Boise Cascade Company Q1 2023 Earnings Call
Okay.
Okay.
Good morning, My name is Michelle and I would be your conference facilitator today at this time I would like to welcome everyone.
Cascade's first quarter 2023 earnings conference call.
All lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will be a question and answer Peter yet if you will.
I'd like to ask a question behind that.
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It is now my pleasure to introduce you to Kelly.
Senior Vice President CFO , and Treasurer, Boise Cascade. Mr. Hill, you May begin your conference.
Thank you Michelle and good morning, everyone I would like to welcome you to Boise Cascade's first quarter 2023 earnings call and business update joining.
Joining me on today's call are Nate Jorgensen, our CEO , Mike Brown head of our wood products operations, and Jeff Sturm head of our building materials distribution operations.
Turning to slide two.
This call will contain forward looking statements. Please review the warning statements in our press release on the presentation slides and in our filings with the SEC regarding the risks associated with these forward looking statements also please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income.
Segment, EBITDA I will now turn the call over to Nate.
Thanks, Kelly and good morning, everyone. Thank you for joining us our earnings call today I'm on slide number three.
Both of our business has delivered solid financial results. Despite the expected weaker environment from lower single family housing starts and commodity product pricing.
Total U S housing starts declined 18% driven by a decrease in single family housing starts at 29% compared to the prior year quarter.
Our consolidated first quarter sales of $1 5 billion were down 34% from first quarter 2022.
Our net income was $96 7 million or $2 43 per share compared to net income of $302 6 million or $7 61 per share and a year ago quarter.
Wood products reported segment EBITDA of $93 2 million in the first quarter compared to $203 8 million in the year ago quarter Wood products. The team delivered very good financial results in an environment that requires thoughtful management of production levels, given the uncertainties relative to demand.
Building materials distribution reported segment EBITDA of $76 8 million on sales of $1 4 billion for the first quarter compared to $232 5 million of segment EBITDA on sales of $2 1 billion in the comparative prior year quarter.
<unk> was negatively impacted by significantly lower commodity pricing.
And also experienced lower sales volumes compared to the prior quarter due to the decline in housing starts.
Demand for two step distribution remains healthy our ability to provide next day service on a range of products and services provides value to our customers as we collectively partner to manage volume and price for us during periods of market uncertainty.
Kelly will now walk through the financial results in more detail and provide an update on capital allocation after which I'll provide our outlook before we take your questions.
One product sales in the first quarter, including sales to our distribution segment were $437 4 million compared to $558 9 million in first quarter 2022.
As Nate mentioned wood products reported segment EBITDA of $93 2 million down from EBITDA of $203 8 million in the year ago quarter.
The decrease in segment EBITDA was due primarily to lower plywood sales prices lower AWP sales volumes and higher per unit conversion costs. These decreases were offset partially by higher AWP sales prices higher plywood sales volumes and lower EBIT OSB costs.
Used in the manufacture of I joists BMD.
BMD sales in the quarter were $1 4 billion down 35% from first quarter 2022, BMD reported segment EBITDA of $76 8 million in the first quarter compared to segment EBITDA of $232 5 million in the prior year quarter.
The decrease in segment EBITDA was driven by a gross margin decrease of $177 3 million, resulting primarily from lower margins on commodity products and lower sales volumes across product lines, offset partially by decreased selling and distribution expenses of $23 million.
Turning to slide five our first quarter sales volumes for I, joist, and LVL were down, 41% and 22% respectively on a year over year basis on a sequential basis volumes increased by 28% and 15% a favorable result, when compared to new single family housing starts data pricing in.
First quarter for I, joist, and LVL were down, 15% and 9% respectively on a sequential basis.
Looking forward the second quarter, we are experiencing good seasonal momentum and currently expect both I joist and LVL volumes to be higher on a sequential basis.
Single family starts will continue to be an important demand driver for AWP volumes with I joists also impacted by product substitutes and construction methods in certain geographies that reduced the wood floor opportunity.
We continue to experience pricing pressures for AWP, we expect further AWP price declines in the second quarter, although at slower rates of decline than experienced in the first quarter.
Turning to slide six our first quarter plywood sales volumes in wood products was 406 million feet compared to 317 million fee in first quarter 2022, the increase in plywood sales volumes was partially attributed to the acquisition of the Chapman, Alabama, and Havana, Florida Mills in July of last year in <unk>.
<unk> less demand for veneer from our AWP operations resulted in more plywood production from our legacy plywood facilities.
The 367 per thousand average plywood net sales price in first quarter was down 47% from first quarter 2022, and down 7% sequentially.
Thus far in the second quarter of 2023 plywood price realizations are flat compared to our first quarter average.
Moving to slide seven and eight.
Bmd's first quarter sales were $1 4 billion down 35% from first quarter 2022, driven by sales price and sales volume decreases of 20% and 15% respectively.
The product line commodity sales decreased 50% General line product sales decreased 13% and sales of <unk> decreased 24%.
The gross margin percentage for BMD was 14, 8% down 320 basis points from the 18% reported in the first quarter 2022.
Bmd's EBITDA margin was five 6% for the quarter down from the 11% reported in the year ago fourth quarter.
Looking forward BMD sales pace, thus far in second quarter 2023 is seasonally stronger with our daily average sales pace up low double digits from first quarter levels, a continued flat pricing environment for commodity products when coupled with price erosion risks on other products will limit margin.
Expansion opportunities. However, we fully expect <unk> to continue to execute at a high level and deliver solid financial results.
Moving to slides nine and 10.
These slides show the generally flat environment for lumber and panel pricing during first quarter 2023, compared with noticeable increases for the majority of the prior year quarter.
For further context year over year average composite lumber and panel prices have declined by more than 50% is.
As previously referenced this sharp price deflation has meaningful impacts on the portion of our sales related to commodity products future commodity products pricing may be volatile, but within tighter ranges than seen in recent years as the industry attempts to adjust supply to levels needed to support an uncertain near term demand environment.
I'm now on slide 11.
We had capital expenditures of $30 million in the first quarter was $7 million of spending in wood products and $23 million of spending in BMD.
In BMD our capital expenditures included the previously announced purchase of a new facility to house, an additional door shop in Kansas City, Missouri, which we expect to be operational in late second quarter of this year.
Our capital spending range for 2023 remains a $120 million to $140 million, which includes the continuation of our multiyear capacity expansion projects in AWP and further investment in BMD organic growth projects as we've noted before supply chain challenges and availability of engineering and construction resources will <unk>.
Fluence, our ability to execute on these levels of capital expenditures. In addition, our balance sheet allows us the ability to pursue additional growth organically or via M&A.
Okay.
Speaking to shareholder returns, we paid $8 million and regular dividends to shareholders in the first quarter and yesterday, our board approved a quarterly dividend of <unk> 15 per share as well as a special dividend of $3 per share both payable on June 15th.
We have no near term debt maturities and had total available liquidity at March 31 of approximately $1 4 billion, which reflects our cash and availability under our committed bank line after payment of our second quarter dividends, which will total approximately $125 million our balance sheet, we will remain very strong and our balanced approach to capital allocation.
<unk> is unchanged, we will continue to invest in our existing asset base and organic growth projects pursue M&A that aligns with our strategy remain committed to our fixed dividend through the business cycle and return additional capital to shareholders as appropriate via special dividends or share repurchases I'll turn it back over to Nate to discuss our business.
Outlook.
Thanks, Kelly I am on slide number 12 housing starts in March 2023 were approximately $1 44, 2 million housing on a seasonally adjusted annual rate basis as reported by the U. S Census Bureau. In addition mortgage rates have declined from peak levels in late 2022 and measures of builder sentiment has improved from fourth quarter of 2022 level.
However, home affordability remains a challenge for for consumers and the federal Reserve's ongoing actions in response to inflationary data and what impacts of these actions have on future mortgage rates and the broader economy will influence the near term demand environment on.
Uncertainty in the full year outlook for 2023, reflecting the various industry forecast for 2023 U S housing starts, which generally range from $1 2 million to one 4 million housing start units compared with actual housing starts of one five.
$5 million in 2022 as reported by the U S Census Bureau.
Despite the near term uncertainty, we believe the longer term demand drivers for new residential construction continues to be favorable but supported by strong demographic trends and an utter built housing stock.
Regarding home improvement spending the age of U S housing stock and elevated levels of homeowner equity have provided a favorable backdrop of repair and remodel spending however industry forecast project continued moderate moderation in year over year growth and renovation spending and economic economic uncertainty may also negatively impact homeowners further investment in the residences.
And what products, we are focused on continuing to execute on our targeted investments to expand our AWP capacity in the southeast U S.
The near term weakness in new residential construction does not detract from our conviction to grow uwp capacity. We will also closely monitor the changing housing market landscape and maintain the flexibility to adjust production levels as appropriate to meet sales demand.
BMD continues with our steady execution of organic growth.
For example, a brownfield project and Walton, Kentucky is operational we expect a late second quarter startup and our new door Assembly operation in Kansas City, and our Greenfield expansion in Marion, Ohio should be completed functional by the end of this year.
Our new distribution centers planted Hondo, Texas, and Walter barrels South Carolina or further on the horizon and they remained well positioned to continue our pursuit of additional organic growth and M&A growth opportunities.
Bmd's approach and consistency in the marketplace remains unchanged, we will continue to prudently manage our inventory levels and price risk while at the same time not sacrificing our service commitment to our better and customer partners.
Lastly, I want to express my gratitude to our associates, who has proven strength and resilience when coupled with our effective effectiveness of our business model has allowed us to continue to deliver solid financial results. Despite the weaker environment. Thank.
Thank you for joining us today, and your continued support and interest in Boise Cascade, We would welcome any questions. At this time Michelle would you. Please open the phone lines.
As a reminder to ask a question. Please press star one on your telephone and wait.
Today, we announced to withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
The first question comes from Kurt Yinger with D. A Davidson your line is now open.
Great. Thanks, and good morning, everyone.
Hi, Kurt.
Just wanted to start off on us on BMD as you.
Okay.
Sorry about that as you look at the volume down 20% in Q1 is your view that that's really just end market demand or were there any kind of lingering destocking impacts in certain areas.
And then second you talked about kind of the reasons it might be difficult to generate margin expansion versus Q1, but is there anything that that's working against you or are you seeing any normalization in certain product categories that would make it worse.
Curtains, Jeff I would tell you on <unk>.
And in the first quarter, there was still a little bit of residual destocking that was going on as people were really focused on their net working capital and just trying to get their inventories in line and we feel like we're there.
There has been a big focus on that so definitely was going on all quarter long and then obviously with the less decrease in housing starts I played a big impact on that.
Yes, and then I think on your second question occurred around the comments around our.
The pricing environment, limiting our margin expansion opportunity so.
Concept. There is if we continue to have a generally flat commodity pricing environment.
There is some some exposure to price degradation.
So many DWP and potential in general line that will limit our margin expansion opportunities. That's what we're trying to get out there.
Got it okay no that's great.
Then on AWP pricing you talked about some additional pressure in Q2, which hopefully doesn't surprise anyone but we've also kind of heard that with orders comes back there's been some nice stabilization.
I guess without pinning you down on where you think prices will be in the back half are you any more confidence and the idea that we could see pricing find a bottom here in the next few months relative to where you might have been at the start of the year for the year.
<unk>, it's Mike I'll take a stab at answering that.
AWP pricing as Im sure Youre, well aware is obviously very market specific and market driven.
So when we started the year.
Our estimation of housing starts were one thing and I think actually if anything they are probably a bit more robust at this point in time than we had originally anticipated.
Which might be part of the explanation of the relatively small decline that we've seen in the AWP pricing thus far as.
As we look out further into the year I think the same analogy.
A process of determining pricing applies.
We have.
Pretty good housing stocks I think the declining AWP pricing will be relatively speaking somewhat more muted. If that's not the case then it could be quite somewhat.
Somewhat more significant.
Hard to tell at the moment, but.
So.
Quite happy with where we ended up at the end of Q1.
Got it that's helpful. Thanks, Mike and then just the last one.
It might come to see me it looks like you might have purchased a bit of stock in Q1.
Any change in terms of how that ranks in the capital allocation stack or priorities, just given where valuation is in the performance of the business thus far.
Yes. Good question, Kurt Let me, maybe just kind of hit the overarching capital allocation discussion as part of that question yes.
Did we did purchase a very modest amount of shares during the third quarter, but I would tell you in terms of our overall approach to capital allocation.
We did note that the board announced.
And ample but we think appropriately sized special dividend at this stage of the year.
We're fully committed to our capital spending plans that Nate spoke to and we have a handful of initial additional growth opportunities that we're currently working so.
Yes.
And then we will continue to have our ongoing dialogue.
On capital allocation with our board and it's reasonably likely we will we will be have an additional things to discuss around <unk>.
Growth initiatives and additional shareholder returns to share before we close the books on 2023 and included in that.
Rewarding shareholders. That's got three prongs as we've always talked about the regularly regular quarterly dividend and special dividends <unk> share repurchases, so really no change to the strategy and thinking.
Got it okay. Thanks for that Kelly and good luck here in Q2 guys. Thank.
Thank you Sir please standby for the next question.
The next question comes from Susan Mcclary with Goldman Sachs. Your line is open.
Thank you good morning, everyone.
Good morning chip.
My first question is I wanted to go back to the commentary on the <unk>.
Potential for the margin deceleration in the general line.
BMD in there.
Think about some of the commentary we've heard from the building product companies in the last few weeks and what the builders are telling us on the ground in Austin It sounds like activity seasonally building into the spring in the summer and so I guess what are the factors that you're thinking about that are offsetting some of that.
How are you thinking about the puts and takes of where that margin can go.
And how those factors should come together given the macro uncertainty.
Yes, So let me start that one specific to your question around General line and I'll, let Jeff jump in here.
He deems it appropriate.
We have not seen a lot of price pressure on general line.
It's holding its been holding and that's generally across product lines.
It's holding its been holding and that's generally across product lines.
We have seen some pressure and that impacts both wood products and does impact BMD as well.
And then on commodities again, we were just flagging that because.
As you know when prices escalate that gives us margin expansion opportunity.
Come off.
The reverse comp is true we've seen a little bit of strength of late in OSB and so maybe we will get a little bit of tailwind there.
But I think back to your other part of your question around.
Order files and kind of some seasonal strength, yes, we are seeing that we are experiencing that.
Order files.
Plywood or kind of two to three weeks kind of a thing in AWP our order files.
Yes.
Have expanded nicely compared to where we were at this at the start of the year. So.
And there's.
A fair bit of positive commentary coming out from the homeowner. So there certainly is some some seasonal seasonal strength we're experiencing.
So this is Jeff on the general line margins may have been very sticky they've been holding in there very very well and overall general and theres been an item or two.
Move back a little bit.
There is any real pressure on that at all right now it's on the items that are important and the pressure is not that.
This material has dropped is that the ocean freight has dropped so significantly and those are some of the things that we're feeling it.
Excuse me may be just to quantify it on that sorry.
Alright, so lets say that one final thought on that is if you think about that.
The purchase kind of cadence from our customers.
Set up kind of bulk in terms of railcar truck. We're still we're still experiencing a lot of auto warehouse services support units job packs in pieces. So as you think about margin profile and what that kind of represents in BMD, we think that thats going to be remain a tailwind as we go through the course of 'twenty three because customers are still.
It really managing their inventory risk and reward pretty carefully.
Okay, Alright thats helpful.
In general that what Youre hearing on the ground from your suppliers versus your customers is in line is it can you or do you think one is a little more optimistic relative to the other.
Yeah for me see like this we had a chance to work at it I think theres a range of opinions and some of it is dependent upon the markets that they are there and those that are maybe more centered on single family have had a tougher go just given what the demand dynamics it Ben.
But I think the.
Probably the optimism that's in the market today speaks to.
Maybe an improved environment relatively maybe their expectations 90 to 120 days ago. So while its off maybe it's not off to the degree that they were expecting.
I think there is good.
Sentiment in the marketplace overall, but again I think there is still risk out there relative to.
Yes, things like debt ceiling some of the banking issues that are out there. So I think there is the right level of kind of hesitancy as well as we kind of go through the second quarter in the second half of the year.
Alright, and then.
One more question.
You gave us an update on some of those bnb expansion initiatives, which is helpful. As you think about the setup here and where we are can you talk to your appetite for new projects is there anything else on the horizon that youre looking at or that we should be aware of.
Nothing.
Specifically, we can flag for you today.
But in terms of what we spoke to in terms of a handful of additional opportunities. We work we are working.
Those are the same same kind of things we've been executing on over the last couple of years in terms of looking to scale, our door shop operations looking to expand.
An existing footprint as well as look for additional footprints, we can expand to so it's very much the same sort of strategy in the same kind of things, but nothing we can speak to specifically today.
Okay, Alright, that's helpful. Thank you and good luck with everything.
Steve.
Please standby for the next question Ken.
Okay.
The next question comes from George Staphos Bank of America. Your line is now open.
Hi, everyone. Good morning, hope you're doing well thanks for the details.
Hope you can hear me well too.
I guess the first question that I had.
It was related to what your customers are telling you about their inventories.
Either of those products.
Or of other products that you would be selling into them. What do you think inventories are right now guys. The second question I had.
Is around AWP.
Recognizing you don't disclose this where we.
Would you say AWP margins are relative to what you think.
A normal or trend line would be over the last 10 years.
And that a couple of follow ons.
Hey, George This is Jeff I'll take the inventory question start with that because we're in constant conversations with our dealers about that and where they sit and as I said earlier it has been.
And I believe we will focus on net working capital in days.
Days of inventory days sales on hand, and people really been been driving to that.
One thing that maybe has changed in the last few days a little bit in.
In the beginning of the year I would tell you nobody would take a position on the commodity whatsoever in some of the bigger markets right. Now people are feeling a little bit better cautiously optimistic that they may add a few days for commodities, but otherwise it is strictly managing as a tight range right now.
Understood.
Okay, George it's Mike good to hear you.
I'll address the AWP margins question.
I think as everybody is aware of over the last couple of years. The expansion in margins on that particular product line has been really very strong relative to any historical numbers that we've seen.
There's been some pullback.
But if you think about where I'll say in general the market is today relative to where it might have been before the pandemic.
It has run up we still about what historically would have been call normal.
My personal view is I hope that remains to be the case because of the situation not the least of which is the changing cost structure that we face in manufacturing.
So yes.
As a result of a things.
Things like increasing wages.
Various other components of our cost structure.
Im not sure that the prior normal pricing be it on AWP or for that matter other wood products as sort of a good metric to be used going forward.
But Mike.
Just following on that.
I was speaking specifically about margin which would incorporate.
Labor and other costs of manufacturing at least in terms of the way I was thinking about I've asked the question. So if you incorporate that and think about the margin for AWP, recognizing you're not going to give us to the basis point.
Would you say that margins are still above normal and.
Is there a way to maybe roughly.
Give us guardrails on that.
How much they might be.
And.
Is the expectation you hold these levels because of the.
Secular trends that favor uwp overtime.
We're not.
Yes, So George let me, let me try it and Youre right.
Yes, no you're good.
Yes, we won't give you the basis point for sure.
And I guess I would say Ed is a good reminder, we really need to think about margins in BMD in totality. Because we are very there's a lot of integration between our plywood and veneer facilities in our AWP facilities and so.
Has the margin expanded from where it was several years back yes, absolutely because the price escalation has exceeded the cost escalation that's true.
In terms of where it goes from here.
And were normal might be several years from now.
We we don't want to make that call.
It's going to be.
Pendant upon.
Markets and supply and demand.
I would tell you in terms of AWP capacity. There is really no new capacity, that's been announced we're going to we're going to be able to grow Mark is we now have the veneer availability that we now have from Chapman in Nevada.
In terms of.
When markets recover to a more normalized level, we feel good about our position and our ability to maintain maintain share and our position in the market.
Understood I appreciate that Kelly.
On that point can you remind us how much of.
Coastal's capacity is ultimately going to be integrated into LVL and for that matter.
Hi, Joyce.
And then one last one and I'll turn it over and come back to queue.
Okay.
What do you.
Recognizing that commodity prices will swing lease percentages around.
You have a longer term target that can you remind us of in terms of where you would like.
AWP and.
In general line to be in your overall revenue mix in BMD whatever interval you want to give us next year five years from now.
What have you.
Hey, Julien I'll have a stab at your question around the Chaplin benefiting so when.
When we made the acquisition we put out.
Some numbers it really is not so much about how much of the.
<unk> production at <unk> has been I would go into AWP initially.
I think what we said.
Why is that.
After we have made some additional capital investments in our existing DWP emails and some other small investments in our.
Existing plywood mills.
We saw that the total increase in <unk>.
Billet volume at AWP kill that volume was going to be approximately $3 5 million cubic feet.
We didn't go into the details.
I recall about how much of the capacity from Havana, and chat meant that represented.
But what I will tell you as a sort of a general statement is.
We should have some additional.
Stressed rate had been years. So that is the veneer that is suitable to go into AWP. However.
Over and beyond the $3 5 million cubic feet of LVL or fill up the capacity that we would initially savings.
To utilize that would require us to make some additional investments so.
That was really part of the rationale behind us not getting out in front of ourselves too early in this discussion. So I think it's best to leave it like that at the moment and we are very very focused on getting the capital investments made to be able to.
To get that $3 5 million cubic feet of DWP additional AWP production.
Yes, and then specific to your question around BMD sales mix and the proportion between commodity general line in AWP.
Over the last.
Five quarters.
Swung between 40% and low 50% the commodity portion of that.
Obviously, there's been a whole lot of price fluctuation within that.
With commodity prices, where they are maybe we're back to a more more of a normal mix kind of 40% general commodity, 40% General line and 20% ish DWP.
So I think if we go forward from here I want to make it clear we're not looking to do.
Downsize our position in commodity we just expect it to be a smaller proportion of our sales as we move forward. So we would expect that general line in EWC fortunate to grow.
And then.
And then commodity portion as opposed to being around 40, I think over time, it probably something more like mid <unk> would be a more what we would expect to see in terms of the mix.
Kelly that's great. Thank you so much I'll turn it over.
You bet. Thank you coram buy for our next question.
Okay.
The next question comes from Kate <unk> with BMO. Your line is open.
Good morning, and thanks for taking my question.
Plus one.
I was curious.
The following slides.
Okay.
For you guys.
Can you talk about the relative attractiveness.
The <unk> business.
As we think about the broker distribution.
That does conclude that person months steppers.
Yes. Good question I think in terms of our millwork and our door investment. We feel is always we always start the conversation with how do we better serve the marketplace and our customers and our customers have look to us to continue to kind of grow that capability and that franchise in support of what theyre trying to get accomplished.
So for us it matches really well with our current customers kind of across the spectrum in terms of how they think about supporting their millwork business I think the other thing for me is we have strong vendor alignment and partnerships and we feel good about those relationships as we move forward.
The other thing that we've talked about Keane is just that that earnings stability and consistency.
And for me that our door franchise, our millwork business, absolutely supports that and reinforces that.
It allows us to continue.
Can you continue to kind of drive our earnings performance as an organization as we move forward. So to me. It's again it starts with kind of the customer is always the marketplace.
The support and I think the expectations. They have from US are high there, which is great and again it matches very well with our strategy in terms of that growing that capability, including the earnings performance as a result.
Got it no. That's helpful. And then just one follow up on that you talked about the stability in that margin.
Margin profile in general.
Peter if you look at it.
Margin profile also different what do you do.
Really different in terms of just the level up.
The margin in that business.
Yes, yes, absolutely I think that the margin profile is higher its more consistent and steady we don't see the volatility that you would see perhaps on other products, including in general lines. So higher levels I think theres, a high ability to serve and touch in terms of some of the services that we provide.
And certainly the margin profile as part of that story Board meeting. So I would say each of those is how we think about it and again reinforces that I think are our commitment and excitement about how do we continue to to grow that platform.
Yes.
Understood. That's helpful. And then just one last one from my side.
As we think about capital allocation.
Kelly.
Comments earlier.
In terms of additional Optionality can you just remind us again.
Pos shop around.
USDA budget results specials, obviously, you guys have a pretty good we've seen in recent years.
All the special dividends, but just remind us kind of how you approach the stool.
And while that's sort of the puts and takes as you think about capital allocation.
Yes, I'll take that cadence I think your question was centered mostly on when we get to the shareholders and how do we think about returning capital there.
Great.
But yes, but our first priorities are really first and foremost thinking about the company how do we make sure we support the asset base, we have and look to grow the asset base. We have in the right places and then the rate matters.
And then.
And also what might be ahead of us.
And how does that then stack up versus what our what our balance sheet capabilities are and so then we begin the discussion with that dialogue and then we follow up with Okay. How do we want to think about returning cash to shareholders and so what you. What you said in terms of share repurchases and dividends, which either.
Regular quarterly, which we look to grow overtime or special.
All of that's part of the conversation, but I would say, that's just an ongoing active dialogue and I wouldnt.
That can vary quarter by quarter, just depending on what the what the what.
What the opportunities are what the landscape is and we'll continue that dialogue with the board and we will we will never lose sight of the shareholders.
Understood. Thank you I'll jump back into queue.
Thanks Stacy.
Please standby for the next question.
The next question comes from Michael Brian Flynn with true with <unk>.
Your line is open.
Thank you thanks, Nate Kelley, Mike Congrats on the quarter.
Thank you, Mike and good morning.
Good morning.
One quick question just for you on the margin profile in BMD.
Particularly given that you just.
As mentioned on the call is much less volatility or anything in the mix there and if you look at performance.
This quarter, particularly given where housing loans, particularly impressive. So I'm wondering if you could help us frame, where do you think EBITDA margins could ultimately wind up in DMD.
Yes, yes.
Good question.
Yes, the business.
Has done a really good job and Martin margin performance and in an environment here in the first quarter were.
Really.
No opportunity to expand operations.
Margins in commodities and then we continue to execute well for our vendor and customer partners on general line and AWP. So the question in terms of where do we go from here.
It's.
We've been on record now for at least several quarters of reminding folks that historically, we were in kind of the three to three 5% range in that business.
And I think going forward we.
We view that business as a four plus percent business.
Again, as we look to continue to.
<unk>.
Grow the DWP and grow the general line portion of the business that runs through BMD that will allow us to expand those margins compared to what they were historically.
Sure.
Mike maybe just one other comment on that just that again I think the earlier discussion around auto warehouse services in terms of how that's going to show up certainly in 2023, and we think probably even into next year again as customers manage that risk reward in terms of book volume and price I think theyre dependency out of warehouse is going to will continue to be there. So.
Margin profile as you might expect on units and job packs and pieces is different than kind of direct trucks and cars. So I think thats going to be a tailwind continued to be a tailwind for BMD as we move forward through 2023 as well.
Got it so it would be fair to say, it's up 4%.
So the floor.
Nothing more hopefully behind us it could be given your given your execution, thus far I mean, it could be.
Looking at our blended EBITDA margin going forward.
Forward.
Levels off at least for the half was 9% and gross from there given the mix shift and given what you just mentioned made in terms of.
Products, we are bringing on to have a margin higher margin profile.
Yes.
Yes, we're certainly focused on execution.
Execution and looking to maximize our margin.
Grow our earnings and earnings stability. So yes, you are.
Your thought process, there and relative to where we want to we want to do to the business, Yes, Thats a fair statement, that's a fair sentiment and that is how we think and thats how it might be your point to your question. That's how we've been divested as well I mean, so in terms of areas of focus and growth and prioritization.
It does again, it always starts with the customer and our supplier base, but in terms of making that margin profile and the consistency in how do we elevate that.
That is very much part of our discussion on Dan at the hour basis and again, how do we think long term in terms of our investments as well.
Got it I forget the color and then just quickly on AWP. Obviously, you think prices are going to continue to erode in <unk> will always be it will be sequentially better.
Can you just talk about maybe your operating expense.
And the broader industry operating posture.
Just wanted to get a sense of whether.
This downtime as well additional downside.
I Couldnt help minimized.
DWP prices.
And then maybe let me take the pricing question make sure clarify what we said there and then I'll, let Mike kind of take the operating the operating stance. So yes, what we've said there in terms of forward pricing.
We are experiencing pressure still.
And as far as we've gone out in terms of given some guidance is just sequentially second quarter versus first which we do expect further price declines but add.
Lower lower rates of decline in what we just experienced sequentially, we havent shadowed anything beyond that the marketplace is pretty fluid and there will be very dependent upon housing starts operating rates et cetera, but Mike do you want to take the operating stance question. Please yeah sure so Mike.
As it relates to two boise's operating posture for AWP at the moment, we feel as though.
Sort of rolls over into how we operate our plywood open producing.
<unk>.
I think it's fair to say that pretty much every location, we're not running at full capacity and haven't done so now since.
Fourth quarter of last year.
So there's ample upside.
In terms of capacity to produce more and more AWP should that should the market demand presents itself and thank goodness over the last while during the first quarter you've seen by our numbers, we had a bit of an uptake.
So.
As and when necessary, we can start to add additional shifts or days in AR in several different locations to produce more.
AWP and veneer as required.
So the geographically speaking.
I would say that.
In the Pacific Northwest has been a little bit more challenged than the south eastern United States and as a result, there has been I would say as a general statement.
<unk> for us in the Pacific northwest as compared to the southeast.
I really cant give you a lot of good insight into the industry I think.
Most of the industry is probably looking at it in a similar vein as it relates to it's all about demand.
And I suspect if there was more demand they would do so similar things to what we have been doing them. If we would do that as much as I can tell you about the industry.
Got you and just one quick follow up I. Appreciate the question why is it can you just provide some more details around what the.
Cost was more challenged in the south.
Demand.
Yes.
Yep.
Yes.
Yes.
It's not funny, but in any stretch of imagination, but the weather that we have experienced in the Pacific northwest seems to just.
It won't quit.
Yes.
California's been under whatever they've had record scenario here, there and everywhere and it's very difficult to build houses and particularly in the state of California, bad not only because of the weather that have very very very stringent requirements around what Buchanan can't do and so we said that we haven't really got the spring yet.
In the Pacific Northwest.
And in the southeast again that is not being perfect, but they've had a better run and you can consider to say that when we look at our order files, particularly for AWP has been significantly stronger in the southeast relative to the Pacific Northwest.
Got it thanks, very much telecom and good luck in Q2.
Yes. Thank you.
Please standby for the next question.
Okay.
The last question comes from the awards.
Bank of America Securities. Your line is now.
Yes.
Hi, everyone. Thanks for taking me at the end here for a follow on two quick ones. One can you remind us what you think normal capex would look like for Boise Cascade once you're done with the.
Expansions are recognizing that.
We intend to grow and so from that normal level will be.
Growth thereafter, but.
A couple of years, what might Capex look like.
Whatever the interval that you would say would be.
And then secondly.
Back to repair a model.
We know all the stories.
The facts behind why repair model of February at that time, we have an aging housing stock people are locked in with rates and so on on.
On the ground.
Are your customers truly thinking that that will be the case with <unk>.
The state of the consumer.
Date of rates.
What is what are they telling you in terms of their outlook from the remodeled units over the next year or so given some of those constraints and recognizing fully.
What's the secular positives alright, thanks, guys and good luck in the quarter.
You bet George Thank you I'll take the I'll take the first one and then I'll pass off the second one so the first one around kind of what's our normalized capital spending levels here going forward. It's a great question <unk> had good dialogue on that exact topic, just a day or two ago with our board of directors and so.
Several of them just a couple of things to figure to factor into the equation. There. One yes. We have grown we have had we have added operations in both wood products and in BMD.
And then inflation is definitely impacted that equation also so.
I would tell you.
But a few years ago, we probably thought of our kind of normalized capex that included maybe a little bit of strategic and it was probably in the $80 to $90 million range as a company.
I would tell you now, we're probably thinking more like a $115 million to $120 million on a normalized basis going forward again, we have more we have more facilities to support and we're going to support them.
We have.
Higher costs because of inflation and if you think about just kind of the rolling stock requirements in BMD and the more facilities more trucks more trailers more hoist or is all that kind of factors into that nucleus and so if you paid back to the $1 15 is probably something like 65 in wood and $50 million for BMD.
Now the R&R question I think Jeff will start on that one Jeff on the R&R question I'd tell you, we're still seeing very good takeaway on that front right there.
The pros are busy but probably not to the same level. They were doing COVID-19, but theres still busy we really expect to do it yourself part is going to pick up with the seasonality with the pricing and then what are the customers, saying that they still feel good. There's a lot of work to still be done out. There are some things got put off because you couldnt get labor and pricing materials too expensive and those projects are.
Come on board so the feeling out there from our customers in that segment is still going to continue to be strong for a while.
Okay.
I appreciate the thoughts on both questions.
For the call have a great rest of the day and great quarter guys. Thank you. Thanks George.
Please standby for one more question.
The question comes from Kurt Yinger D. A Davidson your line is now open.
Great. Thanks, I appreciate you squeezing one more in.
I just wanted to go back to Georges earlier question on trend in AWP margins because it is a really interesting one and I don't want to put words in your mouth, but if you look at the historical margin profile of wood products with AWP encompassed within that.
There is an argument that they kind of underperformed relative to the fact that AWP is a list price product you have a captive relationship with distribution. Your consolidated number of manufacturers and there is a relationship and partnership with the end user. So I guess at a high level would you kind of agree with that view.
Any thoughts around just the evolution of the category.
Margin profile over time.
Yes.
That's a very interesting question.
<unk>.
I guess my.
Broad answer to this is that.
Within the AWP category.
There are a variety of different approaches to go to market.
We have a we have a particular approach and we have a excellent set of distribution and dealer partners and we work in conjunction with <unk>.
The biggest and best builders in the country.
So when I think about.
So the question is has it underperformed.
I think it has underperformed really at all I guess thinks that.
Ultimately the margin.
It is determined by what the market will bear.
And so in certain circumstances.
There is.
I will say ample availability of product and as a result.
That can end up seeing a compression of margins generally across.
All manufacturers of AWP.
And now the market circumstances.
The reverse is true there is not enough supply and margin expands.
And so I think.
I wouldn't I wouldn't support the thesis that AWP margins at them.
Haven't performed as <unk>.
Certainly so I would have expected or that they have disappointed I think thats just the way the market works.
Ignite would have some views on this too yes, Kurt it's made just to echo Mike's points and maybe just a couple of others as I think about the AWP business and the franchise ultimately.
It's a product category that does that solves problems for the builder in terms of its design capabilities and functionality and flexibility that continues to be really important.
The other thing that the builders have been insistent on and rightly so as cycle times, how do they take time out of the construction cycle in AWP is very much part of that equation and helps drive that so as I think about today and moving forward in terms of the relevance of AWP, including the supply and demand balance I feel good about.
How that category is set up and that really speaks to our investment as an organization as a company in terms of continue to grow then important franchise. So.
Yes, again time will tell here as we go through the course of the year and what the housing start environment obese, especially on single family, but again, we feel really good about that franchise as we go through the course of this year and next year and we're investing in building our capabilities as a result.
Okay, Alright, I appreciate the thoughts guys. Thank you.
Thanks Sarah.
I show no further questions at this time.
I would now like to turn the call back over to Nate Jorgensen for closing remarks.
Thanks, Michele we appreciate everyone joining us on the call today and for our update and thank you for your continued interest and support of Boise Cascade, Please be safe and be well. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Okay.
Yes.
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Okay.