Q1 2022 Boise Cascade Co Earnings Call
Okay.
Yeah.
Good morning, My name is Latanya and I will be your conference facilitator today at this time I would like to welcome everyone to Boise Cascade's first quarter 2022 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 order as they are received.
Wed like to 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 business prospects and anticipated financial performance. These statements are not guarantees of future performance and the company undertakes no duty to update them. Although these statements reflect management's expectations today they are subject to.
A number of business risks and uncertainties actual results may differ materially from those expressed or implied in this call for a discussion of the factors that may cause actual results to differ from the results anticipated. Please refer to Boise Cascade's recent filings with the SEC It is now my pleasure to introduce you to Kelly his senior Vice.
President CFO and Treasurer Boise Cascade. Mr Hill, you May begin your conference.
Thank you. Thank you Latanya and good morning, everyone I would like to welcome you to Boise Cascade's first quarter 2022 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 for our earnings call today I am on slide number three 2022 is off to a tremendous start with both of our businesses delivering outstanding operating and financial results. Our consolidated first quarter sales of $2 3 billion were up 28% from the first quarter of 2021.
Our net income was $302 6 million or $7 61 per share compared to net income of $149 2 million or $3 76 per share in the year ago quarter.
The first quarter of 2022 total U S housing starts increased 10% compared to the same period last year single family housing starts the primary driver of our sales volumes increased 4%.
Wood products reported segment EBITDA of $203 8 million in the first quarter compared to $110 4 million in the year ago quarter.
Wood products benefited from improved DWP sales realization in plywood sales prices compared to last year's first quarter.
Wood products continue to focus on manufacturing production levels in response to continued strong end product demand for our AWP during the quarter.
Building materials distribution reported segment EBITDA to $232 5 million on sales of $2 1 billion for the first quarter compared to $126 million of segment EBITDA on sales of $1 6 billion in the comparative prior year quarter.
<unk> results were favorably impacted by escalating commodity product prices during the quarter majority of the quarter, increasing margins across <unk> and general line products continued to be a consistent a key driver of beam at these outstanding results.
Tony will walk through the financial results in more detail and then I'll come back and provide our outlook before we take your questions.
I'm on slide four wood products sales in the first quarter, including sales to our distribution segment were $558 9 million compared to $432 3 million in first quarter 2021.
Nate mentioned wood products reported segment EBITDA of $203 8 million up from EBITDA of $110 4 million reported in the year ago quarter.
The increase in segment EBITDA was due primarily to higher AWP in plywood sales prices offset partially by higher wood fiber cost and other manufacturing costs.
BMD sales in the quarter were $2 1 billion up 29% from first quarter 2021 BMD.
BMD reported segment EBITDA of $232 5 million in the first quarter compared to segment EBITDA of $126 million in the prior year quarter.
The improvement in segment EBITDA was driven by a gross margin increase of $133 6 million, resulting from improved gross margins across substantially all product lines. The margin improvement was offset partially by increased selling and distribution expenses of $25 5 million.
Turning to slide five our first quarter sales volumes for LVL were up 6%, while sales volumes for I joist were down 9% compared with first quarter 2021.
Transportation constraints continued to hinder our ability to consistently move finished goods inventory into the marketplace in.
Inbound transportation issues for web stock also negatively impacted I joist production during the first quarter demand for AWP continued to be strong and our order files remain extended.
Pricing in first quarter for I, joist, and LVL were up 3% and 2% respectively compared with fourth quarter 2021, as previously announced price increases continued to take effect, we expect high single digit sequential price increases in second quarter 2022, reflecting pricing actions taken in early 2022.
Okay.
Turning to slide six our first quarter plywood sales volume in wood products was 317 million feet compared to 303 million feet in first quarter 2021 for veneer and plywood mills operated well during the quarter, allowing us to benefit from strong plywood pricing.
The $689 per thousand average plywood net sales price in first quarter was up 24% from first quarter 2021, and up 72% sequentially.
As we moved into second quarter plywood pricing declined our price realizations through April are approximately 12% below our first quarter average.
In addition, we expect second quarter plywood volumes of approximately 300 million square feet as our project at Chester South Carolina to replace the veneer Dreyer has commenced and will negatively impact near term production volumes.
Moving to slide seven.
Bmd's first quarter sales were $2 1 billion up 29% from first quarter 2021, driven by sales price increases as sales volumes were flat.
Byproduct line commodity sales increased 22% General line product sales increased 30% in AWP increased 54% gross.
Gross margin dollars generated improved by $133 6 million in first quarter compared with the same quarter last year, resulting from improved gross margins across substantially all product lines. The gross margin percentage for BMD was 18% up 290 basis points from the 15, 1% reported in first quarter 2021.
Bmd's EBITDA margin was 11% for the quarter up from the seven 7% reported in the year ago quarter.
BMD sales pace, thus far in second quarter 2022 remains strong across product lines, and we continue to benefit from the stability and strength of AWP and general line products. The BMD team has also done a great job of mitigating our exposure to the commodity price declines we experienced in April .
Yeah.
I'm now on slide eight.
This slide shows the ryzen lumber pricing during first quarter 2022, followed by sharp declines beginning in the second quarter as downside price risks created hesitancy across the marketplace.
<unk> has shown signs of stabilization in recent weeks as we move into spring building season.
Turning to slide nine we can see similar pricing patterns for the rent from the for the random lengths composite panel index, we expect future commodity product pricing will continue 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 $214 3 million during the first quarter, representing a seasonal use of cash the increase in accounts receivable was driven by strong sales in March 2022.
<unk> increased in both segments, particularly BMD due primarily to increased inventory valuations the.
The increase in accounts payable and accrued liabilities was driven by increased inventories and higher accrued rebates offset partially by employee incentive compensation payouts made during the quarter.
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.
Sure.
Turning to slide 11, we finished first quarter with $923 million of cash our total available.
Available liquidity at March 31 was approximately $1 3 billion, which reflects our cash and availability under our committed bank line we.
We had $445 million of outstanding debt at March 31, 2022.
We expect capital expenditures in 2022 to total approximately $110 million to $130 million.
<unk> and our capital spending range is funding to complete organic expansion in Ohio, Kentucky, and Minnesota, and a new dryer at our Chester, South Carolina veneer and plywood plant.
Availability of engineering, and construction resources and timing and availability of equipment purchases is expected to have an influence on 2022 spending.
Our effective tax rate is expected to be between 25 and 27%. We also estimate remaining between $165 $185 million of income tax payments during second quarter 2022 for estimated payments on 2022 income.
Yesterday, our board approved a <unk> 12 per share quarterly dividend and a $2 50 per share supplemental dividend payable on June 15th to stockholders of record on June <unk>.
After payment of the dividends and previously mentioned tax payments, our balance sheet remains well positioned to support internal growth initiatives as well as opportunistic acquisitions as we move through 2022, Nate will speak more to our avenues for growth shortly.
As we have demonstrated in the past if our cash exceeds the opportunities ahead of US we will utilize mechanisms to return cash to our shareholders. Our overarching objective remains to successfully grow our business, while generating appropriate returns on shareholder capital I'll turn it back over to Nate to discuss our business outlook.
Thanks, Kelly I am on slide number 12, the demand environment for new residential construction continues to be favorable supported by demographics in the U S and continuation of work from home practices by many of the economy.
We expect demand to remain strong in 2022 with April Blue chip consensus for U S housing starts at $165 million in.
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 and repair and remodel spending.
Although we believe the current U S demographics support the forecasted level of 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 remodel.
Italy and activity may be affected by the economic impact on the cost of building materials and construction housing affordability wage growth prospective home buyers access to financing and consumer confidence as well as other factors.
And wood products, we continue to enjoy strong demand and pricing momentum for AWP capital projects. We will continue to focus on veneer production to support our AWP growth, which includes completion of our Chester dryer project in early third quarter.
BMD continues with its steady execution of organic growth and is progressing well with its build out of our expansion projects in Marion, Ohio, Walton, Kentucky, and Lakeville, Minnesota the.
The beam team BMD team also continues to work a solid pipeline of additional organic growth opportunities in existing and new markets that we expect to share in upcoming quarters.
These projects will add capacity to our system in support of our customers and suppliers.
<unk> continues to execute at a high level as we navigate a fluid fluid market conditions. We expect continued firm pricing, our AWP and general product line categories and remain confident we will effectively manage impacts and capture opportunities associated with fluctuating commodity prices.
The extraordinary results of last year's second quarter, we will make our upcoming comparative results challenging, but we fully expect to deliver another solid quarter. When we speak again in the summer.
Our company remains incredibly well positioned and we will continue to make sure we use our operating and financial strength to the benefit of our customers suppliers communities and shareholders. Our balance sheet provides us great flexibility to continue our pursuit of further organic or M&A growth opportunities.
Lastly, I want to express my gratitude to our associates, whose can do attitude and customer focused mindset continues to make our tremendous results possible.
Thank you for joining us today, and your continued support and interest in Boise Cascade, We would welcome any questions. At this time Latanya would you. Please open the phone lines.
Certainly ladies and gentlemen, if you do have a question at this time. Please press Star then one on your Touchtone telephone again. Please press Star then one for any questions.
And our next question. Our first question comes from Mark Wilde of Bank of Montreal. Your line is open.
Good morning, Nate Good morning, Kelly.
Good morning, Mark Youre used to say no. Good deed goes Sun harvest and look at your stock this morning.
It seems to be the case, but just looking at the quarter I wondered if you could just help us unpack that decline in <unk>.
WP shipments at Sao.
Sounds like some of it just was kind of constraints from web stock, but but anything else would be helpful. And it was surprising to me given the fact that the industry is on allocation and demand is very strong.
Yes, Mark let me, let me just kind of teed up for Mike Brown, but to your point.
Demand signals remain steady strong and consistent Dan to your point the supply side <unk>.
Including logistics was really the challenge that might contain mercury, but Mike do you want to have additional comments on that yes.
Yes, good morning, Mike Thanks, very much for the question.
Yes, I think as.
Nearly every pointed out in the prepared remarks, and a nice comments, we certainly would have liked to have made more and obviously solid more quickly.
To get.
Get all the raw materials that we were looking for.
Yes.
The Wingstop stuff that we use comes from Canada, and as I'm sure you're aware there have been significant logistical issues north of the border.
So yes. It really was a question about availability of web stop and we certainly hope.
In the not too distant future that that situation will be resolved.
Okay, and then Mike just to kind of follow on that it seems like.
More than almost any company I cover you guys have really rustled with kind of COVID-19 related labor issues over the last six or seven quarters can you just give us some sense of.
How that's doing at this point because it wasn't something you called out in your release I don't know if that's a marker that it's actually proving.
Yes, Mark so.
Interesting quarter. So January actually was a terrible month for us in terms of Covid related activity, if you want to call it that.
But since then things have got markedly better.
Certainly wouldn't say that kind of it is no longer here, but when you when we look at our operations and you look at the weekly updates from each of the regional managers.
Yes.
The number of absentee.
The <unk> that we have now Judah 'cause it is I'd say at a lowest in and probably the last two years still some but almost zero so.
Maybe it was.
The process that we put in place.
But certainly we've seen a marked improvement in terms of.
Of the Covid side of things so yes.
That's really why we didn't call it out.
Okay, Alright, and then I wonder if you could give us a little more kind of granularity.
Where the Capex dollars are growing in both segments. This year I think that's the number that you're pointing to is probably the biggest capex year that you've had since you became.
Public company.
Yes, you are.
Right, Mark and Thats Fair and I would tell you. The we have a pretty big range. There you'll notice a $110 million to $130 million 130 is primarily aspirational given the supply chain challenges, we've talked about breakeven between the two segments a little bit for your wood products, we're targeting about $60 million for this year.
And to give you a few highlights on that and Mike can correct me if I'm wrong here, but we will get the Chester driver, we talked about that's probably $6 million or so that we're going to get spent this year to get that up and functional probably early third quarter.
We've also got a fair bit of work going in the southeast as normal to make sure we secure and support efficient veneer supply in our system so projects at fluorine.
Around some leg work Oakdale, some driver controls and infrastructure and then Alexandria, a few things to continue.
To improve our headline there so that's probably the highlights that hit for you on what products and then in BMD.
We hit on that.
In our comments, we hit on the three organic expansions, we're working so.
Our goal in Kentucky, and then our our Greenfield in Marion and then our brownfield and Walton, Kentucky that really is part of the broader Cincinnati, Ohio market. So all those three are active and probably combined were probably looking at around.
$20 million or so this year related to those projects that will get spent and then and then we've got a good amount of rolling stock that we're hoping to get purchased.
This year as well some of that is probably not going to come in as quickly as we would like but if you think about <unk>.
38 locations across our system.
And <unk> and trucks and trailers, that's a pretty sizeable number for us that we're probably hoping to get spent $25 million or so this year and then and then lastly, we can't forget.
Inflation and the impact that has on our capital spending across our system. So that's how I would summarize it for you Mark.
Okay, just one more on the capital side for either you or notes.
Have been.
<unk> added I think a few of these.
We're in Windows shops, and you've talked about sort of.
Other.
Kind of a unique site specific places where youre expanding your product lines. I'm. Just curious are you comfortable enough with like particularly the door and window shops that you you want to start to roll out strategy out a little more aggressively.
Yes, Mark it's Nate I'll, let me.
Take that one.
I think we.
And in terms of the the door the millwork side of things we we.
We like that business.
Obviously, we've grown that business and specifically in Texas with our two new locations there and we continue to look for other opportunities to grow that platform. So my view is that that'll be an important part of our growth story and BMD moving forward and I think we've got the right level of.
Support both from our customers and suppliers to continue to advance that conversation across other markets. So yes that is for me part of our our growth story and plan as we had over the next couple of years.
Okay, Alright, and then the last one for me.
Yes.
Rates going up start to slow kind of housing activity.
Would you expect to be able to see this are detected first night.
Yes, I think.
So theres, probably a couple of spots obviously, we have.
The privilege to have very close relationships with.
Not only our direct customers, but also the parts of the builder community and really understand what that demand signal looks like.
Also in the repair and remodel, but I think for me Mark the things that will be centered on us.
Cost of money and what's happening there, we'll be looking closely at inventory levels.
In terms of unsold inventory, both in terms of new and existing homes.
Those will be important demand signals that we will continue to monitor.
And I think it's <unk>.
Our expectation as well.
We feel good about what's in front of US here short term, but longer term I think we're going to stay.
Centered and focused on what the demand environment looks like.
Long term, we feel good about this industry and the fundamentals.
But also recognize the cost of money and some may be recessionary pressures might be out there that will have to.
To make sure we're monitoring and adjust as appropriate.
Okay. It sounds good I'll turn it over thanks, Nate Thanks, a lot.
Sure.
And our next question comes from Neil <unk> of Goldman Sachs. Your line is open.
Good morning.
Good morning, I don't know maybe is did she mean Susan Macquarie.
Good morning, Sue that is the name we expected.
Oh, I'm, sorry, I misheard her I'm, sorry about that will good morning, everyone.
Congrats on a good quarter.
I think my question is sort of thinking about this bigger picture.
It was the DIY market that kind of cause prices to come down and when we look at this year. It feels as if the supply demand environment is obviously to some extent a bit more disciplined perhaps obviously things on the ground are exceptionally tight it seems on the AWP side, and even just sort of a cross building materials.
Not only do we get in the summer how are you thinking about the overall sort of landscape and the ability to continue to see some of those volumes rise and maybe even on a relative basis supporting pricing as we move to the back half of the year.
Yes, Susan it's Nate good morning, let me I'll start.
And then ask the team to maybe fill in the blanks I think as we look at the overall demand environment and to your point I think the marketplace reflects on what took place in the third quarter of last year.
Whether it's the discipline is the right description, but I think there is more.
And our people are very focused on risk versus reward and I think of the market in terms of demand signal feels good steady consistent and we're expecting that as we now kind of climate to the to the <unk>.
Spring housing season, but I think also people are somewhat measured and making sure that.
The risk reward equation makes sense and so I think that will be I think a key theme as we go through the course of.
2022, and frankly that matches up really well with.
Who we are and what we do obviously I think there'll be perhaps a bit more even dependence on on wholesale two step distribution on a range of products and services as again people tried to manage those risks and I know, Jeff and our bnb team is really well positioned to support customers as they say.
You kind of navigate some potential changes in the marketplace. So again overall, we feel.
Good about where things are at and again, we see and feel the market again, managing that risk reward as we go into and to the latter part of second quarter and third quarter.
Okay. That's helpful color and I guess, you know when we do think further out if we do get a bigger than expected slowdown in housing.
Thank you sort of turn as we get into next year.
Think about the stickiness of some of the pricing that has been put through I guess, especially on the AWP side, but just as you think about your distribution.
Arm the pricing that those manufacturers are passing through how do you just in general think about the sustainability of some of the inflation that is moving through the channel today.
Yeah, I'll start and then Mike and Jeff and Kelly can jump in here as well I think in terms of.
Yes.
Obviously pricing on some products and services comes out of the supply and demand balance.
And I think we should we look at several of the categories that we're in today things remain very tension in terms of supply and demand.
And essentially under allocation so.
There would be need to be probably a reasonable adjustment on demand.
Or increase in supply for that equation to change.
Think there is still in the marketplace on those products and services.
They desire to purchase product and.
So we don't see any kind of hesitancy in the short term.
Any of those items I think as we if we see some sort of kind of disruption on the demand side.
I Love, how our organization and business is positioned to compete in that environment.
We have I think.
And so the talent the resources and the capability to grow.
Growth and gain share as appropriate.
Should those market conditions allow us to take advantage of maybe a little bit lower demand environment overall and more steady supply as a result so.
Again, it's something that we're watching carefully.
But things settle down in terms of the demand side of things again, we see an opportunity to pivot in terms of how do we.
Again play offense and continue to work to grow our position.
Okay. That's great color. Thank you and then just squeeze one more in which is I know last night, you announced a supplemental dividend along with your quarterly dividend.
Can you just talk a little bit about capital allocation and when you just think about the outlook for the business is there any interest at all in doing some buybacks or how should we think about shareholder returns and just capital allocation in general.
Yes.
So this is Kelly so our script is very much the same in terms of how we think about it first and foremost investing in ourselves.
You've heard about our expanded capital program that we have and then we signaled that there is a number of other organic opportunities in BMD.
You are in the pipeline that we hope to speak more to in the future as those come to fruition.
And then we want to we want to keep that modest quarterly dividend is sustainable through any business cycle. After that we will look to to grow whether that's M&A or is that further organic projects like we've spoken to and then we'll balance all of that up against whats our balance sheet looks like and our cash position and how do we return it.
And you've heard us speak many times, obviously, the two levers there are share repurchases and supplemental dividends.
And so your question specific to share repurchases, we view that more as.
An opportunistic buy for us we want to we want to buy those.
At a meaningful discount and so at this point, we the cadence of the conversation continues with the board and we've elected we elected to do a supplemental dividend this time around.
Yeah, Okay, and I assume the supplement sort of reflects your confidence obviously in the outlook I mean.
We're still only in the first half of the year, but it's good to see it coming through.
Yes sure. Yes, we are confident for 2022, we feel really good about our balance sheet and really good about some of the things in the pipeline for bnb for sure.
Okay, well great. Thank you for all the color and good luck with everything.
Thank you.
And our next question comes from Kurt Yinger of D. A Davidson your line is open.
Great. Thank you and good morning, everyone.
Sure Kurt Good morning wanted to start out on AWP, and hoping you could talk a little bit about.
How many quarters you think it will be until the Q1 price increases are kind of fully implemented.
And then second can you talk a little bit about where order files currently stand and just the level of visibility on the volume side there.
So I'll take the second part first order files and I think youre talking specific specific DWP theres still extended.
We can sell what we can make assuming we can get wheels underneath it. So the demand side is strong.
Pricing.
I referenced 10% sequentially second quarter compared to <unk>.
I would say and Thats.
With the early 2022 price increase that we announced.
The few as if you will in terms of the the.
The different mechanisms that kind of deferred that pricing realization that window is a little bit shorter this time than it has been in previous increase announcements and so we expect we expect high single digits.
Each of the next two sequential quarters and then after that we think barring any future increases.
Pretty well data everything realized at that point.
Got it okay. That's helpful. Thanks Kelly.
Then I guess on the BMD side.
I was hoping you could talk a little bit at a high level any kind of notable changes in demand patterns across the different customer cohorts and then over the last month and a half or so home center demand has kind of been cited as the big driving force in terms of the short lived correction in commodity prices.
<unk>.
Has that turned around more recently and is that a product specific kind of phenomena or.
Consistent with what you saw and maybe other general line categories as well.
Hey, Curt this is Jeff I'll tell you on the demand side for all products is strong across everything.
It absolutely is it hasnt abated at all and then when you talk about the home center.
Think of what we kind of break what goes through there a little bit the professional remodel or business that demand has been very strong as it remain that way, but as prices ticked up the do it yourself or is that seem to be where it slowed down a little bit and then prices corrected and you ask them to pick back up I, though from where we are seeing it absolutely has since things corrected.
Got it and just that kind of price sensitivity is I guess, mostly isolated to commodities then youre not seeing that same type of pull back in.
Other categories that pricing is still up pretty significantly year over year.
Yes, no it's definitely been on the commodity side and it was just very similar to last year when the commodities go up to the levels. They did it hit the wall and do the same thing this year for the do it yourself for in particular.
Got it okay. That's helpful.
And then.
It sounds like the rebuild that Scotch mill is kind of complete after the fire last year is that something that could provide you guys. Some relief in terms of third party veneer supply or not really.
Good morning could it's Mike.
We have a longstanding relationship with the folks at Scotts <unk> and you are correct.
The information I have is that the green end project.
Pretty much.
And finished they are running more or less agile very close to the production levels that.
They had before the fire.
We were actually able to to assist sponge during during the rebuild phase by supplying them with some of our grain veneer.
So we won't see a tremendous increase in the supply of veneer from from the Scott Schaeffer, such plywood company.
Even though the green ends up and running and it's more more swapping.
They need that they will pale themselves for the venue that we were sending them.
From one of our facilities, but it will certainly help a little bit, but it's not a major or significant increase in availability of the need to us.
Got it Okay. That's helpful. Thanks, Mike and then just my last one.
On capital allocation.
And maybe M&A, specifically could you just talk about kind of the strategic priorities and maybe focus areas with M&A and.
Just whether you think there is a possibility of putting some cash to work with deals this year.
Yes, Curtis Nate let me I'll take that one I think as we look at.
Our wood products.
Opportunities and specifically our <unk> franchise, I think that we're still centered on.
How do we grow our veneer capabilities and obviously, that's an important part of it has been an important part of who we are and will continue to be going forward. So we want to continue to look at how do we strengthen our capabilities there and continue to build upon the platform that we currently have in place so that remains.
An important opportunity.
I would say maybe behind that within wood products week, we tend to look at maybe the opportunity around mass timber.
That opportunity.
Opportunity look like that's probably a more of a long term opportunity for us in the industry, but that is something that we continue to.
To work in and better understand in terms of what our fit and where our position might be in that opportunity moving forward.
For BMD.
Have it probably broken down into three pieces, one is around how do we grow and support our existing footprint and we have been doing that in several examples over the last couple of years in terms of expanding our capabilities and capacity.
Part of our growing business as well as our growing product mix and vendors that were supporting.
Probably the second element is there are in BMD is there are markets today that we serve but we serve from a distance.
An opportunity to get a little bit closer to market to increase our presence and our service is something that is going to be continue to be important for us as we move forward.
And then finally, just maybe circle back on the question I think Mark had just on our door shop in our millwork franchise that remains an important part of how we think about capital and growth.
For BMD as we move forward so.
Those would be the probably the three components within BMD and again as we described earlier, we are well positioned to.
Financially work those opportunities and I think we are again really good clarity and focus on what are the key growth levers that we need to be working across both in wood products and BMD.
Okay, Alright, well I appreciate the color Nate and good luck here in Q2 guys.
Thanks Kurt.
And our next question comes from Reuben Garner of benchmark. Your line is open.
Thank you morning, everybody.
Excuse me.
A couple of questions on <unk>.
If I could.
I guess first can you talk about I think.
You mentioned in your prepared remarks, how the business held up pretty well here recently with the correction can you can you put any.
Numbers on that any way you could kind of give us an idea of where the gross margins been quarter to date in the second quarter kind of accounting for that.
Commodity correction.
Yes sure good question Robin good morning.
So let me maybe maybe start.
With the.
A little bit of reminder of Q1, it was kind of the quarter of a trifecta. If you will when you think about our gross margins, we had escalating commodity prices for the majority of the quarter and we continue to see really really good margins and margin growth across our AWP and general product line. So we had the trifecta that really got us to the.
The 18% gross margin. So then your question about.
Okay tell us tell us how you're doing so far in the second quarter, our sales pace as is really consistent with first quarter. It's stayed very strong.
And.
And the margin goodness, we did for media VP and General line remains and is probably getting a little bit of escalation. There and then we've done a really good job.
April is kind of managing and mitigating the negative impacts of commodities and we've essentially worked through the high cost inventory and has it has it caused some some margin squeeze in April yes, absolutely, but it's.
It's nothing like we saw if you remember year ago third quarter.
The duration of that decline as well as have the steepness of that decline is nothing like we've experienced here in the second quarter and we've found a flat spot here in the.
And the last several weeks in commodities, so I would tell you.
Can't give you a specific number but I would tell you our gross margins through April .
Are much much closer to year ago second quarter than they are to a year ago third quarter.
Perfect that's very helpful. Kelly.
Within BMD are staying within BMD the general line.
Sure.
We're.
Very strong again.
Can you talk to us about how much of that 30 points of growth is driven by price.
Versus volume and then.
Any specific product categories to call out that's allowing you guys to grow.
Allowing you guys to continue to grow that fast on top of what are increasingly difficult comps.
Hey, Reuben this is Jeff on the on the on.
On the growth.
If you think about the lack of supply and how difficult it is.
<unk> has been 100% driven on price there is no volume growth there.
<unk>.
If we could get it we know we can grow it.
And then there isn't a product line on the general line that we're selling that is not in that situation right now is still pension.
Kind of across the board on everything.
Okay perfect Thats interesting and then last one I think if I could sneak one more in the engineered wood.
Business within BMD continues to grow faster or it looks to me to be continuing to grow faster than your E. W. P business from a manufacturing standpoint, how much more runway do you have there to sell more internally or through your through your own distribution.
Hey, Reuben, it's Nate maybe I'll take that one I think in terms of.
The overall <unk> category.
Obviously it.
Remains under allocation and so again as we've described earlier, we expect that scenario to continue.
I think when we when you look at that.
The internal consumption by BMD as compared to a product that is sold to independent third party distribution a bit of change in terms of our district external third party distribution footprint in terms of the relationship. So that when you look at comps that I suspect as part of the equation, what we've tried to be as good.
Consistent and predictable in terms of all of our relationships internal and external when it comes to AWP and an allocation so.
That would be again, probably a bit of a channel change last year, that's contributing to that that difference as opposed to taking a kind of a material different view of how we think about it.
Internal versus external distribution.
Understood and sorry, I said last one but I want to sneak one more small one then if I could so if I have the numbers.
Correct here.
Was the first quarter for a while.
Volume growth for plywood and I know thats been.
Using the veneer for more.
Valuable.
<unk> are more valuable means internally anything unique about the first quarter there.
Was that just a one off.
Can you I guess any color you can provide would be helpful.
Yes, it's Mike yes. So.
I think the number was.
Rounded up with $317 million. They apply would if you look back at 2021, we had.
One quarter that was with Cigna.
Significantly more than that was 337 and several other quarters that we're right around 305 310, so as a general rule of thumb.
We sort of tend to run around the 310 million feet of plywood each quarter, sometimes a bit more sometimes wait list until we run.
You can imagine, but theres no sort of structural change the way, we're doing business, we weren't deliberately trying to put any additional fiber into plywood compared to AWP, because we just don't run our business that way. So it was just one of those sort of series of events that led to us, making a bit more plywood as compared to for example, the prior quarter.
Which was I think 305 from a member correctly.
Nothing structurally different I promise you.
Perfect. Thanks, guys I just wanted to clarify it congrats on the quarter and good luck going forward. Thanks.
Thanks Robyn.
And our next question comes from George Staphos with Bank of America. Your line is open.
Hello, everyone. Good morning, how are you doing.
Nice quarter I guess, you can take the rest of the year off if you'd like.
Okay.
It probably wont happen.
I wanted to hit a little bit on AWP and fly.
If possible you talked about Florida, and you talked about Alex you, obviously have the Chester project.
Okay.
In broad strokes, if you want to be granular what will that do both to your veneer in AWP.
Production in terms of growth.
What does that add to you on an annualized basis looking at 'twenty, three and beyond and should we expect kind of Relatedly and.
Imply are you running close to 303 <unk> since the project at Chester won't be done until early <unk>, where will you see better production there.
Okay, I'll start and of course, this will chip in as appropriate judge.
No.
Let me start with chip, Okay. So yes.
So the project at Chester is a very small dry eye. We have three drivers there is the smallest of the draw is.
And I think they believe will be out of service.
One quarter.
So because of the size of that.
The total gross impact on veneer production at changes that are going to be putting that draw areas sort of like 10 million feet that will lose its not very much anticipate scheme of things right.
Thanks again.
As Kelly pointed out.
Our total production will be down a bit this quarter, because we did something else suggested we actually took the whole mill down for three weeks, because we had a boiler project.
So during the during the month of <unk>.
April .
I think did lead to millennium and you run for one week, okay. So.
So that will have a more significant impact than I think kellys comment was more along the lines. We should expect that our plywood volume in that in Q2 will be more like 300 that compared to 317 that we saw in Q1, right and that's taking all that stuff into account.
As it relates to <unk> I will make a significant impact on our ability to produce more AWP. The reality. Unfortunately in some respects it is not.
This small dryer in particular.
We run mostly not always but mostly run the need through that we call strict NDA, which actually goes into plywood not into AWP. So it doesn't give us a huge lift even though it will be a new driver theres not a significant lift entitled stress related veneer production from this project.
You asked about <unk>, which is an ongoing set of projects now for a number of years.
But mostly I would say complete.
And.
We have some upside there if you will potentially in the future because we have another small draw here that we are thinking about replacing should we ever be out talking to the parts to do it because they know about two years away. If we look at them. So.
Again, nothing that I see is a significant step up in AWP production from internally generated veneer.
The challenge as you have heard me say several quarters at least.
Is that we do buy some veneer on the outside.
And that has been particularly challenging in the Pacific northwest.
Of recent times.
I would add that log prices are very high.
And some external suppliers of EMEA.
<unk> challenged and as a result, some available availability has declined and to a little bit we buy <unk> and here in the south as well.
And as I've mentioned earlier, we'll discuss green and project.
Being completed might be there'll be a little bit of additional third party veneer available, but in the scheme of things. This is sort of like a very small potential increase in that nothing really.
Of any significance.
So Mike I mean, as you look out over the next couple of years.
I mean should we assume your ability to produce is basically going to be just a.
Around the lines of creep productivity, 2% to 3% if that's the right number I don't know what the right number would be.
But that would basically be the limit.
What we could see you produce and hit the market with.
So I.
I guess I'll answer that question like this George.
We believe if we could get all the people we need.
So all the days of the year.
And we could get all of the veneer that we need to feel our current installed capacity.
We might be able to produce about 6% more entitled.
That's the sort of the number that we have used regularly now for some period of time.
The challenge is can we get all the people all the days.
And to the point I just made previously around can we possibly buying some external veneer that would allow us to crank up production to sort of maintain our nameplate capacity.
And that's obviously, what we're trying to do I will comment on your question around productivity.
So if you go back more than a decade.
About the time of the great recession.
If you look at the productivity of our machines and as we've really squeezed most of the blood and less time.
And machines.
And really really really improved tremendously because the work of al.
Our folks.
We might get a little bit more because we are working on tuning some things and changing out some parts, but it's to your point.
Very low percentage points point here a point there it's not like we like at 6% just additional by productivity increases.
Understood.
The rundown there Mike.
Can you talk a little bit about where you see inventories in the chain right now.
There is a sort of standard narrative.
Most of the year is that inventories are lean maybe inventories are a little bit high in Canada.
But that tension was allowing the market to do what they've been doing are you seeing any build in inventory or are you seeing this continued.
Destocking effect.
Buyers ultimately expect prices to head lower which would make sense and so therefore, they're not really stocking up inventories are low and therefore, you wind up with this continued tension in pricing and a good way from your vantage point, how would you how would you frame it given that very broad question.
Hey, George This is Jeff I would just say overall overall in general I believe that the inventories in general are lean and if you think about the general line, the AWP and even the mill work they've all been strictly allocated tough to get a transportation issue. So that so that piece of it is definitely on the commodity side with the risk reward in where the numbers.
Warn people, we're definitely waiting for correction I would tell you that still seems to be lean out there right now as people are looking to buyback in <unk>.
We've seen that from the demand that comes out of our warehouse.
So there is still if you look at where the number of stops this time and re corrected. It's there's still a significant number. So there is still risk out there when you look where we're at right now price wise.
Okay.
Thanks, a lot your two last one is on capital allocation and I'll turn it over.
So back to the question of the supplemental and again congratulations on the way you're allocating capital.
And I know, it's tough to predict we're not really asking you to do that but what factors would you need to see come into play.
For you to consider another supplemental this year because at these rates even with the regular dividend even with the Capex of 110 to 130 youre going to have excess cash so.
I recognize there are other things other growth projects potential M&A.
What would need to happen time wise and consideration why such that you would consider another supplemental and then my other question and I'll turn it over.
As you think about mass timber in CLC would you consider could you update us on your thoughts about whether you'd be willing to partner with anybody in that area and is there.
Any way to somehow.
Get.
Some benefit from the whole credit concept, which seems to be also driving people's interest in mass timber recognizing that wanted to cut down and put into.
Stud credits.
Credit is no longer there.
It was in the harvesting or the deferral, but how do you partner with people around getting more of an ESG.
Credit.
For what you do and in turn how you might be able to use that in terms of applying capital to that business. Thanks, guys. Good luck in the quarter.
Yes, Thanks, George I'll take the first part of your question around capital allocation and you hit on a lot of the things we talk about and think about in terms of when might we consider another supplemental dividend I would tell you. We certainly want to have more line of sight in terms of 2022, just in terms of operational performance and then.
Again, as we've alluded to there's a number of things in the pipeline on BMD and a lot of organic projects in particular that we're working on and looking at and then the inbound activity is still pretty active so we we want to.
We want to stay patient and flexible and kind of see how those events rollout over the year and if we end up getting towards the third.
Third beginning of the fourth quarter.
And some of the organic or M&A things don't come to fruition and we feel like we have more cash than appropriate then we'll have that conversation again with the board around supplemental dividends or stock repurchase I guess, I'll turn it to Nate or Mike to address the.
The CLC mass timber question.
First things first George on the Putney Putney question.
We're actually doing that already.
And so the behind the scenes obviously not.
Out there in the senior market people like to talk about CLC as much as anything else.
We have.
A group of folks.
A gentleman by the name of Dennis spot.
That has been working in this space now for going on three years.
We don't produce.
Lot of material that we are able to.
I'm going to show that we can put into these sorts of projects at the moment, but close about allocated situation on.
I'll now traditionally DWP.
But we are involved in a small way already partnering with third parties to put together the supply of raw materials on a number of different projects.
So as a general statement, we are doing it and we will continue to do it and if there is an opportunity that presents itself.
During scale then.
We will certainly look at that very very very closely.
The second question part of your question I believe was around.
The carbon credits item and how that fits into ESG in general.
And how you fit.
Spit balling can be quite honest with you a little bit here, but how you could somehow use that to stimulate demand and to some degree benefit that benefit from that value somehow.
In terms of ultimately the capital that you would apply as your partner in the business and hopefully down the road and grow it.
Okay.
This is a bit like you did this will might not be the totally fully fill it through agents.
Thanks, Jim.
My view, a personal view on the carbon credit side of things as it relates to mass timber it could become a thing over time.
But it's sort of an add on as opposed to the coal component of why you would do mass timber.
So again, if we can find a way to either use some of our traditional products or develop new products that we can put into mass timber and partner with other folks there.
Might be an additional upside premium that comes that falls to those that produce.
Because of the carbon credit realization.
I think were pretty good.
Early days of trying to find what that looks like.
So I'm not sure I'm quite gain to tell you how much that might be when it is and what it might look like.
I'm going to hedge my bet since I will be taking a closer look at that time, but I'm.
In my opinion that that somewhat in the future and not the copano kind of justify of mass timber buildings, maybe George maybe just hey, Nick sorry.
Quick thought on that is as Mike described is.
As you think about.
Competing against steel.
Steel and concrete the story is exceptional and as Mike described not just on the carbon side, but other elements in terms of construction and flexibility in design. So we see that storyboard continued to build across the industry as Mike described it's probably measured in multiple years, just given where things are at but I'll, but ultimately we feel.
Good about.
<unk> ability to compete and win against some of the alternatives of steel and concrete.
I appreciate that thank you. Thank you Mike talk to you guys. Soon thanks have a good quarter.
And our next question comes from Mark Wilde of Bank of Montreal. Your line is open.
Yes, I just back over on.
Building materials distribution I'm, just curious how is the availability.
Other products doors windows roofing other things, where we've been hearing about shortages is that improving at all at this point.
Or this is Jeff.
The door side is.
On strict allocation on the exterior doors and has been and in fact, if anything is the allocation got tighter and now theyre working hard just to try to get back to the allocated levels.
So that's kind of the same in on the roofing side, a little bit that we're in it's been incredibly difficult as well there has been.
No change in that whatsoever.
Mark It's Nate maybe just another quick comment on.
Yes.
Other products and services in some cases that we don't represent or distribute I think are having an impact on.
The overall capability and capacity of our industry and so.
Some times its regionally.
Specific but I think today in certain markets, it's garage doors and again, we don't do anything with garage doors, but it isn't limiting perhaps what the overall capacity for the housing industry is and I think we again, we're kind of in some cases running from bottleneck bottleneck.
On both supply and services. So that's an element that has been with us for a period of time and we would expect that that storyboard likely to remain as we go through the course of this year.
Yeah, Okay, well along those lines.
I wondered if you could just give us some update on sort of.
Both.
<unk> pricing in the south and West and then any availability issues with other inputs, particularly things like resin.
Our specialty resins.
Yes, so I'll start with the second one first reasons.
Thankfully, we have tremendous partners in that particular space.
So while there were some challenges going back to ice storms and that will take some time ago.
I'm very happy to say that our patented and deploying.
As with resin.
Yes.
Yes, we had to shut a few things around here, there and everywhere, but we didn't lose production because of a lack of rising supply side. This opportunity to thank thank my original partners because they did a great job.
As it relates to log pricing log pricing has gone up there's no doubt about that in the SaaS. There has been some I would call. It a relatively small incremental increase Q1 to Q1.
I'd say sort of mid to low single digits on an on this some of that has to do with winter as always it's been there's been some challenging weather weather situations.
I guess, we'll see how that pans out over the next little while but it is a very general comment a little bit of increase in the south but.
Nothing like the order of magnitude of sort of increases we've seen in the Pacific northwest.
So generally speaking.
The increases in the west has been significantly higher I would say, yes sort.
Sort of.
Compared to Q1 of the prior year.
Not quite 10%, but in that order of magnitude.
The challenge that we have seen is.
Has it.
Has continued into Q2.
The last set of data that I looked at sort of indicated that.
The prices that were having to pay a full day everyday but percent certain sales will the purchase of certain certain styles of timber.
It kind of all time record highs.
And that's a bit of a challenge for us they are challenged for the whole industry to be honest.
And there's a variety of reasons behind that but.
I think as we move forward.
You will start to tail off a little bit, but I don't see them sort of dropping immediately back to sort of like the historical levels. So.
Sort of sustained high and low cost for a period of time.
Okay. Nonetheless, one I had was just kind of going back to something George was asking about in terms of you know.
Partnering up in the.
Mass timber area I'm just struck by the fact that we're starting to see some fairly innovative European companies invest in the wood products business over here and it seems to me.
The wood products companies in Europe have been generally.
At the front edge of some of these these new engineered products and I just wonder whether.
You would seem to be a pretty valuable.
Entree into the market channel to the market for companies like <unk> and others as they as they start to build out here.
Any thoughts on that.
Hey, Mark it's Nate I think when you look at the.
The mass timber opportunity here in North America, and then to your point whats happening in other parts of the globe.
Europe is well ahead of us and they've been they've been building with mass timber for in some cases decades. So I think in terms of maybe what our level of optimism and confidence about that being a relevant and capable solution moving forward. We do look and have spent time under better understanding what the what the European market.
It's done so.
Not surprising there perhaps are Europeans that are looking to expand their capabilities to other parts of the world, but I think part of that momentum has certainly been centered on again in some cases decades of experience.
In Europe , where they have proven mass timber.
<unk> can be a very competitive solution relative to steel and concrete.
That's not a surprise and that's something again, we continue to learn from not just what's happening in North America, but it happened across the globe.
Okay, Alright sounds good good luck in the second quarter and through the year to date.
Thanks Mark.
I am showing no further questions I would now like to turn the conference back to Nate for closing remarks.
Okay, great. Thanks Latanya.
Again, we appreciate everyone joining us today for this morning's call an update and we appreciate your continued interest and support of Boise Cascade with that please stay safe and be well. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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