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spk01: 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 speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, simply press star 1 1 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 future performance, and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may cause actual results to differ from the results anticipated, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce you to Kelly Hibbs, Senior Vice President, CFO, and Treasurer, Boise Cascades. Mr. Hibbs, you may begin your call.
spk10: 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 Strom, 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 NIT 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.
spk09: Thanks, Kelly. Good morning, everyone. Thank you for joining us for Ernie's call today. I'm on slide number three. As recently announced, we completed the acquisition of the Coastal Flywood 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 in the year-ago quarter. Both of our businesses continue to operate well during the second quarter. In second quarter 2022, total U.S. housing starts increased 3% compared to the same period last year. Multi-family 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 costs due to lower plywood and EWP sales volumes. However, improved EWP sales realizations helped 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. BMD results were negatively impacted by declining commodity wood products pricing during the quarter. However, margin improvements for both our EWP and general line products help 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.
spk10: Kelly? Thank you, Nate. Wood product sales in the second quarter, including sales for 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-ago 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 EWP sales volumes. These decreases were offset partially by higher EWP sales prices. BMV 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 EWP and general line products. Turning to slide five. Our second quarter sales volumes for iJoyce and LVL were down 8% and 3% respectively compared with second quarter 2021. EWP volumes were impacted by veneer availability, labor shortages, and transportation constraints during the period. In addition, inbound transportation issues for web stock negatively impacted iJoyce production early in the second quarter. Pricing in second quarter for I-Joyce 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 dryer at our Chester, South Carolina plywood facility, as well as staffing shortages at our Western Oregon plywood facility. The $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, B&B'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 24%, and sales of EWP 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 EWP and general line products. The gross margin percentage for BMD was 13.9% down 170 basis points from the 15.6% reported in second quarter 2021. BMD EBITDA margin was 7.6% for the quarter, down from the 9.8% reported in the year-ago quarter. BMD's sales pace thus far in third quarter remains strong, and supply chain and product availability constraints have eased. In addition, the BMD team continues to manage their inventories well, as evidenced by the very good gross margin results in the second quarter in the face of falling commodity products pricing. Moving to slides eight and nine, these slides show the decline in composite lumber and panel pricing during second quarter 2022, as downside price risk created hesitancy across the marketplace. Pricing 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 liquidity at June 30th was approximately $1.4 billion, which reflects our cash and availability under our committed bank line. We had $445 million of outstanding debt at June 30, 2022. Excluding acquisitions, we expect capital expenditures in 2022 to total approximately $100 to $120 million. Included in our capital spending range is funding to complete BMD organic expansions in Ohio, Kentucky, and Minnesota, replacement of a dryer at our Chester, South Carolina, veneer and plywood plant, and initial veneer equipment related spending at the Chapman, Alabama facility. We reduced our 2022 capital spending range as 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, on July 25th, we used $517 million of cash on hand to fund our acquisition of Coastal Plywood. After the acquisition, our balance sheet remained strong and flexible, with cash and liquidity in excess of $500 million and $850 million, respectively. In addition, our board recently approved a $0.12 per share quarterly dividend and authorized the repurchase of an additional 1.5 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 is 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 combined plywood capacity of approximately 530 million feet. For tax purposes, 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, the addition of these facilities will improve our ability to support housing construction in the southern and eastern U.S. The Chapman facility will provide incremental stress rate of veneer to eliminate utilization constraints in our southeast EWP facilities and also provide an avenue to further grow our EWP production capacity. The Havana facility 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 expect the acquisition to be EPS accretive in 2022. Coastal Plywood had a three-year average EBITDA, excluding 2021's 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 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 at our existing mills in Florine and Oakdale in support of Veneer for EWP, while the other half will be for veneer equipment at the Chapman facility and investments to expand EWP capacity at our Alexandria and Thorsby facilities. We anticipate that by the end of 2023, the addition of these facilities into our integrated system will increase our LVL billet capacity and 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 BMD segment, additional penetration of EWP products into multifamily and light commercial applications, and further product development in mass timber applications. I will turn it back over to Nate to discuss our business outlook.
spk09: Thanks, Kelly. I'm 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 are 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 2022, many economists 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 home ownership equity provide a favorable backdrop for repair and remodeling spending. While potentially tempered by an economic downturn, we anticipate these drivers to continue to be supportive homeowners' further investment in their residences. In wood products, we'll be focused on successfully integrating the coastal plywood operations into our system to provide incremental stress rate of veneer for EWP operations. In addition to providing growth opportunities in our B&B segment, with the end use applications for EWP 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 Marion, Ohio, Walton, Kentucky, and Lakeville, Minnesota. The BMD team also continues to work on a solid pipeline of additional organic growth opportunities in existing and new markets that we expect to share in the upcoming quarters. Pricing for EWP and general line product categories has remained strong. However, these product lines may be subject to price erosion as economic activity slows. We have proven our effectiveness in managing market uncertainties and volatile commodity product pricing, and I'm confident in our ability to do so across all product lines in the future. Further, times of uncertainty provide BMD 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. The strength and flexibility of our balance sheet provides us the ability to effectively adjust to economic landscape ahead while executing upon our organic growth plans. Lastly, I want to again welcome the 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 our customers. Thank you for joining us today and for your continued support and interest in Boise Cascade. We will welcome any questions at this time. Jonathan, would you please open the phone lines?
spk01: Certainly. As a reminder, if you have a question at this time, please press star 1-1. One moment for our first question. And our first question comes from the line of Susan McCleary from Goldman Sachs. Your question, please.
spk06: Thank you. Good morning, everyone. Good morning, Sue. Good morning. My first question is, you know, you talked a lot about the or somewhat about the strength of EWP pricing. As we look out and we think about a macro environment with housing slowing down, and the macro perhaps moving lower. How are you thinking about the sustainability of that pricing, the puts and takes there that are sort of maybe pushing it further up versus taking it a bit lower?
spk12: Morning, Susan. This is Mike. Yeah, very good question. I think my thoughts are in line with probably other comments you've heard of recent days about the EW pricing will almost certainly come under pressure in the forthcoming quarters. At least in our case, for the next quarter, we think that the pricing will remain fairly robust because of the way in which we've put in place 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 may see some additional pressures resulting in a bit of price movement to the downside.
spk06: Okay. That's helpful. My second question is focusing a bit on BMD and the margins there. You know, as you think about just a more stable pricing environment, how are you thinking about the trajectory for those margins in the back half of this year and then perhaps even going into early 2023?
spk10: Yeah, so good morning, Sue. 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 are strong relative to our historical performance. The bigger question becomes a little bit to Mike's point. out into the future as we start to see some deflationary impacts in EWP and general line, even in spite of lower, you know, if commodity prices, you know, stabilize, you know, there's a good chance that we start to see some gross margin erosion in BMD. And so I think 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 normalize back to more historical numbers, but I do think, you know, we do expect they'll be a little bit above what those historical norms as we continue to execute our strategy to grow General Line, to grow EWP.
spk09: Hey, Susan, it's Nate. Maybe just another quick add to that is when you think about, I think, as we go through the balance of this year and probably into early next year, I think kind of the risk-reward from our customers is making sure their inventory levels are set correctly, maybe less around price realizations but maybe 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 compared to direct. And I think we're starting to see early signs of that where customers that may have been buying rail cars or trucks are buying maybe more trucks, units, and even job packs. So in terms of the mix and shift, we expect that to continue as we go through the course of this year, probably early in 23, again, as customers are managing their work and capital position. And, again, we're really well set up to do that and execute upon that in BMD.
spk06: Okay, that's very helpful, Collar. I'm just going to squeeze one more in if I can, which is can you talk a bit to your playbook and how you're thinking about the cost structure and perhaps protecting the business if we do go into – a weaker macro backdrop over the upcoming quarters?
spk09: Yes, Susan, this is Nate. A great question. I think as we look at the future, I think from a housing perspective, certainly the medium to longer term, we remain very optimistic and confident about housing in general. And our investment and our plans associated with how do we continue to support and grow, this company is consistent with that. To your point, as things get potentially difficult, I think we have a plan in place that we are confident in in terms of making the adjustments. So we'll absolutely stay in the moment, if you will, on 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 were 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 in those kind of very difficult and uncertain environments. So, again, I think we have a plan in place, but ultimately, I think our focus is still largely centered on how do we continue to grow and support this company with the various investments that we've discussed today.
spk10: And one other comment maybe I would add, Sue, would be, as you well know, when we start to get deceleration, particularly in the distribution business, the business 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.
spk06: Okay. That's very helpful, caller. Thank you, and good luck.
spk01: Thank you. Thank you. One moment for our next question. And our next question comes from the line of Keaton Mumtrow from BMO. Your question, please.
spk05: Thank you, and good morning, Nate, Kelly. Well, first question, you guys touch a lot of different products in your distribution business. I'm curious, as you see things right now, where are you seeing still the most supply-demand tension and where things have started to ease a little bit?
spk08: This is Jeff. I will tell you right now, it really is a mixed bag. We have some products that we distribute that They really still are tensioned up, and they're tough to get. And when they become available, people are taking everything they can, get their hands on it. There are other products, I'll tell you, they're starting to ease up, whether allocation has been increased or, in some cases, allocation has gone away. So the best way to say it is a mixed bag on everything.
spk05: And, Jeff, is that more kind of dependent on the end market? So let's say, you know, new resi versus R&R, or that is not the case?
spk08: No, it's not. A lot of it has to do, you know, with what the raw materials that are going into things that still can be tight and hard to get.
spk07: So each product line is a little bit different.
spk05: Got it. Okay. And then just staying with the distribution business, as we think about, you know, sort of more normalized environment, you know, from a pricing standpoint, recognizing that, you know, I mean, 2023 demand could be slower. What is the right way to think about sort of normalized margins and distribution, whether on a gross basis or an EBITDA basis, especially with, you know, the growth that we've seen on the EWP side over the years?
spk10: Yeah, no, good question, Keaton. And I would tell you there's so many variables in play in the last several years that that's And even as we sit here today, so many variables in play that it's really hard to give you a definitive answer there. But as I alluded to earlier, our plan is to, you know, 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 EWP 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. We're looking to certainly push that up, you know, to be, you know, 13 plus, but it's a little too early to make that call just given all the various levers that are bumping us around in the last couple of years. Got it.
spk05: And then one last question from my side. The labor issues that you guys have been facing, has that started to ease or are you still seeing that?
spk12: Okay, I'll have a go at this one from a manufacturing perspective, at least, labour issues. So I think it'd 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 labour shortages in the last quarter, particularly in the Pacific Northwest, but not only. And I would suspect that on the manufacturing side, that's probably going to be the case at least for the near future, if not a bit longer. We'll have to see what happens.
spk08: Kenneth, Jeff, on the BMD side, I'll tell you labor is still tough. Since the inflation that has started and crept up, we have seen an increase in applications and people looking for work. There are some specific jobs like truck drivers that I can tell you that are really, really difficult to still find.
spk05: Got it. That's helpful, Kalar. I'll jump back in the queue. Good luck in the back half. Thank you, Keith.
spk01: Thank you. One moment for our next question. And our next question comes to the line of Kurt Yanger from DA Davidson. Your question, please.
spk04: Great. Thanks, and good morning, everyone. Hey, Kurt. I just wanted to start off on the coastal deal and appreciate the details in the slide deck. 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 realization stack up relative to yours historically with, I think, maybe a higher proportion of specialty mix.
spk10: Yeah, 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 10Q. I would tell you at this point, it's probably somewhere in the range of 12 to 15 million annually is what I would expect for DNA. And then in terms of your question around their plywood realizations, yeah, Havana has a richer mix than we do, a good amount of sanded, for example. And so their historical pricing, you know, if you kind of get back to
spk04: quote what is it maybe a more normalized level I'd probably say across their system somewhere in the range of somewhere around 350 a thousand probably got it and I guess is that kind of consistent with the 50 million of kind of EBITDA over what 2018 through 2020 correct you got it 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. I mean, in terms of sizing, is that kind of consistent with the 80 million board feet or so that you guys have?
spk12: I'm not sure I quite get the question, Kurt. If you're asking, is their production sort of similar to our current or previous lumber production at our historical facilities, is that the question?
spk04: No. I thought, I forget which of the facilities it is, but I believe there was some lumber production in addition to the plywood. And I was just trying to get a sense of how meaningful that was. Okay, yeah.
spk12: So it's at the Chapman location in Alabama. There's what I'd 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 or the rest of the operations, it's a very small component. And so I wouldn't put too much focus on the lumber operations as a significant impact to the bottom line one way or the other. Okay.
spk04: All right. That's helpful. And then in terms of the incremental LVL capacity figures that you provided, is it fair to think that I guess the 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 you're making. Or I guess I'm just trying to get a better sense of, you know, absent the other organic growth investments that you're making, you know, what type of runway does just the existing coastal operations provide?
spk10: Yes, so you captured it correctly there, Kurt, but I'll just restate it. So the first phase, if you will, by year end 2023, the 1.4 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 EWP converting capacity. So we're able to capture that. The next increment, the additional couple million cubes we'll get
spk04: that will be phased in as we also increase our capacity of ewp production in uh thorsby and alex got it okay that's helpful thanks kelly and then i guess my last one um you know as we look ahead right he talked about weakening single family starts activity typically we think of that as a headwind to ewp 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 just weren't able to. So I guess as you look ahead to EWP volumes over the next couple 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 underlying market trends?
spk12: Yeah, sure, Curtis, Mike. Yes, that's our plan. The last bit is to keep our foot on the accelerator, as I think Nate made some comments about some of the headwinds. If housing single family starts to decline, there's an opportunity probably for multifamily, which we'll take more advantage of if we have that situation occur. And so our idea, I think quite clearly, is that we're going to maximize the opportunity presented to us by now having essentially 100% self-sufficiency in veneer in the southeast in the United States. And so it's not obviously a one-quarter or even a one-year strategy. It's a long-term strategy, and we're going to put our foot down.
spk09: Hey, Curt, it's Nate. Maybe just to add to Mike's comments, when you think about maybe the marketplace, specifically EWP over the last couple of years, it's been really tensioned up in terms of supply and demand. And in some cases, customers, be it lumberyards or builders, have had to go to other products, including dimensional lumber, as an example. So, as we think about the opportunity to have additional production, kind of beyond what Mike described, I think it's an opportunity to reclaim some maybe lost share to other materials that, at the end of the day, I think our customers would prefer to use EWP. we think that remains an important opportunity. And I think as we get to the second half of this year and through the second half of this year and the next, that'll be part of our growth story for UWP as well.
spk04: Got it. Okay. Well, appreciate the color, Nate and Mike, and I'll turn it over. Thanks, Kurt. Thanks, Kurt.
spk01: Thank you. As a reminder, ladies and gentlemen, if you have a question, please press star 1-1. And our next question comes from the line of Ruben Garner from Benchmark. Your question, please.
spk02: Thanks, guys, and congrats on the strong results and 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 segment margin. So, you know, I recognize that things have been unusually tight over the last couple of years. You know, I guess a multi-part question, but first, Can you talk about what the mix of volume is today versus what it was maybe three, four, or five years ago in terms of commodity versus the general line in EWP? You know, I know we can estimate with pricing, but it might just be easier. You might have it on hand. Trying to get a sense for, you know, you were pretty consistently running three to three and a half percent EBITDA margins back in, you know, 17, 18, 19. Where can that be? even if maybe single-family starts were to go back to what we saw in those years.
spk10: So, yeah, we do present in the statistical tables there, Ruben, kind of the percentage for BMD between commodity, general line, and EWP. And so, no, we still get bounced around a fair bit by just the absolute levels of commodity prices, which can move that percentage up. I will tell you, again, that's still an important piece of our business. And so we are looking to grow, and we have grown, the EWP piece as well as the General Line piece. And specific to General Line, that's where you have a lot of products, a lot of vendors that they don't stand still. They're 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, including business. you know, staying in commodity, but kind of balancing our exposure to that. And so I think I don't have the numbers at hand in terms of sheer volumes, but I'm pretty confident that the general line and EWP components on a volume basis have grown compared to those historical periods that you were referencing.
spk09: Hey, Brim, it's Nate. Maybe the other thing just to add to Kelly's comments is when you think about the general line, and we've been really intentional about, as Kelly described, growing that part of the business, but specifically around our our uh the door and millwork segment in terms of our investment and growth there so we think that that that's an important really important part of serving our customers but we think that also represents an opportunity for uh you know margin stability and growth maybe beyond uh you know traditionally what we've experienced so i think maybe that'd be the other thing for me to add just that again really intentional growth on on the door segment as well okay and then um kind of a follow-on on the pricing side so i understand the
spk02: potential risks to the EWP pricing if things were to slow. But I think you mentioned general line as well. And maybe I'm just thinking of certain categories like composite decking. I don't think it's 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, you know, be under pricing pressure if we see a, you know, prolonged slowdown here?
spk08: I think as you move forward, you know, the laws of supply and demand say that there could be, you know, a little bit of erosion here and there. But things, you know, are still good. And you look at the cost pressures that are going into the raw material to make things, that they're still going to be elevated. Could some things move backwards? You know, certainly they could.
spk07: But overall, you know, it's still pretty strong.
spk02: Okay, great. Thanks, guys. I think most of my other questions have been answered, so I appreciate it. Good luck going forward.
spk00: Thanks, Rick.
spk01: Thank you. And our next question comes from the line of George Staffos from Bank of America. Your question, please.
spk03: Hey, guys. Good morning. Thanks for the details. I hope you can hear me okay. I wanted to come back to the question on EWP that Kurt had tabled. And specifically, Mike, I know in the past we've talked about EWP, the fact that obviously builders want to use it, probably want to use it 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, EWP continues to move higher, dimensional has been moving lower, that you actually think you'll be able to regain some of the share that you lost? Again, recognizing some of the things that are playing to EWP that you've mentioned in past calls. Any update or different thoughts there than what we've seen in the past?
spk12: Yeah, George, it's Mike. Thanks for the question. Yeah, so I think as Nate mentioned earlier, our inability over the last couple of years, I'd say, as an industry, an EWP industry, to be able to supply all the product that was being demanded, I think that speaks to the value proposition that EWP actually creates for a builder. It's not just the individual price per unit. There's an installed cost. and the availability and also a transportation component that allows the EWP group of products to compete very, very competitively against those other items that you mentioned. And that's been the case historically through all markets, the good, the bad, and the indifferent. So as we move forward, if the pricing pressure mounts, we also have that as an additional lever, but that certainly wouldn't be our first one. We have availability and we have a top-notch product or group of products. And now we'll be able to concentrate on looking for additional opportunities to sell more rather than that falling through on our allocation philosophy that we've had for the last couple of years.
spk03: And from what you're saying, Mike, just to restate it, even though builders have been using lumber maybe more frequently than they would have expected or liked to have, that increased usage doesn't mean increased favor on a going forward basis. The selling points, the value add of EWP to them, you think from what you're hearing from them is still everything it's been. Would that be fair?
spk12: I think that's one way of summarizing it, George. I mean, there's no new news here. Obviously, to your point, we have elevated pricing of EWP. But again, I refer back to the fact that historically speaking, Builders have moved towards more EWP rather than less over a long, long period of time. The amount of EWP per stock has historically been increasing for many, many, many, many years.
spk03: No, that's fair.
spk09: Hey, George. Yeah, George, maybe just to add to that. I think it's, you know, no one's 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 they're... need or desire to pivot to dimensional lumber was more because they had to, not because they wanted to. And so I think that is still part of their thinking, as well as plated floor trusses, I think, has been the other item as well. So again, it's something we feel represents an opportunity in terms of reestablishing ourselves with some of those customers that, frankly, had to go a different direction, not because they wanted to. Understood.
spk03: My last two, and I'll turn it over. Oh, 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 in wood? You mentioned labor availability, lower production, which hurt unit costs, perhaps. Was there anything else to observe? A bit more granularity on what was driving the increase per unit costs in wood? You mentioned labor availability, lower production, which hurt unit cost perhaps. Was there anything else to observe? Can you give us a bit more granularity again on how the $50 million is going to be spread across coastal? Again, congratulations on that, and the legacy operations. And then on BMD, On BMD, obviously you're going to manage inventories tight, but is there anything else that you might do differently in this potential down cycle, we'll see how it plays out, to continue to preserve the margins and do what's been a phenomenal job with that business, Jeff, into a potential downturn relative to past ones? Thanks, guys, and I'll turn it over there.
spk12: Okay, I'll have a shot at the wood products related questions, George. So what's been driving costs up? Pretty much everything, not the least of which is, if you put aside at the moment, the cost of labour and turnover in labour, because that's always very expensive. We've had, relatively speaking, quite significant increases in log costs, particularly in the Pacific Northwest, but not only. So that's a very general statement, but the coastal component of our operations in Medford have seen very, very significant increases in log costs over the last 12 months or so. Not quite as significant in the south, but we do have some locations where log costs in the south have crept up over the last 12 months. Nothing like the Pacific Northwest or the coastal Pacific Northwest operation. And then everything that we use that is derived from some sort of petrochemical-related activity, so things like resins and our wrap and our strapping, Those sorts of things have seen major increases and continue to see increases because of the way those are calculated. They're sort of using a trailing average to look at the cost of their inputs. So, in fact, I saw an increase just recently for some of our resins. So those sorts of things have certainly gone up as well. And then Kelly touched on it was more related to CapEx, but it's also our 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 have seen also significant increases over the last 12 months. And I don't see really any of those things taking a backward step anytime soon. So we'll probably continue to see elevated costs relative to historical numbers for some period of time. Your question around I think Kelly's going to give you a bit more color on that one.
spk10: Yeah, I'll take that one. So, yeah, we alluded to roughly $50 million in the southeast area over kind of a three-year period. So, when we referenced fluorine and Oakdale, so as you would expect, that's all about veneer and veneer supplies. So, think about lathes. stackers, improvements to dryer outfeed, those sorts of things, and a fair bit of infrastructure work at Oakdale. The next increment around in the plan is Chapman Alex Thorsby. And at Chapman, we have a little bit of money will probably get spent this year, but not a significant amount, but that's around equipment that helps us scan and grade veneer to make sure that it's high-quality veneer that we can shift over to Alex or Thorsby. So we'll get that done probably this year. And then there's incrementally a POV line that we plan on putting in at Chapman here over time. And then at Alex and Thorsby, there's improvements around eye lines, finger joiners, and presses. And so there's 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, shoot.
spk08: George, on the VMD side, you're exactly right. We will work incredibly hard to manage our inventories, and we'll be working nonstop on that in a big way. You know, you asked how do we manage inventory. I maintain our margins, and it's a couple things I'll tell you. You know, we have the best data that we've ever had that we can look at and see exactly what's going on, and that's going to help us manage and keep the margins up. As Nate mentioned earlier, it's turning into a really, really strong distribution market for us. That's warehouse business, and that's very good for us. I will tell you, we will continue to grow our general line and focus on that. We'll continue to grow our millwork business and door business, which will help us. And then when things – things 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 the big thing I'll tell you, the other thing we'll do is when we enter margin, we'll continue to buy to our sales pace, which we always do. Appreciate it.
spk03: Appreciate that, Jeff. Last one, quickie. Lock costs, don't you expect they'd be down in the West in third quarter or no?
spk12: I would like to believe that, but I don't. I think given, you know, I was listening or reading some transcripts from some other producers, and I think based on what I read and what I'm hearing, and I saw some numbers yesterday of what we paid for logs in our Western Oregon operations around Medford. They don't seem to be dropping at the moment, so I think, unfortunately, my wish is not going to come through, George. I think we'll have pretty elevated costs, at least for another quarter or more. Generally speaking, I think, just to finish off, Just because lumber prices have declined of recent past, it takes usually quite some time for there to be an impact on log costs. And I would say, just as a reminder, and we do this, and so do most people in the Pacific Northwest, we go out and buy some of our logs well in advance because we need to have, if you will, an standing inventory of logs because we can't rely on day in and day out purchases to log the mills. So we have to obviously lead that up as well.
spk03: Thanks, guys. I've worn out my welcome. I'll turn it over. Thanks for everything. Good luck in the quarter.
spk12: Thanks, sir.
spk01: Thank you. And our next question comes from the line of Michael Roxland from Truist. Your question, please.
spk11: Good morning, guys. Thanks for taking my questions. Hey, good morning, Michael. Morning. I just want to get a sense, a lot of my questions have been asked, but I want to get a sense here as to what you're seeing in your order books at present. Any shortening, any less committed orders and more spot purchases? And obviously, you've been following the home building news. You've seen a pretty big pickup in home builder cancellation rates. And 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've indicated, at least with EWP. But any sense right now, maybe in terms of the order books,
spk09: uh extending uh or shortening for that matter um just will be any color you have there yeah mike it's nate yeah good question i think um i think you know kind of the the here and now everything remains uh steady and and and strong i think across the range of products and services so we haven't really experienced anything you know kind of unique at this point um it really from a from a geography or even from a product uh segment perspective I think the one thing I mentioned earlier in the discussion is we are seeing 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 me, that represents more normalcy as opposed to something unique where the second half of the year, people are managing their working capital and really being thoughtful as they finish the year and head into the upcoming year. 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.
spk11: Got it. That sounds good. And just one quick follow-up in response to an earlier question. You mentioned that you have a long-term plan to address housing weakness, and I'm wondering if there's anything you can proactively do, whether it be through distribution, even with products, to get ahead of a downturn in housing. And I know it's a question mark as to whether housing is actually going to significantly soften, but some of the builders are expecting it to. Cancellation rates are picking up, and obviously it all depends on mortgage rates. But is there anything you can do as we sit here today to reorient the business in case things do get worse from here?
spk09: Yeah, 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 markets as well. Repair and 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 is, again, 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, If the 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 that's really what our team's focused on today. Thank you. Good luck in the second half. Thanks, Mike.
spk01: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Nate Jerkinson for any further remarks.
spk09: Great. Thank you, Jonathan. And we really appreciate everyone continuing interest in support of Boise Cascade. Thank you for your continuing interest in support of Boise Cascade. Please be safe and be well, and we'll talk to you next quarter. Thank you.
spk01: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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