Q2 2022 Boise Cascade Co Earnings Call

[music].

Good morning, My name is Jonathan and I will be your conference facilitator today at this time I would like to welcome everyone to Boise Cascades second 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 one one on your telephone keypad questions will be taken in the order. They are received 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 <unk>.

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 these of the factors that may cause actual results to differ from the results anticipated. Please refer.

To Boise Cascades recent filings with the SEC. It is now my pleasure to introduce you to Kelly Hibbs Senior Vice President CFO and Treasurer Boise Cascade's, Mr. Herbert you may begin your call.

Thank you Jonathan and good morning, everyone I would like to welcome you to Boise Cascades second 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's from 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. In addition, our second quarter press release and fully revamped investor presentation are available at the Investor Relations section of our website I will now turn the call over to Nate.

Thanks, Kelly and good morning, everyone. Thank you for joining us for our earnings call today I am on slide number three as.

As recently announced we completed the acquisition of the coastal plywood company and I'm pleased to welcome our new associates to the Boise Cascade team, we will provide additional details on this transaction following the discussion of our financial results.

Our consolidated second quarter sales of $2 3 billion were down 7% from second quarter 2021.

Our net income was $218 1 million or $5 49 per share compared to net income of $302 6 million or $7 62 per share year ago quarter, both of our businesses continue to operate well during the second quarter.

Our second quarter 2022, total U S housing starts increased 3% compared to the same period last year multifamily starts drove the increase as single family housing starts decreased 3% compared to the prior year quarter.

Wood products reported segment EBITDA of $167 8 million in the second quarter compared to $227 9 million in the year ago quarter Wood products results were impacted by lower plywood sales prices as well as higher per unit cost due to lower plywood at AWP sales volumes.

However, improved DWP sales realizations help mitigate these negative effects when compared to the prior year quarter.

Building materials distribution reported segment EBITDA of $161 million on sales of $2 1 billion for the second quarter compared to $212 3 million of segment EBITDA on sales of $2 2 billion in the comparative prior year quarter.

<unk> results were negatively impacted by declining commodity wood products pricing during the quarter. However margin improvements for both our AWP and general line products helped offset commodity price declines.

Kelly will now walk through the financial results and the coal supply wood acquisition in more detail after which I'll come back to provide our outlook before we take your questions. Thank.

Thank you Nate.

Product sales in the second quarter, including sales to our distribution segment were $536 million compared to $594 6 million in second quarter 2021, as Nate mentioned wood products reported segment EBITDA of $167 8 million down from EBITDA of $227 9 million reported in the year.

Quarter.

The decrease in segment EBITDA was due primarily to lower plywood sales prices as well as higher per unit labor wood fiber and other manufacturing costs due in part to lower plywood and AWP sales volumes. These decreases were offset partially by higher AWP sales prices.

BMD sales in the quarter were $2 1 billion down 2% from second quarter 2021, BMD reported segment EBITDA of $161 million in the second quarter compared to segment EBITDA of $212 3 million in the prior year quarter.

The decrease in segment EBITDA was primarily driven by lower sales volumes and a gross margin decrease of $44 5 million, resulting from commodity price declines offset partially by margin improvements for both DWP and general line products.

Turning to slide five our second quarter sales volumes for I, joist, and LVL were down, 8% and 3% respectively compared with second quarter 2021. He did BP volumes were impacted by veneer availability labor shortages and transportation constraints. During the period. In addition, inbound transportation issue.

As for web stock negatively impacted I joist production early in the second quarter.

Pricing in second quarter for I, Joist, and LVL were up 10% and 8% respectively compared with first quarter 2022.

Looking forward, we expect low double digit sequential price increases in third quarter 2022, reflecting further benefit from pricing actions taken early this year.

Turning to slide six our second quarter plywood sales volumes in wood products was 281 million feet compared to 338 million feet in second quarter 2021, plywood sales volumes decreased primarily as a result of downtime related to the replacement of an existing driver at our Chester South Carolina.

Line of plywood facility as well as staffing shortages at our western Oregon plywood facility to 569 per thousand average plywood net sales price in second quarter was down 35% from second quarter, 2021, and down 17% sequentially.

Thus far in the third quarter plywood price realizations are approximately 17% below our second quarter average.

Moving to slide seven Bmd's second quarter sales were $2 1 billion down 2% from second quarter 2021, driven by a sales volume decrease of 4% offset partially by a sales price increase of 2% byproduct line commodity sales decreased 27% General line product sales increased 20.

4% and sales of <unk> increased 59%.

Gross margin dollars decreased by $44 5 million in second quarter compared to the same quarter last year, resulting from a decline in commodity prices offset partially by margin improvements for both AWP and general line products. The gross margin percentage for BMD was 13, 9% down 170 basis points from the $15 <unk>.

6% reported in second quarter 2021, Bmd's EBITDA margin was 70, 476% for the quarter down from the nine 8% reported in the year ago quarter.

BMD sales pace, thus far in the third quarter remained strong and supply chain and product availability constraints have eased. In addition, the BMD team continues to manage their inventory as well as evidenced by the very good gross margin results in the second quarter in the face of falling commodity products pricing.

Yeah.

Moving to slides eight and nine these slides show the decline in composite lumber and panel pricing during second quarter 2022 has downside price risk created hesitancy across the marketplace.

<unk> has shown signs of stabilization in recent weeks, but we expect future commodity product pricing will continue to be volatile in response to economic uncertainties.

I'm now on slide 10.

We finished second quarter with $1 billion of cash our total available available liquidity at June 30 was approximately $1 4 billion, which reflects our cash and availability under our committed bank line.

$445 million of outstanding debt at June 32022.

Excluding acquisitions, we expect capital expenditures in 2022 to total approximately $100 million to $120 million, including included in our capital spending range is funding to complete BMD organic expansions in Ohio, Kentucky, and Minnesota replacement of a driver at our Chester, South Carolina veneer and plywood.

Land and initial veneer equipment related spending at the Chapman, Alabama facility.

We reduced our 2022 capital spending range is availability of engineering, and construction resources and timing and availability of equipment purchases continued to delay execution of our capital project initiatives.

Consistent with last quarter, our effective tax rate is expected to be between 25 and 27% in 2022.

As I will discuss in more detail. Shortly are on July 25th we used $517 million of cash on hand to fund our acquisition of coastal plywood. After the acquisition of our balance sheet remains strong and flexible with cash and liquidity in excess of $500 million and $850 million respectively.

In addition, our board recently approved a <unk> 12 per share quarterly dividend and authorized the repurchase of an additional one 5 million shares under our common stock repurchase program. This brings our total authorization to approximately 2 million shares we are not obligated to purchase any shares and there is no set date that the program will expire.

The share repurchase increase as a housekeeping measure that affords us more flexibility to opportunistically repurchase shares in the future as we deem appropriate.

Turning to slide 11, we are pleased to have completed the acquisition of coastal plywood on July 25th for a purchase price of $517 million, including estimated working capital at closing of $27 million. We funded the transaction with cash on hand, the acquisition includes two plywood manufacturing facilities.

Located in Chapman, Alabama, and Havana, Florida. These facilities have a compliant combined plywood capacity of approximately 530 million feet.

<unk> purpose is the acquisition is structured as an asset sale and is expected to provide an estimated net present value tax benefit from step up between 65 and $75 million.

Turning to slide 12. In addition to these facilities will improve our abilities to support housing construction in the southern and Eastern U S. The chairman facility will provide incremental stress rate of veneer to eliminate utilization constraints in our southeast at IBP facilities and also provide an avenue to further grow our AWP production.

<unk> capacity, the Havana facility, we will improve our mix of specialty plywood products and is well positioned geographically to support plywood demand in the southeastern U S.

Turning to slide 13, we.

We expect the acquisition to be EPS accretive in 2022 co supply would had a three year average EBITDA, excluding 2021 extraordinary financial results of approximately $50 million.

Once fully integrated into our system. We anticipate this acquisition to provide a mid cycle EBITDA benefit of approximately $80 million to.

To achieve these results we plan to make capital investments of approximately $50 million into our southeast operations over the next three years approximately half of that spending will be for improvements in our existing mills in fluorine in oakdale in support of veneer for either BP, while the other half will be for veneer equipment at the Chapman facility and investments.

To expand AWP capacity at our Alexandria, and <unk> facilities.

We anticipate that by the end of 2023. The addition to these facilities into our integrated system will increase our LVL billet capacity in plywood capacity by 5% and 34% respectively from 2021 levels by the end of 2025, we expect our LVL billet capacity to have increased by 12%.

From 2021 levels.

In addition to the benefits already discussed this acquisition also provides a platform for further growth in our <unk> segment additional penetration of AWP products into multifamily and light commercial applications and further product development and mass timber applications I will turn it back over to Nate to discuss our business outlook.

Kelly I am on slide number 14 demand for the products, we manufacture as well as the products, we purchase and distribute is correlated with new residential construction repair and remodeling activity and light commercial construction current estimates for 2022 U S housing starts of around $1 6 million units or essentially flat compared to 2021.

We believe current U S demographics, and limited new and existing home inventory support this level of housing starts. However, recent monetary policy shifts to increase interest rates to combat inflation has significantly increased mortgage rates and created a great deal of uncertainty in the economy.

Therefore, we expect the pace of new residential construction in the second half of 2022 to slow due to home affordability constraints and a weakening economy.

Looking beyond 2020, too many economics expect 2023 housing starts to decline at or near low double digits.

In addition, the age of U S housing stock and elevated levels of homeownership equity provide a favorable backdrop for repair and remodeling spending.

While potentially tempered by an economic downturn, we anticipate these these drivers to continue to be supportive homeowners further investment in the residences.

In wood products will be focused on successfully integrating the coastal plywood operations into our system to provide incremental stress rate of in the year for our AWP operations and in addition to providing growth opportunities in our <unk> segment, where the end use applications for AWP beyond new single family construction.

We will also focus on the successful ramp up of the recently completed Chester Dryer project during the third quarter.

BMD continues with its steady execution of organic growth and is progressing well with the build out of our expansion projects in Maryland, Ohio, Walton, Kentucky, and Lakeville, Minnesota. The BMD team also can use to work and a solid pipeline of additional organic growth opportunities in existing and new markets that we expect to share in the upcoming quarters.

Pricing for <unk> in General line product categories is remains strong. However at these products product lines may be subject to price erosion is that economic activity slows.

We have proven our effectiveness in managing market, uncertainties, and volatile commodity product pricing and I am confident in our ability to do so across all product lines in the future.

Further times of uncertainty provide <unk> with the opportunity to again demonstrate our value proposition to our supplier and customer partners.

Our company remains incredibly well positioned and we will continue to make sure we use our operating and financial strength to benefit of our customers suppliers communities and shareholders.

Length and flexibility of our balance sheet provides us the ability to effectively adjust to the economic landscape ahead, while executing on our organic growth.

Our growth plans.

Lastly, I want to again welcome to coastal associates to the Boise Cascade family and want to express my gratitude to all of our associates, whose focus and teamwork are critical and continue to support of our customers.

Thank you for joining us today.

Your continued support and interest in Boise Cascade, We will welcome any questions at this time Jonathan would you. Please open the phone lines certainly as a reminder, if you have a question at this time. Please press star 111 moment for our first question.

And our first question comes from the line.

Susan Mcclary from Goldman Sachs. Your question. Please.

Thank you good morning, everyone.

Good morning, Tim Good morning.

Question is you talked a lot about the somewhat about the strength of DWP pricing as we look out and we think about a macro environment with housing slowing.

And the macro perhaps moving lower how can we be thinking about the sustainability of that pricing. The puts and takes there that are sort of maybe pushing it further up versus <unk>.

Taking it a bit lower.

Good morning, Susan This is Mike.

Yes, very good question I think.

<unk> in line with probably other common shipped ahead of recent days.

AWP pricing, we will almost certainly come under pressure in the in the coming quarters.

In our case.

Next quarter, we think that the pricing will remain fairly robust because of the way in which we have put.

Putting place al.

Our program, but I think later in the year and into early next year, depending of course on what happens in the macro environment, we might see some additional pressures.

The resulting in a bit.

This movement to the downside.

Okay. That's helpful.

My second question is focusing a bit on BMD and the margins there.

As you think about just a more stable pricing environment.

Just thinking about Detroit directory for those margins in the back half of this year and then perhaps even going into early 2023.

Yes. So good morning. So this is kelly so.

You heard me comment on the second quarter gross margins in BMD and how they held up very well in the face of some really challenging commodity pricing environment. During the majority of the second quarter. So if we think going forward I would tell you in the third quarter in July so far.

Margins have held up very well and our strong relative to our historical performance.

The bigger question becomes a little bit to mikes point out into the future as we start to see some deflationary impacts in AWP and general line.

Even in spite of lower commodity prices stabilize.

There's a good chance that we start to see some gross margin erosion erosion in BMD.

And so I think there is a lot of there's a lot of factors in play right now that have driven our gross margins up to really significant levels. We think over time they will.

They will normalize back to more historical numbers, but I do think.

We do expect there'll be a little bit above what those historical norms as we continue to execute our strategy to grow general line to grow AWP.

Okay. Susan it's maybe just said another just a quick add to that.

When you think about.

As we go through the balance of this year and probably into early next year I think that kind of the risk reward from our customers is making sure their inventory levels are set correctly, maybe less around price realizations that may be more around inventory working capital levels and so I think the dependency and maybe the pivot for our customers will move more to our out of warehouse services maybe as.

To direct and I think we're starting to see early signs of that where customers that may have been buying railcars. Our trucks are buying maybe more trucks units and even job packs. So in terms of the mix shift we expect that to continue as we go through the course of this year probably early in 'twenty three again as customers are managing of working capital position and again were.

We're really well set up to do that and execute upon that and BMP.

Okay. That's very helpful color I'm, just going to squeeze one more in if I can which is can you talk a bit to your <unk>.

And how youre thinking about the cost structure and perhaps protecting the business. If we do go into a weaker macro backdrop over the upcoming quarters.

Yeah. Susan this is Nate great question I think as we look at.

The future I think from a housing perspective, the certainly the.

Medium to longer term, we remain very optimistic and confident about housing in general and our investment in our plans is associated with how do we continue to support and grow this company is consistent with that.

To your point.

As things get.

Potentially difficult, but I think we have a plan in place that we are confident in in terms of making the adjustments. So we will absolutely stay at the moment, if you will on and making sure we understand where the market's at and make the necessary changes as appropriate.

Good about our ability to execute upon that if we have to again, we don't see it today, just given our experience and what we're able to get accomplished during the difficult period of Covid.

And making sure that we were in a position to make the necessary adjustments to support all of our stakeholders.

And those kind of very difficult and uncertain environment. So again I think we have a plan in place, but but ultimately I think our focus is still largely centered on how do we continue to grow and support this company with the with the various investments that we've discussed today and one other comment maybe I would add to would be.

As you well know.

When we start to get deceleration in particular in the distribution business.

<unk> tends to throw off a lot of cash as working capital comes down so we feel really good about our balance sheet.

As we move forward here and our ability to continue to keep our foot on the gas, but be prudent and be well aware of.

What the macro indicators tell us.

Okay. That's good.

Very helpful color. Thank you and good luck.

Thank you.

Thank you Len moment for our next question.

And our next question comes from the line of key mantra from BMO. Your question. Please.

Thank you and good morning Kelly.

Kelly.

Martin.

Our first question.

You guys, perhaps a lot of different products.

That distribution business I'm curious.

As you see.

Right.

Seeing some.

The more supply demand Ben Chen.

Thanks, guys topic ease a little bit.

So Keith this is Jeff I will tell you right now.

Really is a mixed bag, we have some products that we distribute that they really still our attention to up and they are tough to get and when they become available people taking everything they can get their hands on it and there are other products I'll tell you.

They are starting to ease up whether allocation has been increased or in some cases allocation has gone away.

So the best way to say, it's a mixed bag on everything.

And yes in fact more kind of depending on the end market. So that's a new royalty versus INR or that is not the case.

No. It's not a lot of it has to do with what the raw materials that are going into things like still can be tight.

And hard to get.

Each product line is a little bit different.

Got it Okay and then.

Thanks.

The distribution business.

As a follow up.

More normalized.

Environment.

Sure.

From a pricing standpoint.

Recognizing that I mean.

2020 demand could be so what is the right think about normalized margins in distribution mobile on a gross basis EBITDA basis essentially.

The growth that we've seen on the EWC side over the years.

Yes, no. Good question, Keith and I would tell you. There's so many variables in play in the last several years.

And even as we sit here today. So many variables in play that's really hard to give you a definitive answer there but.

But as I alluded to earlier our plan is to.

We like commodities and we're good at commodities and we're going to stay in that business, but we are looking to grow those pieces of the pie.

Around AWP and general line and so if you look back several years, we were probably around I don't know 12 to 12, 5% on average in gross margin were looking to certainly push that up.

To be.

The 13, plus but it's a little too early to make that call just given all the all the various levers that are bumping is around in the last couple of years.

Got it and then one last question from my side the labor issues that you guys have been taking.

That started to ease.

So seeing that.

Okay ill have like out of this one from a manufacturing perspective labor issues. So I think it would be fair to say that depending on the geography, it's still challenging to very challenging.

And as I think Kelly mentioned in the script.

We've had some quite significant labor shortages in the last quarter, particularly in the Pacific northwest, but not only.

I would suspect that on the manufacturing side thats, probably going to be the case at least for the near future if not a bit longer we'll have to see what happens.

Ken This is Jeff on the BMD side I will tell you labor is still tough.

The inflation that has started and crept up we have seen an increase in applications and people looking for work. There are some specific job getting truck drivers that I can tell you that are really really difficult to still find.

Got it that's helpful color I'll jump back in the queue. Good luck in the back half.

Thank you.

Thank you one moment for our next question.

And our next question comes from the line from D. A Davidson your question. Please.

Great. Thanks, and good morning, everyone.

Hey, Kurt.

Just wanted to start off on the coastal deal and I. Appreciate the details in the slide deck, but was hoping you could talk a bit about kind of the run rate DNA for the business as well as.

I guess, how coastal's kind of average plywood realizations stack up relative to yours historically with.

I think maybe a higher proportion of specialty mix.

Yes, good question Kurt on the first one around DNA.

As you can imagine we're still working through the valuation and we'll get that certainly booked and recorded.

And footnoted in a great amount of detail in our third quarter 10-Q.

I would tell you at this point, it's probably somewhere in the range of $12 million to $15 million annually is what I would expect for DNA.

And then in terms of your question around there probably would realizations Havana has a richer mix than we do.

A good amount of standard for example.

So their historical pricing.

If you kind of get back to what does it maybe a more normalized level I'd, probably say across their system somewhere in the range of.

Somewhere around 351000, probably.

Got it and I guess is that kind of consistent with.

The $50 million of kind of EBITDA for two.

2018 through 2020, correct you got it.

Okay.

Okay. That's helpful and then I guess from a revenue perspective as well.

I believe they have.

A small amount of lumber production capabilities.

In terms of sizing is that kind of.

Distant with the 80 million board feet or so.

You guys have.

I'm not sure I quite get the question Youre asking.

Is there a production sort of similar to al cargo previous.

Lumber production at Al.

Historical facilities is that the question.

Yes.

Thought I forget which of the <unk>.

Facilities. It is but I believe there were some lumber production. In addition to the plywood I was just trying to get a sense of how meaningful that was.

Okay, Yes.

That's at the Chatman location in Alabama.

What I would call a very very very modest saw milling operation there and so it has a stated capacity of around 70 to 80 million board feet. It doesn't often actually produce that much and so relative to the rest of the deal with the rest of the operations, it's a very small component and so.

I wouldn't put too much focus on the lumber operations has a significant impact to the to the bottom line one way or beyond.

Okay.

Right that's helpful.

And then in terms of the incremental Lv.

LVL capacity figures that you provided is it fair to think that.

I guess the.

<unk>.

Additional capacity by the end of 2023 is kind of directly related to coastal and then I guess the additional $2 million by the end of 2025 is really a function of coastal as well as the other investments youre, making are.

Guess I'm, just trying to get a better sense of.

Absent the other organic growth investments that youre, making.

What type of.

<unk>.

Existing coastal operations provide.

Yes.

You captured it correctly, there, Kurt but I'll just restate it.

So the first phase if you will by year end 2023, the one 4 million additional cubes that we spoke to that is strictly a function of.

Stripping veneer, if you will from Chapman and moving it into our existing AWP converting capacity. So we were able to capture that the next increment. The additional couple of million cubes, we'll get.

That will be phased in as we also increase our capacity of AWP production in <unk> and Alex.

Got it Okay. That's helpful. Thanks, Kelly and then I guess my last one.

As we look ahead right you talked about weakening single family starts activity typically we think of that as a headwind to AWP volumes, but with the coastal deal you'll free up some capacity and perhaps be able to take advantage of some of the opportunities that you previously weren't able to so I guess.

As you look ahead to AWP volumes over the next couple of quarters and into 2023 any thoughts around the ability to kind of sustain current volumes or perhaps even grow a little bit in spite of the <unk>.

Underlying market trends.

Yeah sure, it's Mike, Yes, Thats, our plan to Las Vegas to that.

To keep up with on the accelerator.

I think 90 made some comments about some of the headwinds in housing single family start decline.

Is that opportunity probably for multifamily.

Which will take more advantage of if we have if we had that situation occur.

And so.

I think quite clearly is that we're going to maximize the opportunity presented to us.

Now, having essentially 100% self sufficiency in veneer in the south Eastern United States.

And so it's not obviously, a one quarter or even the one year strategy long term strategy and where we're going.

To put up with them.

Hey, Curtis maybe just add I'd likes comments said, what do you think about maybe the marketplace specific AWP over the last couple of years. It's been that's been really tension in terms of supply demand and in some cases customers.

The lumberyards or builders have had to go to other products.

<unk> dimensional lumber as an example, so as we think about the opportunity to have additional production.

It kind of beyond what Mike described I think it's an opportunity to reclaim some maybe lost share to other materials.

At the end of the day I think our customers would rather who would prefer to use AWP. So we're we think that remains an important opportunity and I think as we get to the second half of this year through the second half of this year and an X that'll be that'll be part of our growth story for you to be as well.

Got it okay, well I appreciate the color, Nate and Mike and I will turn it over.

Thanks, Rick Thanks, Ken.

As a reminder, ladies and gentlemen, if you have a question. Please press star one one.

And our next question comes from the line of Reuben Garner from benchmark.

Please.

Thanks, guys and congrats on the strong results in getting the deal done.

In the quarter, let's see so I wanted to.

Get back to an earlier question that was asked on the distribution side.

Margin so.

Recognize that things have been.

Unusually tight over the last.

Couple of years.

Or I guess multi part question, but first.

Can you talk about what the mix of volume is today versus what it was maybe 345 years ago in terms of commodity versus the general line in AWP.

I know we can.

With pricing, but it might just be easier you might have it on hand trying to get a sense for you were pretty consistently running three to three 5% EBITDA margins back in 17, 18, 19, where can that be.

Even if maybe single family starts were to go back to what we saw in those years.

So yes, we do present in the statistical tables, there Reuben kind of the percentage for BMD between commodity general line and AWP and so.

We still get bounce around a fair bit by just the absolute levels of commodity prices, which can move that percentage.

I will tell you again, that's it's still an important piece of our business and so we are looking to grow and we have grown the AWP piece as well as the general line piece and then specific to general line, that's where you have a lot of products a lot of vendors that.

They don't stand still theyre, adding products and services Skus, all the time and that fits right into our strategy and who we want to be and where we want to grow.

And including staying in commodity, but kind of balancing our exposure to that and so I.

I think I don't have the numbers at hand in terms of sheer volumes, but I'm pretty confident that the general line in <unk> and AWP components on a volume basis have grown compared to those historical periods that you were referencing.

Hey, everyone. It's maybe the other thing just to add a Kelly's comments is when you think about the judge General line and we've been really intentional about as Kelly described growth growing that part of the business, but specifically around or are the doors millwork segment in terms of our investment in growth. There. So we think that that's an important really important part of serving our customers, but we think that.

Also represents an opportunity for.

Margin stability in growth maybe beyond traditionally what we've experienced so I think that the.

The other thing for me to add this that.

Again really intentional growth on the door segment as well.

Okay and then.

Kind of a follow on on the pricing side, So I understand.

Potential risks to the AWP pricing, if things were to slow, but I think you mentioned gen.

General line as well.

Maybe I'm just thinking of certain categories like composite decking I don't think its historically been very volatile or at least.

I don't recall it going backwards a whole lot in previous soft period do you is there any specific product categories within general line that you think could be under pricing pressure, if we see it.

Prolonged slowdown here.

Third and this is Jeff I think as you move forward.

The laws of supply and demand so that there could be a little bit of erosion here and there.

But things.

Are still good and you look at the cost pressures that are going into the raw material to make things.

There is still going to be elevated could some things move backwards certainly that good.

But overall.

It's still pretty strong.

Okay. Great. Thanks, guys I think most of my other questions have been answered. So I appreciate it good luck going forward.

Thanks Richard.

Thank you.

And our next question comes from the line of George Staphos from Bank of America. Your question. Please.

Hey, guys. Good morning, Thanks with regard health.

Hope you can hear me okay.

I wanted to come back to the question on AWP.

Kurt had.

Tabled.

And specifically, Mike I know in the past we've talked about DWP second obviously builders want to use it probably once using even more given labor constraints.

The fact that it doesn't necessarily play in the same lanes as dimensional.

Why though if we are going into a downturn.

And given what's been near term a price divergence right continues.

<unk> continues to move higher dimensional has been moving lower that you.

You actually think youll be able to regain some this year that you lost.

Again, recognizing some of the things that are playing to AWP that you've mentioned in past calls any update or different thoughts there and what we've seen in the past.

Yes, George this is Mike Thanks for the question.

Yes.

I think as <unk> mentioned earlier.

Our ability over the last couple of years I'd tell you as an industry in AWP industry to be able to supply all of the product.

What is being demanded.

It speaks to.

The value proposition that AWP.

Actually creates for a builder, it's not just the individual price per unit.

As an installed costs and the availability and also a transportation component.

Now as the AWP I'll say group of products to compete very very competitively against.

Those other items that you mentioned and Thats been the case historically through all markets.

Because of bad indifferent so.

As we as we move forward.

Rising pressure mounts and we also have that as an additional lever for that certainly wouldn't be our first one we have availability and we have.

<unk> product to a group of products and now we will be able to concentrate on.

Looking for additional opportunities to fill more rather than that.

Following through on our allocation philosophy that we've had for the last couple of years.

And from what you're saying, Mike just to restate it.

Even though builders have been using lumber maybe more frequent than they would have.

<unk> like to.

That increased usage.

Does it mean increased favor on a going forward basis, the selling points of value out of EWC to them, you think from what youre hearing from them.

There is still everything it's been would that be fair.

I think that's one way of summarizing it George I mean, there's no new news here.

Obviously.

We have to your point, we have elevated pricing.

WP.

But again I refer back to the fact that yes.

Historically speaking builders have moved toward more AWP rather than less.

Over a long long period of time the amount of AWP.

<unk> been increasing for many many many many years now.

Thats Fair Thats.

Sure Jordan.

George maybe just add yes, just to add to that.

I think it's.

No one is more disappointed than us not being able to serve the builders the way. They wanted to be served in terms of the volumes and so I think there need their desire to pivot to dimensional lumber.

It was more because they had to do not because they wanted to.

So I think that is still part of their thinking.

As well as platelet floor trusses I think has been the other item as well so.

Again, it's something we feel represents an opportunity in terms of kind of reestablishing ourselves with some of those customers that frankly had to go a different direction because they wanted to.

Understood.

Last two and I'll turn it over.

Although they are multi part.

The first one again on wood could you give us a bit more granularity on what was driving the increase per unit costs and would you mentioned labor availability lower production, which hurt.

Unit cost, perhaps was there anything else to.

Okay observed more.

More granularity on what was driving the increase per unit costs and would you mentioned labor availability lower production, which hurt.

Unit cost, perhaps was there anything else to.

Two.

Observe can you give us a bit more granularity again on how the $50 million going to be spread across coastal again, congratulations on that and the legacy operations.

And then.

On DMD.

And on DMD.

Obviously, youre going to manage inventories tight but is there anything else that you might do differently in this potential down cycle, we will see how it plays out to continue to preserve the margins and do what's been a phenomenal job with that business Jeff.

Potential downturn relative to pass one thanks guys.

Turn it over there.

Okay I'll have a shot at the.

At the wood products related questions George.

So what's been driving costs up pretty much everything so not the least of which is picking up.

The least of which is if you put aside the moment the cost of labor.

Antennae rent and labor because that's always very expensive.

We've had.

Relatively speaking quite significant.

Increases in loss costs.

Particularly in the Pacific northwest, but not only.

So that's a very general statement, but.

The coastal component of our operations in misfit.

<unk> seen very very significant increases in low cost saving last 12 months or so.

Not quite as significant in the south, but we do have some locations with low cost in the south have crept up over the last 12 months nothing like the Pacific Northwest Bill the coastal Pacific Northwest Operation.

And then everything that we use that is derived from some sort of petrochemical.

Related activity, so I think like resins, and I'll wrap and now strapping.

Are things I've seen major increases and continue to see increases because of the way those are calculated.

Using a trailing average to look at the cost of their inputs.

In fact, I saw an increase just recently flew some of our resins.

Those sorts of things have certainly gone up as well and then Kelly touched on it was more related to capex, but its also maintenance costs.

So as we go out to buy materials to maintain our facilities and as you can imagine whether it happens to be something made of steel as an example, those are seeing significant.

Significant increases over the last 12 months.

No I don't see really any of those things taking a backward step anytime soon.

We will probably continue to see elevated cost relative to historical numbers.

Some period of time.

Your question around Capex I think Kelly is going to give you a bit more color on that one yes, I will take that one so yes, we alluded to roughly $50 million in the southeast area over kind of a three year period. So when we we referenced flooring in Oakdale. So as you would expect.

All about veneer and veneer supply so think about lays staggers improvements to dry around feed those sorts of things and a fair bit of infrastructure work at Oakdale.

The next increment around.

And the plan is jackman Alex stores be in it and a chairman we have a little bit of money will probably get spent this year, but not not a significant amount of that thats around.

The equipment that helps us scan and grade veneer to make sure that it's high quality veneer that we can shift over to Alex <unk>. So we will get we will get that done probably this year and then there is incrementally pov line that we plan on putting in at Chapman here over time, and then there is at that Alex <unk>.

<unk> B, there's improvements around high lines finger joiners and.

And presses and so there is a whole host of projects that make that up but I think that's the key ones.

And then I guess the third part of the question I don't remember exactly what it was but I hope, Jeff does Jeff skewed towards <unk>, but youre exactly right. We will work incredibly hard to manage our inventories and we will be working.

Non stop on that in a big way.

You ask how do we how we manage.

Our maintain our margins and that's a couple of things I'll tell you. We have the best data that we've ever had and we can look and see exactly what's going on and Thats been help us manage inventory.

Keep the margins up.

As Nate mentioned earlier is turning into a really really strong distribution market for us. So its warehouse business. That's very good for US I will tell you. We will continue to grow our general line and focus on that we will continue to grow our millwork business in door business, which will help us and then when things. Thanks.

Loosen up with DWP, we can't wait to get on the offensive on that front, too, which will help us with our margin.

So those are the ways that we're going to do it and as the Big thing I'll tell you. The other thing we will do is lands or margin will continue to buy more sales base, which we always do appreciate it I appreciate that last one quicky lacoste.

That could be down in the west in third quarter or no.

Yes.

I would like to believe that but I think given.

I was listening or reading the transcript zones. Some other producers and I think based on what I read and what I'm hearing and I feel so some numbers yesterday of what we pay for logs in our western Oregon operations around that.

That does seem to be dropping at the moment.

Unfortunately, my wish is not going to come through.

I think we will have pretty elevated costs at least for another quarter or a more generally speaking I think just to finish up.

Just because lumber prices have declined over the recent past.

Usually quite some time for there to be any impact on log costs.

I would say.

As a reminder.

And we do this inside of most people in the Pacific Northwest, We go out and buy some of our loans well in advance because we need to hedge if you will and standing inventory of logs, because we cant rely on Diana Diana.

Purchases due.

To lock the mills, so we have to.

Sleep that up as well.

Thanks, guys I've worn out my welcome I'll turn it over thanks for everything in the quarter.

Thanks Serge.

Thank you and our next question comes from the line of Michael <unk> from <unk>. Your question. Please.

Good morning, guys. Thanks for taking my questions.

Hey, good morning, Michael.

Morning, just wanted to get a sense a lot of my questions have been asked but wanted to get a sense as to what youre seeing in your order books at present any shortening.

Any less committed orders and more spot purchases and obviously, you've got the homebuilding news you've seen a.

Pretty big pickup in homebuilder cancellation rates.

As a result, you're seeing more spec homes in order to move products. So maybe you're okay for the next quarter as you're going to get lease with AWP, but any sense right now in terms of the order books.

Extending.

Or shortening for that matter.

Just would love any color you have there.

Yes, Mike It's Nathan Yeah. Good question, I think I think kind of the here and now everything remains steady.

And that strong I think across the range of products and services. So we haven't really experienced anything.

You had a kind of unique at this point.

It really from a from a geography or even from a product segment perspective.

I think the one thing I had mentioned earlier in the discussion as we are seeing maybe.

Maybe customers pivot more to auto warehouse services in terms of units and job packs as they look at how do they manage their working capital position as they go through the course of this year and early next year to meet that represents more normalcy as opposed to something unique.

In the second half of the year people are managing their working capital and really being thoughtful as they finished the year and head into the upcoming year. So I.

I would say the order files everything remains steady and consistent at this point, but it's something we are watching carefully and as Jeff mentioned, just a moment ago.

The data and the information that we have today is significant in terms of our ability to see and discover quickly and then make adjustments as appropriate.

Got it.

Sounds good and then just one.

Quick follow up.

In response to earlier questions.

You mentioned you have a long term plan to address housing weakness I'm wondering if there's anything.

You can proactively do whether it be through distribution, even wood products to get ahead of it.

Tune in housing and I know, it's a question mark as to whether housing is actually going to ask.

Significantly softened, but so the builders are expecting expecting you to cancellation rates are picking up and it obviously will depend on mortgage rates, but is there anything you can do as we sit here today too.

To reorient the business in case things do get worse from here.

Yes. Good question I think maybe just I think overall, we have good balance in our business and specifically as you think about our distribution business single family multifamily is an important part of that but we also touch and support other other markets as well.

Remodel is important and we think sometimes housing can be a little bit separate in terms of new construction versus repair and remodel and again I think we think the tailwind there is a little bit different than perhaps new construction.

And then also the industrial some of the activity that were involved there within BMD at D&B is again part of our part of our plan and part of our story. So certainly we have.

A lot of focus and rightly so on housing, but I feel good about the balance that we have in place and these are opportunities to your point Mike on.

New residential specifically single family is going to be maybe under pressure how do we make sure we elevate and play offense in the areas, where we can and Thats really what our teams focused on Tibet.

Thank you and good luck in the second half.

Thanks, Mike.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Nate Jorgensen for any further remarks.

Great. Thank you Jonathan we really appreciate everyones renewed interest and support of Boise Cascade. Thank you for your continued interest and support of Boise Cascade, Please be safe and be well and we'll talk to you next quarter. Thank you.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

The conference will begin shortly.

As Johan during Q&A, you can dial one one.

Okay.

Okay.

Okay.

Yes.

Okay.

Yes.

Yes.

Okay.

Okay.

Sure.

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