment income on sales of $1 3 billion in the comparative prior year quarter.
<unk> results were favorably impacted by a steady increase in commodity prices during the quarter as well as continued strength in our DWP and general line products.
Kelly will walk through the financial results in more detail and I'll come back and provide our outlook before we take your questions Kevin.
Thank you Nate I'm on slide four wood products sales in the fourth quarter, including sales to our distribution segment were $446 6 million compared to $358 $7 million in fourth quarter 2020.
As Nate mentioned wood products reported segment income of $98 4 million in the fourth quarter compared to $40 8 million in the prior year quarter.
Reported EBITDA for the business was $112 2 million up from EBITDA of $54 5 million reported in the year ago quarter. The increase in segment income was due primarily to higher AWP sales prices offset partially by higher wood fiber and other manufacturing costs.
BMD sales in the quarter were $1 6 billion up 24% from fourth quarter 2020 sales prices and sales volumes increased 19% and 5% respectively. The business reported segment income of $138 million and EBITDA of $144 2 million in the fourth quarter. This compares.
Segment income of $67 1 million and EBITDA of $72 9 million in the prior year corner.
The improvement in segment income was driven by a gross margin increase of $94 1 million, resulting from improved gross margins across all product lines. The margin improvement was offset partially by increased selling and distribution expenses of $22 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 $8 5 million in fourth quarter 2021, compared with negative $14 3 million in fourth quarter 2020.
The decrease was due to a noncash pension settlement charge of $6 2 million in fourth quarter 2020 related to the elimination of our qualified pension plan.
Turning to slide five our fourth quarter sales volumes for LVL were up 6%, while sales volumes of I joists were down 3% compared with fourth quarter 2020.
Transportation constraints have hindered our ability to consistently move finished goods inventory into the marketplace demand for AWP continued to be strong and our order files remain extended.
Pricing in fourth quarter for both I joist, and LVL were up 16% compared with third quarter 2021, as previously announced price increases continued to take effect in certain temporary price protection arrangements expired, we expect low single digit sequential price increases in first quarter 2022.
Yeah.
Turning to slide six our fourth quarter plywood sales volumes in wood products was 304 million feet compared to 305 million feet in fourth quarter 2020 current plywood volumes align with our continued work to optimize veneer into <unk> production.
The $401 per thousand average plywood net sales price in fourth quarter was down 1% from fourth quarter 2020.
Plywood pricing stabilized during the quarter after the sharp price declines experienced in third quarter. However, as we enter 2022 plywood pricing has rebounded sharply order files have extended and transportation related constraints are limiting OSB supply further contributing to demand for plywood.
First quarter 2022 pricing, thus far as approximately 60% above fourth quarter 2021 average price realizations.
Moving to slide seven Bmd's fourth quarter sales were $1 6 billion up 24% from fourth quarter 2020, byproduct line commodity sales increased 9% General line product sales increased 26% in AWP increased 62%.
Gross margin dollars generated improved by $94 1 million in fourth quarter compared with the same quarter last year, resulting from improved gross margins across all product lines. The gross margin percentage for BMD was 16, 2% up 320 basis points from the 13% reported in the fourth quarter 2020 BMD.
EBITDA margin was eight 8% for the quarter up from the five 5% reported in the year ago quarter.
The trajectory of commodity products pricing will continue to influence Bmd's financial results as we move through 2022.
However, AWP and general line products have historically experienced limited price volatility and we expect the firm pricing environment across those products launch product lines to continue in 2022.
I'm now on slide eight.
This slide makes obvious the substantial volatility in lumber pricings, we have experienced over the last six quarters.
On slide nine one can see similar pricing patterns for the random lengths composite panel index as we enter 2022 commodity lumber and panel pricing continues to be well above historical averages as strong demand and capacity constraints continue to create supply and demand imbalances in the marketplace.
We expect future commodity product pricing to be volatile with ongoing challenges with transportation and labor, having a meaningful influence on supply side uncertainties.
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 $48 2 million during the fourth quarter.
Counts receivable and accounts payable decreased with a modest seasonal deceleration of sales and purchases.
System with our historical patterns, we expect working capital increase is to use cash in the first quarter of 2022.
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 fourth quarter with $749 million of cash our total available liquidity at December 31 was approximately $1 1 billion, which reflects our cash and availability under our committed bank line, we had $445 million of outstanding debt at December 31, 2020.
<unk>.
We expect capital expenditures in 2022 to total approximately $110 million to $130 million 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 then ongoing federal legislation activity could increase future tax rates.
I am pleased to note that we returned $214 million of cash to our shareholders through regular in supplemental dividends. During 2021 successfully completed the log utilization center project at our fluorine veneer and plywood plant started up our Houston door Assembly operation expanded our distribution capabilities in the Nashville market.
And also recently announced additional capacity within our BMD network that Nate will speak to shortly.
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'm on slide number 12, the demand environment for new residential construction continues to be favorable supported by mortgage rate levels continuation of work from home practices by many of demographics in the U S, which we expect to continue in 2022.
February Blue chip consensus for U S. Housing starts is $1 6 million for 2022, and one $5 6 million for 2023.
In addition limited new and existing home inventory availability and the age of U S housing stock will continue to provide a favorable backdrop for residential construction.
Erin remodel spending.
Although we believe that the U S. The current U S demographics support that level of forecast at housing starts in many national Homebuilders are reporting strong near term backlogs labor shortages and supply induced constraints on residential construction activity may continue to extend bill times and limited activity.
In addition, the pace of residential construction and repair and remodeling activity may be affected by the economic impact of the cost of building materials and construction housing affordability mortgage interest rates wage growth prospective homebuyers access to financing and consumer confidence as well as other factors.
In wood products, we continue to enjoy strong demand and pricing momentum for AWP.
We also recently announced a price increase on AWP products that we expect to begin to see the benefit of the back half of 2022.
Capital projects will continue to focus on veneer production and support our AWP growth.
In BMD, our 2022 capital spending includes the Buildout and startup of our recently announced organic expansion projects in Marion, Ohio.
Walton, Kentucky and Lakeville, Minnesota.
We're anxious to add capacities in these geographies along with our suppliers to deliver a deeper and broader line of products for our customers.
We expect continued firm pricing in our AWP and general line product categories and are prepared and fully capable to capture the opportunities and mitigate the risks associated with expected price volatility in commodity products.
Regarding the environmental social and governance reporting Boise Cascade has a strong heritage as an ethical and responsible company.
Long term relationships truly matter to us.
People count on Us do the right thing.
We work with purpose to bring people products and services together to build strong homes businesses and communities that stand the test of time.
Our core values of integrity safety respect and pursuit of excellence shape, how we conduct business and are the foundation of our ESG journey.
When it comes to social and environmental responsibility, both our values and purpose are at the heart of what our associates do everyday in our communities where we operate.
Environmental stewardship is an integral component of our heritage.
We are committed to implementing and achieving sustainable practice through our manufacturing and distribution business processes encouraging the use of wood products, which are made from a renewable resource and store carbon as.
As a cost effective building choice gives us the opportunity to respond to the effects of climate change.
<unk> you to go to our website to learn more about our sustainability commitments across the <unk> spectrum.
Lastly, I want to again express my gratitude to our associates the driving force behind our outstanding results. In Q4, we will continue to make sure we use our operating and financial strength of the benefit of our customers suppliers communities and shareholders. Our balance sheet remains well positioned it gives us the ability to continue our pursuit of further organic or M&A growth opportunities.
These.
Thank you for joining us on our call today and your continued support and interest we would welcome any questions. At this time, Kevin would you. Please open the phone lines ladies.
Ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key Touchstone telephone question has been answered UC with yourself from the queue. Please.
Our first question comes from Paul with Bank of Montreal.
Good morning.
Good morning, Martin Kelly.
Hey, Kelly.
Maybe.
Maybe Wayne took the punchbowl when he retired but I guess not.
Well Im sure Wayne is listening in so Hello Wayne.
Sure.
I wanted to start on EWC first of all can you give us some sense.
What's the order backlogs look like in AWP, whether you're on allocation.
Yeah sure sure it's Mike here.
Excuse me and good morning.
Yes, yes.
Yes ill order files are still very very strong.
We continue to be on allocation as I know you are aware and has been for the last 18.
I think most of the two years and I would suspect given the situation we're experiencing with demand that that will continue probably at least through the remainder of 2022.
So I think it's a very good position as it relates to the EW demand situation going forward.
Okay and is it possible just on the price side in AWP to just help us think about the cadence.
Over the next four quarters.
Relative to kind of price increases that you have out in the market right now.
I heard you say low single digits Kelly in the first quarter, but it sounds like.
There may be more when we get into the back half of the year from these recent announcements.
Yes.
Thats fair Mark and so.
<unk> guided to low single digits for the sequential quarter coming up in the first quarter.
I would also say the same for the second quarter of 2022 compared to the first quarter 2022, and then as Nate referenced.
And I would say that that will largely get us through the previously announced price increases that we've had in 2020 in 2021, and then as Nate referenced.
We and others in the marketplace recently announced an additional price increase.
We don't expect to start to see the benefit of that until third quarter at the earliest 2022 and that'll probably take three to five quarters before we start to see that in our net price realizations in wood products.
Okay, and just the ballpark terms of approximately what's that increase looks like.
So what was announced was a range of 15% to 30% and thats, but thats going to vary by product and by region. So my guidance would be towards the low end of that range Mark and then it will filter in over time.
Hey, Mark it's Nate maybe mark.
I just wanted to maybe comment on that it's the announcement was.
Pretty recent and so we're still in the early stages of getting that kind of rolled out and communicated. So there may be some variability to that we'll have more clarity to it is that as we move forward, but I think as Kelly described there is a bit of a range out there today and again as we get that.
Firmly locked into place, we'll have a better view of that here as we move forward.
Okay and is it possible to.
Give us a little color on what you can do to grow organically and engineered wood.
Yes.
The veneer capacity as a part of that but also what you might be able to do from an M&A perspective, or whether you would do anything from an M&A perspective and engineered wood.
Yes, sure I'll take a stab at that.
Yes, obviously, we continue to look at the internal veneer production alternatives. So that would be we have a capital project. This year at our Chester plywood mill to replace an old dry up.
Can you draw has been neutralized, obviously will give us more efficiency and a slight increase in output. We have a couple of more of those that we can do.
And different locations across our system.
They take time and right at the moment, particularly with the availability of equipment that takes longer than we would normally anticipate but we will be doing is as it relates to other alternatives. We continue to look as we have done now for a number of years to see whether there are attractive alternatives in terms of M&A opportunities.
Obviously right at the moment with the way the market is performing in general.
Difficult to locate one of those that.
That we'd be able to execute on but we are certainly looking we are always looking to follow that particular Avenue.
And I have been asked previously about whether we would greenfield like an additional veneer.
Reducing facility again at the moment it is not.
The ability to finance it as more of an ability to actually be able to execute on anything in that particular area. The timelines are very long so.
I'm not saying, we would never do it but it would be very difficult to execute in the near future.
Okay, Alright, and then Nate.
Wondering just as we look at kind of how strong the fourth quarter finished.
Theres kind of Jackrabbit start that we've had here to the first quarter.
How do you unpack the elements of that is this just demand strength is it a different approach to kind of yearend inventory management by some of your customers and what role that east transportation issues play in yesterday, one of the Big OSB producers mentioned that they've had to shutdown some of their western.
Canadian operations, because of transportation issues, which which has to be painful to do at current OSB prices.
Yes, really good question Mark I think to me. It has had a chance to kind of reflect on the in the fourth quarter and really 2021, and what we're experiencing so far in 'twenty two it really tried to come back to the basics, which is okay. What is the demand environment look like and the demand environment has been steady and consistent single family multifamily.
<unk> really across all price points, all geographies repair and remodel has been strong and steady as well so on the demand side of the equation.
It has there really was no seasonal disruption if you will in terms of what to what took place and then as you described it the other side of that is supply and then what we've experienced on the supply side as challenges.
To your point logistics have been.
A significant issue in parts of our system, especially.
Ken on the rail system that you described has been well I think publicized.
But trucking and such remained a challenge as well.
The other component on the supply is simply production, whether it's our production whether it's raw materials coming into our production or finished goods that we distribute out of.
BMD.
Covid was a real challenge as we closed out the year and started this year. So in terms of that supply consistency and predictability.
That's been a challenge mark as well and so when you kind of put together that steady strong consistent demand signal that including I think optimism from the from the building community as we head into the deeper 2022, and you look at some of the.
Supply disruption in some cases chaos with with logistics to me that has kind of created the momentum and the energy thats in the marketplace today and again, we feel good about where the fundamentals are but at some point, we expect some of the supply related issues, especially that are COVID-19 and maybe weather related.
Obviously improve we expect to improve as we move forward.
Okay, Alright, that's good I appreciate that last question for me I mean, historically made the price of AWP has been pretty stable.
And the move that we're we saw last year and it sounds like the move we may see a little later this year are really.
Unprecedented.
My history in the industry can you talk a little bit about your ability.
To hold on to these butter prices going forward.
Yeah. Good question, Mark and you're right. It is I would say a bit on precedent in terms of what the industry has generally experienced relative to pricing, it's pricing has been stable and at.
And obviously over the last year.
Year or two the pricing.
Certainly increased it.
For me what has changed is maybe some again.
The ability to have limited impact on the supply side.
Given raw materials.
But also the very strong demand environment that we're experiencing today and as I look at.
An environment, where allocation as Mike described has been with US now for almost two years and we expect it to be stay tension that moving forward.
<unk> is obviously a pricing environment that we haven't seen in many many years.
My view is the other component is that when you look at AWP to actually compete with other materials and so as you look at items like for example, lumber or in some cases steel AWP, although prices have increased it still remains very competitive relative to the other alternatives that are out there in the.
So you're right, we're kind of on an unprecedented territory here, but I think FERC for me as long as things remain tension to up in terms of supply and demand I feel good about our ability to make.
<unk> maintain these kind of pricing levels moving forward.
Okay very good thanks, I'll turn it over thanks.
Mark.
Our next question comes from George Staphos with Bank of America.
Hey, guys. Good morning, congratulations on the performance and good luck coming up in the <unk>.
Market on a lot of the themes that I wanted to hit on but maybe just to piggyback first.
On veneer, what do you think you can do in terms of capacity growth this year and into next year without adding greenfield capacity and if you actually wanted to build greenfield capacity, how long would it take here or are we talking about 'twenty five 'twenty six that's what we're hearing in terms of some of the lead times on.
Saw milling equipment anyway at this juncture. So how would you have us think about that to start.
Yeah, Hi, George It's Mike Hey.
Hey, Mike.
Yes, So let me try to answer the first part first.
During this year.
I think this is sort of the way I see it rolling out firstly, we certainly need to get out of an issue as it relates to the COVID-19 situation.
Because even if we had all the veneer that we would like to obtain.
Don't have the people at.
At the moment.
So your guess is as good as mine, but let's say if we get through the remainder of the winter.
Spring and summer.
Pivot.
Just to pivot.
The impacts are.
<unk> then we'll look at obviously needing more veneer.
That is really the issue for everybody I believe they now and how particular sector. There is no more available, especially rate had been here.
And with elevated plywood prices.
Independent producers of EMEA, probably see that is equally attractive more attractive than supplying congratulated veneer to people like us companies right.
So I think very generally speaking al al output for the 2022 year will be quite similar to what we what we produced in 2021 with.
With the only caveat being that it might not be the same.
Proportion in terms of our two principal product candidate.
Hi, Julien.
Recognizing it's easy for us to say, because where analysts and you guys actually run company that few waved one and Covid was gone.
What would you actually be able to sort of add on a nameplate basis in terms of the near capacity recognizing it's unrealistic, but just to have some sort of frame of reference.
So if I interpret your question is how much capacity.
Capacity do we have in our system. If we had all of any of that were available is that would you like.
And as Youre, adding the drying capacity like Youre doing Manchester and elsewhere.
So the drivers that we're adding that will have a marginal increase very very small relative to the machine center capacity generally speaking.
If we had all the people that we would like to have and all the value that we need to maximize our throughput in every machine center that we had I think we could probably produce low to mid single digits in terms of additional volume.
Adding any additional machines, okay, because if we add more machines out as we can produce law okay.
Got it and then.
Recognizing youre not going ahead with this just yet.
You decided after this phone call. It was time to actually fill capacity what are we talking about in terms of lead times 'twenty five 'twenty six 'twenty four yes.
Yes, so if we were to build a facility that.
Generated veneer, so of veneer production facility, which would need to be an integrated plywood plant as well as to use them.
Yes.
Generally speaking those sort of projects in a non COVID-19 environment can be done in a round about two years.
Yes, two years.
Unfortunately, with the Covid situation in the supply chain challenges I think thats more like twice that link say three less than three and probably four years.
Understood I appreciate all the thoughts on that.
One more question from me and I'll turn it over recognizing this is going to be sort of up there with world piece or the cure for the common cold.
Because everything relies on earnings pricing your own stock price all of which are can be volatile.
How do you see capital allocation and the mix of it.
Yes.
Reflecting this year versus last year, obviously more capex, but how do you how should we think about that any sort of preliminary views on 23, which I know is really a long ways out and on value returned to the shareholder again any thoughts on how the mix might adjust and flex based on what youre seeing in the market. Thanks.
Yes, no. Good question, George So I would say our our strategy is still very much. The same in terms of how we think about it and first and foremost we're going to invest in ourself and our associates. So we do have the expanded capital program that we've referenced that Mike spoke to a few of those projects.
<unk> also spoke to some of the additional things we're doing in BMD.
We're going to expand that program somewhat.
We're going to continue to be acquisitive and try to grow the company in a disciplined and thoughtful way and then obviously, we're going to have a regular cadence of conversation with our board of directors to the extent that the M&A environment doesn't.
Fruitful then we'll figure out how do we best returning the cash to the shareholders.
As we've talked.
That could be share repurchases or that can be supplemental dividend.
The cadence of the conversation and how do we think about it is very consistent with the past George Kelly I.
David I'll turn it over.
Yes.
Our next question comes from Susan Mcclary with Goldman Sachs.
Thank you good morning, everyone. It's nice to join you today and congrats on a good.
Good morning Sue.
Morning, Mike.
My question is I appreciate that you outlined some of those initiatives that you have in BMD coming up for the year can you help us to perhaps further quantify.
The sort of expansion at that will actually translate into either into sort of revenues or volumes or anything along those lines and then I guess with that as you do think about that is that capacity expansion coming in what does it mean in terms of the operating expenses and just sort of the cost of running that business any changes that we should be aware or thinking of there.
Yes, So let me let me give you a little bit of insight on the cost of the capital programs that we have that are included in our range that we gave you and then I'll, let Jeff speak a little bit in terms of what these expansion give to us and we do have existing footprint in these markets and so how we think about that but.
In terms of the cost.
We've talked about.
Walton Kentucky for example, so that's a brownfield that we spent roughly $15 million in the first fourth quarter and we've got another $2 million to $3 million to go to build that out and get that ready to go in Marion we have a facility there a really good team, but we are somewhat constrained by a a lease.
To date, we have right now that is not ideal and so thats a greenfield we bought a piece of property and we probably have $10 million $10 million to spend to get that stood up and get it <unk>. If you will to be able to operate that like we want to and then in Lakeville, Minnesota, We had the opportunity. There is there is a 10 to 12 acre piece of property.
Directly adjacent to our existing operation there that we're going to spend $4 million to $5 million to again expand our our opportunities there in products and services and so I'll, let maybe then Jeff give you a little more color on how we how we think about what we can do with those expansions, Jeff Hi, Susan It's Jeff I would just tell you I'll just go through each one of these individuals we have on.
Nashville relocation we have done.
It's a significant opportunity for Nashville.
We're already starting to see some of that moved in and out of the Houston door shop, which is up and running that will take some time and door shops always do but again, it's a very significant opportunity for us Walton Kentucky.
We should be in there later this year much bigger footprint that is going to open up some geographies for us, though we have top I'm getting too so pretty excited about that Minneapolis is already.
Significant location for us, but it will open up more opportunity again, there and then Marion will be a great build out and will really help and I would tell you for each one of these locations individually, it's a significant opportunity to increase what they do but I'll also tell you. When you put it all begins the totality of BMD still kind of smallish numbers. So if you're just looking for it.
Staying on the total numbers you won't see it so much.
Got you. Okay. That's very helpful color and then my last question is when would you think about the relative pricing that we've seen for OSB and plywood coming into the year.
Is that differential in there and the fact that that's kind of shifted from where it was historically driving any implications for the volume side and also I guess has there been any shifts that you've seen in terms of imports and what that has meant in terms of volumes and demand for domestic plywood.
EPS.
Take that too in terms of the equation on plywood volume for us with this strong pricing environment.
As you are aware the way were hung together in terms of trying to maximize our veneer into <unk> production that story is very much the same for us so our plywood volumes will be consistent with.
Historically reported but yes, we are getting.
A very nice price lift from the lack of OSB and in some cases plywood is actually cheaper than OSB, which is certainly not the normal.
In terms of imports.
Year ago, I think it was something like 1.1 billion plus square feet of plywood came in from Brazil into the U S and that was similar to the prior year.
Its pretty lumpy in terms of how it comes in and that can be impacted at times bye bye.
Container availability and probably some of the same labor production challenges, we experienced but there is no reason for us to believe that that will.
Slowdown we expect.
Similar or.
Increasing amount of plywood imports to keep coming and landing on the U S, especially given the pricing environment that we have today.
Gotcha Okay.
Question is appreciating that you don't have perhaps as much exposure on the DIY side is as some others do but it does seem like within the pricing dynamics. We've seen it's been that consumer that DIY consumer that tends to sort of drive the.
The incremental volume that is.
It has implications for pricing when you look out and you think about that part of the market can you talk about what Youre seeing there is there anything that you are hearing from any of those customers or anything in the field that has changed or perhaps suggested that consumer and their appetite for lumber or is any different at <unk>.
These pricing levels than it was.
A couple of months ago or last summer or anything like that.
So it's Nate Jorgensen, yes, really good question on on the do it yourself audience and then what does that look like and again to your point given the experience maybe we had as an industry.
Last summer there is maybe some hesitation that can build at certain price points, what we've experienced so far in terms of.
The kind of the velocity on our.
Repair and remodel business has been consistent and strong and so we monitor that closely.
Obviously, our location level in terms of product mix.
That does vary a little bit across our system, but that's another data point for us and obviously, we've got a relationship on the <unk>.
<unk> side that we can see consumption on a on a more real time basis. So we so we are watching that carefully and closely and looking at some of the things that would perhaps impact the demand for the consumer.
And obviously, we'll make adjustments as appropriate but at this point in time.
Seeing really good consistency and takeaway from from from.
From that segment of the market.
Okay. That's very helpful. Thank you al and good luck.
Thanks, Joe.
<unk>.
Our next question comes from Kurt Yinger with D. A Davidson.
Great. Thanks.
Good morning, everyone.
Alright, great.
Just two quick ones on BMD for me I guess first are there any signs of material availability in the general line categories, improving there and my guess is no but are you doing anything different in terms of commodity inventory positioning or anything in the current environment.
Hey, Curt gesture I'll start with a general line.
General line AWP endures I'll put them altogether, there really has been no change in.
In the managed supply on that and in fact in certain instances I'll tell you. We're seeing some of what's available decreasing a little bit because of some production problems that are out there. So the challenge is still there completely as far as inventory on the commodities.
That's.
We are at some levels right now the risk reward you really comes into play and so we are absolutely looking at that all the time, we're looking at what we have on the ground. We're looking at what we have bought enrolling trying to position ourselves.
One thing we know about the commodity market at some point is going to correct and we want to be in the right position when it does.
Got it okay, that's helpful and.
Jeff maybe just sticking with you for the second one maybe just talk a little bit about the factors driving the upside to gross margins on general line in AWP is that real.
Pricing driven or any other kind of significant buckets within that and then how do you think about the sustainability of that I guess in light of the current demand environment.
Well.
It is the pricing has been driven by.
The demand has been very very strong supply is obviously pension dump and when you get those kind of factors going on you're able to extract maximum value out of it and so the pricing really has driven as far as being able to sustain it talking to our vendors and working with them closely with our customers.
It looks like it's going to be solved for extended periods of time and when we talk to our vendor partners. It doesn't look like we're going to see relief in their opinion until late Q3, possibly early Q4, and so the attention is going to stay there as long as demand stays the same pricing will continue in our opinion stay strong and possibly even move up a little bit.
So Curt I would add a little bit.
Okay.
The inflationary environment that we've experienced now for some period of time. It certainly stands out and <unk> results and you can you can you can see it and we.
And as we guided if you will in terms of some of the color. We gave in our comments the first quarter and probably the first half we expect to be to be quite strong all else being equal.
<unk>.
But we also need to recognize there.
Sure.
Where the commodity price environment is and the exposure, we have and others in the market have and could be some hesitancy as as.
Why are the price levels are and win win announced the transportation issue starts to solve itself.
There are mills with a lot of product waiting to be shift in how does that impact and influence the commodity price environment.
And as you know we don't we have exposure there and we are prepared and able and capable to deal with that but third quarter 2021 is not that far in the rearview mirror and so we do have we do have exposure there and so.
And maybe where you were trying to go is do we think the long term.
Your long term trend EBITDA margins look like I think it's really hard to.
To give you a finer point on that given the extraordinary conditions that we've experienced over the last six or so quarters.
Right right Okay.
It's fair.
Alright, well I appreciate all the color and good luck here in the remainder of Q1 guys.
Thanks, Gary.
Question comes from Reuben Garner with benchmark.
Thank you good morning, everybody.
Good morning.
Let's see so I wanted to ask some questions on the BMD side of the business. So.
The last two years, the gross margin profile of the business has been.
Lots or minus 14%.
I think historically it was more on the <unk>.
I don't know 11, five to 12 five.
Range can you can you help us kind of parse out what your gross margins have looked like or how they've trended for the different kind of subsets within the business. So we can try to adjust for the for the pricing environment.
And see what may be the new normal gross margin profile is for the business overall.
Yes, So let me I guess try to take it back down into three categories, we speak to commodity general lines AWP, so commodity as you're as you're well aware of Ruben certainly we get gross margin percentage expansion and an upward sloping environment and we get the opposite of that in a downward sloping environment. So we've.
Had.
We've had the roller coaster on both sides of that equation here in the last several quarters and so.
We've got a we got a nice lift as we exited 2021, and we're getting a very nice lift here as we start 2022.
General line and need to BP, we can kind of put into similar bucket because.
As a distributor when price increases are announced we're able to push those through the market.
Pretty quickly and so we see a nice bump in terms of.
Gross margin percentage expansion when those price increases announcements and our announced because we can push them through <unk>. So we get that and then we do get the EBITDA margin benefits.
From that as well that followed at the bottom line, even when those prices to stabilize so the value of inventory on the ground.
Increase is pretty quickly when you have those announced price increases Nate would you add any color on that and I think the key for me Reuben is.
In an environment that we've experienced folks at Alaska number of quarters here is pricing has been going higher across general line in AWP in that space.
Really good spot for BMD, because they get the benefit of that and continue to kind of build their margin profile as we as that flattens out than then obviously the storyboard changes a little bit there is some leverage but ultimately.
The lack of pricing movement will be that will show up within the BMD margins as well so.
Again, I think we feel good about what's in front of US here for 'twenty, two given what's been announced bolt on EVP General line and then obviously as Kelly described we will be managing and monitoring the situation closely on commodities.
Make sure that we obviously take full advantage of the upside, but manage our risk on the downside as well.
So just to be clear I mean are the margins that.
That youre seeing.
And the general on AWP.
Don't know if you've ever disclosed what those look like on the gross line, but let's say there I don't know 20 <unk>.
In this environment are those those are going to maybe return to a more.
Normalized level once we stop kind of having this bryan good period of inflation or.
Has there been I guess leverage and now the 20% or whatever number that is that the new kind of baseline for that part of the business.
Yes, Ruben it's made again I would say there is going to be.
Anytime there is a pricing environment, you have an opportunity to make adjustments and hang on to some of those adjustments on a long term basis, but clearly some of the momentum that we've experienced in BMD on margins as a result of the pricing action on general line at AWP.
That pricing action remains prices going up in <unk>, we will continue to get the tailwind with that as pricing realizations as they flattened out.
That will also again kind of reduce BMD margins as compared to an environment, where pricing is moving up so I think we'll see some lift.
And the new normal in terms of the higher prices.
But ultimately BMD the benefits with clear benefits they've received are part of the price increases are general line DWP and obviously the momentum we've experienced.
Fourth quarter as well as year to date on commodities.
Okay, Great and then.
Another question on BMD.
Want to make sure I understand this correctly so.
If we are in an environment kind of as we move through 'twenty, two and then into 'twenty, three where maybe the commodity prices.
To rollover to some new normal and.
The rest of the business flattens out how are the <unk>.
How would that impact your SG&A.
Selling and distribution expenses are those going.
Ill.
I guess could we see that.
Absolute dollars come down there or are those less flow tied to the to the pricing side of that business.
So I would say those those are going to be more so tied to the volumes.
That can come in and out and then and then transportation, we and everyone else are experiencing some higher costs. There just given the dearth of supply.
But I Wouldnt I Wouldnt tag it to the pricing environment it would be more volume in.
Supply chain inputs on transportation.
Okay perfect. Thanks, guys. Congrats on the ended the year and good luck.
The new 2022 outlook.
Thanks Ruben.
Our next question comes from Mark Wilde Montreal.
Okay.
Thanks, I wanted to come back and talk about labor a little bit can.
Can you talk with us about sort of labor costs on both sides of the business as well as labor availability and what kind of turnover rates youre seeing.
Yeah. Good question, Mark I think in terms of the.
Maybe starting with labor availability.
I think like many.
And the business community, we are experiencing challenges relative to labor and staffing.
And as we think about.
Our our company and what we want to get accomplished obviously our team is really a huge part of what we do so getting our labor footprint right has been has been continues to be a challenge again like I think many companies are experiencing and.
It's certainly an area of focus for us as an organization part of that is to make sure. We are a great organization and have the ability to not only attract talent retain talent and so to your point.
We've seen some.
Succession in terms of retirements and movement.
But I would say largely I think it's consistent with what others are experiencing in a very tight.
Tight labor market.
In terms of cost.
Labor costs continue to move higher.
As we think about competitiveness as well as some of the things that we've done in support of our organization whether its around.
Our compensation incentives some different things that we've done too.
To recognize the incredible work that our organization has delivered over the past year. That's certainly been part of our cost structure into 2021, and there is certainly a likelihood that some of those trends will continue into 2022, so as I think about kind of the risks and challenges.
Been a number of them over the last couple of years, but but having a stable consistent.
Wind organization.
Is that really kind of top of mind for me and part of that is just associated with the stamina.
All the different challenges that are out there not just at work, but at home and making sure again, we create the again the right environment the right experience to not only keep our talent, but to bring new talent as well.
Okay, just a couple of other ones on labor day.
What's been the effect of sort of all of this kind of turnover and challenges in getting labor.
Do you think the effect of that has been on productivity across Boise Cascade.
Yes, I think in terms of productivity when you have new people in new roles.
Or.
Maybe experienced people and new Accountabilities.
Curve associated with that.
But I think in terms of productivity and what we've been able to get done over the past year I feel really good about what we've accomplished as an organization.
In some respects the challenges our team space is just literally daily uncertainty of staffing.
Driven by Covid, so in terms of the productivity and performance and the results I feel very good about where we're at.
And that's been that's been a daily conversation a daily challenge across our across our organization.
I would say that when it comes to things that are really really important things like onboarding, new associates and bringing in a making sure they've got a good access and visibility to who we are our culture, our norms our expectation our values that's harder to do from a distance and so when you have working.
The environments that we have especially here at headquarters that could be maybe a difficult or a different challenge than we've experienced in the past so for us market. It is something we think about we talk about routinely and making sure that we stay incredibly well connected to our organization, especially as they are taken on new roles and Accountabilities.
That's an important part of where we're at today and obviously things that we need to do going forward as an organization.
Okay and then one last one on this note I guess all of US who whats Boise Cascade launch the industry. We know that this is not always an easy sector to kind of recruit.
<unk> to recruit and retain so I'm just curious in general terms.
What might you be doing right now.
Sure some of the benefits of this windfall with <unk>.
Long term employees beyond just kind of share ownership.
<unk> and Cascade.
Yes, Mark we've done a couple of things we put in place.
Obviously, we've got our legacy kind of programs around bonuses.
We're excited about what that will mean here soon in terms of payout performance.
We've done a couple of kind of one off.
Describe them as supplemental bonuses again to recognize the performance of the organization.
We've done that as well, but I think to your point in terms of how do you kind of recruit maybe end of this industry, which at times has not been.
Viewed us as the best place to be I think we as a company and an industry have a unbelievable story to tell especially around ESG and and the impact that someone can have coming into our organization in terms of helping.
Build homes repair and remodel I mean that is a to me.
An important.
Opportunity to contribute to the community.
<unk> differently than perhaps others.
<unk> abilities. So for us as we think about our ESG work and our commitments and what we're trying to get accomplished on behalf of all of our stakeholders. Our associates are part of that conversation, making sure. They understand what we're trying to get accomplished and again, our ability to retain and recruit talent I think is somewhat centered around ESG and so thats an opportunity that were worth.
As an organization.
Okay. It sounds good good luck the rest of the year guys. Okay. Thanks, Brian .
Our next question comes from George Staphos with Bank of America.
Yes, Hi, guys two quick east for me to finish up just recognizing it might be a little bit tough for us to model I. Appreciate your help on what should we should be thinking about for OSB costs into the first quarter.
The comps are interesting when you look back a year or even versus fourth quarter, but what kind of inflation or benefit might we see there on OSB for flange and then lock costs any thoughts that we should be considering as we're modeling for <unk>. Thanks, and good luck in the quarter.
Sure I get to answer those.
So let me do the second one first low cost I think it's fair to say that in the Pacific northwest and more particularly in <unk>.
Locations in Western Oregon on the coast in Oregon.
Costs have continued to increase.
At quite significantly even since last December .
So the numbers that I looked at at the end of January sort of indicated that we could see plus costs at least in the near future.
At least.
<unk> intends to percentage okay.
I won't go into all the ways and wise analyst unless somebody wants me to it but.
In the inland Pacific Northwest, which is sort of at least in Oregon and.
Eastern Washington locations.
Low cost they are not all of them, but a good part of them are actually tied to finished product pricing on a trailing basis.
So actually hitting the first first months of the year they were down relative to the end of last year. So.
Again very geographically dependent.
In the southeast in the United States.
No difference in Louisiana sort of flat to I would call it where we have obviously big operation.
Other locations in South Carolina, and Alabama, there has been a little bit of an uptick sort of low single digits for the most part.
But a lot of those things in the south have had to do with availability Judy weather constraints and the like.
Generally speaking in the southeastern United States.
I think the expression we use it there is a wall of wood.
And I don't think its going away anytime soon.
See sort of a continued escalation in the south.
As it relates to our <unk> costs.
We we buy OSB is on a contractual basis with sort of a trailing average so yes.
Costs have been significantly significantly.
Well pricing excuse me has been significantly higher for a while but it did go down and ratcheting back up again so.
Can't predict the future and I always say pricing, but I think if we just look in the reasonable near future.
The costs will be trying to sort of similar to where they were on a trailing basis and we'll see how the lead you guys in terms of indices and how that impacts our costs as we get through 2022.
Understood Thanks for that Mike.
Okay.
And I'm not showing any further questions at this time I would like to turn the call back to Nate Jorgensen for closing remarks.
Great. Thank you we appreciate everyones.
Joining us today for the update on Boise Cascade. So we appreciate your time and interest in support of the company.
Be safe and be well thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Sure.
Yes.
Okay.
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Okay.
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