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spk11: My name is Corey, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascades first quarter 2024. Please note, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce you to Chris Forey, Vice President of Finance and Investor Relations, Boise Cascade. Mr. Forey, you may begin your conference.
spk06: Thank you, Corey, and good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2024 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO, Kelly Hibbs, our CFO and treasurer, Troy Little, head of our wood products operations, and Jeff Strumm. and 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 to segment EBITDA. I'll turn the call over to Nate.
spk02: Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide number three. Total US housing starts only increased 1%. However, single family starts increased 27% compared to the prior year quarter. Our consolidated first quarter sales of 1.6 billion were up 7% from first quarter of 2023. Our net income was 104.1 million or $2.61 per share compared to net income of 96.7 million or $2.43 per share in the year ago quarter. Both of our businesses delivered strong financial results during the quarter, which were influenced by seasonal factors and the relative strength of new single-family housing starts. In addition, our expanded capital spending program is progressing consistent with our expectations as we provided meaningful returns to our shareholders through share price gains, dividends, and share repurchases. I want to thank our associates across the company who continue to execute our strategies that position us to serve and support each of our stakeholders. Kelly will now walk through our segment financial results and provide an update on a capital allocation in more detail, after which I'll provide our outlook before we take your questions. Kelly?
spk04: Thank you, Nate, and good morning, everyone. Wood product sales in the first quarter, including sales for our distribution segment, were $468.9 million, compared to $437.4 million in first quarter 2023. Wood products reported segment EBITDA of $95.6 million, up from EBITDA of $93.2 million reported in the year-ago quarter. The increase in segment EBITDA was due primarily to higher EWP sales volumes and higher plywood sales prices. These increases were offset partially by lower EWP prices and higher wood fiber costs. B&B sales in the quarter were $1.5 billion, up 9% from first quarter 2023. BMD reported segment EBITDA of $83.6 million in the first quarter compared to segment EBITDA of $76.8 million in the prior year quarter. The increase in segment EBITDA was driven by a gross margin increase of $22.9 million, resulting primarily from higher sales volumes and improved margins on general line and commodity products. The gross margin improvement was offset partially by increased selling and distribution expenses and depreciation and amortization expense of $16.5 million and $4 million, respectively. We expect total company depreciation and amortization in 2024 to be approximately $140 million. In addition, our anticipated effective tax rate remains at 25%. Turning to slide five, on a year-over-year and sequential basis, first quarter volumes for LVL were up 31% and 16% respectively, and I-JOIS volumes over the same comparative periods were up by 46% and 5%. Our EWP volume growth exceeded the underlying single-family housing start increases for both comparative periods. Sequential pricing for both IJOYS and LVL was down 4% due to continued pricing pressure in the market. Looking forward to the second quarter, production builders have maintained optimism in spite of increasing mortgage rates, and we expect our EWP volumes to increase sequentially. On pricing, we expect sequential price erosion to moderate during the quarter. Turning to slide six, our first quarter plywood sales volume in wood products was 372 million feet compared to 406 million feet in first quarter 2023. As expected, plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP production, given improved demand for EWP. The 378 per thousand average plywood net sales price in the first quarter was up 3% from first quarter 2023 and up 1% sequentially. Thus far in the second quarter 2024, plywood price realizations are consistent with our first quarter average. However, we expect downward pricing pressure as we move through the second quarter given uncertainty in the panel markets. Moving to slide seven and eight. BMP's first quarter sales were $1.5 billion, up 9% from first quarter 2023, driven by sales volume increases of 12%, offset partially by sales price decreases of 3%. Byproduct line commodity sales increased 1%, general line product sales increased 16%, and sales at EWP increased 12%. Gross margin dollars increased $22.9 million when compared to the same quarter last year. Higher margin dollars on general line and commodity products were offset partially, by lower margin dollars generated on EWP. In addition, BNB's overall gross margin percentage was 15.1%, up 30 basis points from the 14.8% reported in first quarter 2023, and down 10 basis points sequentially. BNB's EBITDA margin was 5.6% for the quarter, flat with the year-ago quarter, and up 20 basis points sequentially. B&D sales pace thus far in second quarter 2024 has moderated slightly from the strong levels experienced in March, but is still approximately 5% above first quarter daily sales averages. Although commodity markets have created hesitancy in the marketplace currently, we anticipate our daily sales pace will strengthen as we move through the quarter given a healthy single family environment and seasonally better weather. Second quarter EBITDA margins will be sensitive to the ultimate sales pace for the period and the trajectory of product pricing. Moving to slide nine. This slide shows the weak pricing environment for lumber over the last five quarters. As such, recent capacity reductions in certain geographies have been announced and there is speculation of additional production curtailments if weak pricing persists. Moving to slide 10. The late first quarter increase in composite panel prices was driven by OSB due to strength in single family starts and supply limitations. As we enter the second quarter, sharp price declines in OSB have created cautious buyer behavior across panel markets in general. For our distribution business, periods of uncertainty create both risk and opportunity. Despite the uncertainty in commodity markets currently, we will maintain our longstanding approach to having inventory on hand to support our customer base. I'm now on slide 11. We had capital expenditures of $34 million in the first quarter, with $19 million of spending in wood products and $15 million of spending in BMD. Our capital spending range for 2024 remains at $250 to $270 million, with the pace of spending to accelerate as we move through the year. Speaking to shareholder returns, we paid $11 million in regular dividends to shareholders and completed the repurchase of approximately 206,000 of our common shares for $27 million in the first quarter. We have approximately 1.7 million shares still available for repurchase under our share repurchase program. In addition, our board of directors recently approved a 20 cent per share quarterly dividend for shareholders of record as of June 3rd, payable June 17th. In summary, our balance sheet remains very strong and we are committed to our balanced approach to capital allocation that includes ongoing investment in our existing asset base, organic growth projects, and returns to our shareholders. Looking forward, unless a meaningful M&A transaction surfaces, we would expect to return additional capital to our shareholders during the balance of 2024 via special dividends or share repurchases or a combination of the two. I will turn it back over to Nate to discuss our business outlook.
spk02: Thanks, Kelly. I'm on slide number 12. Current industry forecasts for 2024 U.S. housing starts are generally consistent with actual housing starts of $1.42 million in 2023 as reported by the U.S. Census Bureau. Home affordability remains a challenge for many consumers due to the cost of housing combined with elevated mortgage rates. However, with low unemployment and an undersupply of existing housing stock available for sale, new residential construction is expected to remain an important source of supply for homebuyers. Recent pressures on multifamily starts are expected to continue due to the increased capital cost for developers combined with cooling rents and elevated supply. Regarding home improvement spending, the age of U.S. housing stock and elevated levels of homeowner equity have provided a favorable backdrop for repair and remodel spending. In 2023, year-over-year growth rates and renovation spending moderated due to economic uncertainty and higher borrowing costs. While home improvement spending is expected to remain healthy compared to history, recent industry forecasts project mid-single-digit declines in 2024. Ultimately, Macro environment factors, the level and expectations for mortgage rates, home affordability, home equity levels, and other factors will likely influence the near-term demand environment for products we manufacture and distribute. As Kelly mentioned, we remain well-positioned to invest in our existing asset base and organic growth projects in both businesses, as reflected in our robust 2024 capital spending plans. A longer-term view on housing fundamentals remains favorable, supported by demographic trends and under-built housing stock. As such, we remain clearly focused on the execution of our strategies and have great conviction around the investments that continue to grow the company. Thank you for joining us today and for your continued support and interest in Boise Cascade. We would welcome any questions at this time. Corey, would you please open the phone lines?
spk11: Thank you. At this time, we will now conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first call comes from Susan McClary of Goldman Sachs. Susan, your line is open.
spk05: Hey, good morning, everyone. This is Charles Perronin for Susan. Thanks for taking my question.
spk03: Hey, good morning, Charles.
spk05: Maybe first, talking about EWP, obviously it's encouraging to see that the market dynamic is favorable for the volume outlook for the coming quarters. But when you think about iJoyce specifically, you've seen obviously OSB prices rising significantly through the first quarter, obviously being quite elevated right now. You talk about pricing erosion on EWP moderating, which is encouraging. But how should we think about the input cost and basically the margin dynamic, especially for iJoyce in the near term considering those dynamics together?
spk04: Yeah, sure, Charles. So, yeah, we feel really good about our iJoyce position in the marketplace in general. And then specifically to your question around cost, yeah, OSB and WebStock is a meaningful input cost for iJoyst. As we've spoken before, though, we do have kind of a 13-week average pricing mechanism at which we procure our OSB. And so we kind of lag on the way up, and we also lag on the way down. you know, feel good about our ability to kind of continue to manage our cost base across EWP in general.
spk05: Okay, yeah, that's helpful. And then sticking to that point about the commodity price moving, when you think about BMD specifically, how do you approach holding inventories in this environment where you see this price weakness? And what is your ability to some extent to protect that margin for the segment, let's say, above the historical average of three to four deaths you've mentioned in the past.
spk04: Yeah, so let me kick it off here, and then we'll see if Jeff or Nate want to provide some input here. So, you know, we're certainly in a bit of a discovery period here. OSB has fallen significantly, still at very high levels compared to history, as you'll note, but it's a It's fallen quite sharply, so we're still in a bit of a discovery mode there. Plywood has been stable, but yet it's showing a little bit of weakness as well. I think it's kind of correlating with OSB in that regard, a little more in the south than in the west. So our ability to manage and mitigate, we're going to be in the marketplace every day. We have really good visibility of what's on the ground, what our cost position is. And, you know, we're not going to fall in love with our inventory. We're going to move it, we're going to turn it, and we'll continue to work down our position. But, again, we're going to be there for our customers. Anything you'd add, Jeff?
spk18: Yeah, I would just add that, you know, overall, we saw this coming, and we worked really, really hard to lighten our position before it hit. So, obviously, you'd always like to have a little bit less when print comes down as big as it is, but, you know, we're pretty well positioned for it.
spk05: Okay, that's very helpful, Collier, there. And maybe one last one. On the balance sheet, you guys repurchased some stock this quarter, which was encouraging to see, considering your leverage. You know, when you think about capital allocation going forward, is this something that we should expect more going forward, or should we think about the dividends still remaining your favorite way of distributing capital to shareholders?
spk04: Yeah, no, I guess I would say it this way, Charles. So we're you know, committed to our approach. We're very committed to our expanded capital program. You know, I'd reiterate that we do expect to, you know, provide additional shareholder returns, assuming there's no meaningful M&A that surfaces. And then our playbook includes both, not share repurchases and special dividends. But it wouldn't be appropriate in this forum to really communicate more than that in terms of timing and sizing and how that plays out exactly. But our expectation is we will be returning additional capital to shareholders absent M&A in the balance of the year.
spk05: Okay. Thank you for the time, guys.
spk11: Thanks, Jerome. Thank you very much. One moment for our next question. Our next question comes from the line of Mike Roxland at Truist. Mike, your line is open.
spk07: Thank you, Nate, Kelly, Jeff, and Chris for taking my questions. Just wanted to follow up on the last one. Jeff, you mentioned that you sort of saw this commodity price decline coming, so you worked really hard to lighten your positions. Can you comment, where do backlogs stand or order books stand on OSB, lumber, plywood relative to normal?
spk18: I would say that on the lumber side, you can get what you need relatively quickly. you know, without any issues. And OSB, I'll tell you, during the run-up, it was very, very difficult to get. And now there's definitely more available and people are looking for a home for it.
spk07: Gotcha. But in terms of your own inventory levels and how much you have in stock relative to, let's say, where a normal level, a normalized level of inventory would be for, let's say, OSB and lumber, are you at that normalized level? Did you take it down below, given the fact that you had some foresight that the turn was coming?
spk18: No, we're actually in really good shape. There's been no real reason to take any kind of position on the lumber or studs. And so we say we're going to have it in stock and be ready, and we do. So I think we're in a really good position there. On plywood, I think we have plenty. We're in a good spot there. On OSD, which definitely had a big run and was tough to get, you could tell it was slowing down a little bit. We really did work hard. So overall, I'd say we're kind of right where we should be, and it's kind of a normal level.
spk02: Hey, Mike, it's Nate. Maybe just to add to Jeff's comments is in these kind of environments where, you know, commodities have come off and obviously OSB is the most recent example. You know, there's obviously hesitancy in the marketplace. And I think our customers and suppliers as well look to us as a bit of a safe harbor. And so they're going to go short. They're going to, you know, they're going to be buying more heavily out of warehouse. Maybe instead of rail cars and trucks, it goes to trucks and units. And again, we're really well supported to deliver on that. So it's important that we remain in stock and we can provide that important service and value when our customers are in need of it and today represents that opportunity.
spk07: Got it. Thank you. That's great, Colin. Then just one quick follow-up on BMD. You guys did a terrific job shifting your mix to general line and EWP while minimizing commodity. Given the volatility in commodities we're currently seeing and we have seen in the past, I mean, is there a certain percent of commodity that you're ultimately targeting? Is it going to be 30% of BMDs and make 25%? And over what time frame are you looking to achieve that?
spk04: Yeah, good question, Mike. So, yeah, I mean, currently in the first quarter, we were, I guess, right around 37% of the mix. Obviously, price can influence the ultimate how big that piece of the sales pie is. I think at the end of the day, I think we would still probably be in the mid to low 30s when we fully execute our strategy. But as we've said many times, we're not exiting commodity. We're good at it. We like it. The return on investment capital is really good.
spk18: I'm just going to add to that. We absolutely like the commodity business. The last few weeks of print hasn't been fun. But if that share is going to go down a little bit, it's just because of the growth in the other categories. But the commodity business has been good to us. Our customers rely on us. We're going to start right in there with it.
spk04: Yeah, and I guess I would just follow along. We have a really good commodity sales team, great awareness of our data, and I look forward to kind of seeing how they navigate us through this near-term period we're working through.
spk07: Got it. One last question, then I'll turn it over. Kelly, you mentioned that your EWP volume growth this quarter exceeded the single-family start increases. Given the 80 to 85 EWP correlation to single family, where did those additional volumes head, especially given the weakness in multifamily?
spk04: Yeah, so our volumes were heavy to single, Mike. I guess I didn't quite follow the balance of that question. Can you hit me again, folks?
spk07: Sure, sure.
spk04: No, no problem.
spk07: I mean, so you said your EWP volumes exceeded single. the amount of the single family start increases. I guess what I'm getting at is given the fact that you have 80 to 85% of EWP goes towards single family, what other categories did you see growth in that absorbs some of your EWP volume?
spk04: Yeah, I mean, I can't point to it specifically. This is a bit anecdotal for sure, but I feel really good about our ability to capture share given the nice job on the manufacturing side. And then also having the benefit of having a leading national distributor, I think, shows up well and helps us capture share.
spk07: Got it. Thank you very much, and good luck at 2Q.
spk11: Thank you. Thanks, Mike. One moment for our next question. Our next question comes from George Staffos of Bank of America. Securities, George, your line is open. Thank you.
spk08: Hey guys, this is actually Lucas Hudson on for George Staffos. He's currently traveling right now. So first and foremost, thanks for the details. My first question is, what is your outlook for repair and remodel? And is there more momentum in do-it-yourself projects or pro-contractor? And what are the implications for BMD and Wood?
spk02: Hey Lucas, it's Nate. Maybe just, I think the theme as we kind of described in our opening remarks is that repair and remodel is has come off a bit, but is still historically kind of above where trends typically are. I would say that the pro side of repair and remodel still feels good and pretty steady, maybe relative to the weekend, the over-the-shoulder crowd. So I think the overall view of repair and remodel is good. And I think the backdrop in terms of that, again, that aging housing stock, um homeowner equity um there's there's still you know a good foundation there from to work on so um again while it's off from from what we experienced maybe over the last 12 24 months it still represents i think an important opportunity for our company on a range of products and services thank you that's uh that's great killer um just a quick follow-up as well um was bmd revenue better than initially expected and if so what created that positive variance
spk04: I would say B&B's revenue probably came out pretty consistent with what our expectations were. I think the quarter started slower than we would have anticipated, and it finished very strong in March.
spk08: Okay. Thank you so much. I'll hop back in the queue.
spk04: Thanks, Lucas.
spk11: Thank you very much. One moment for our next call, please. Our next call comes from the line of Keaton Mamatora of BMO. Your line is open.
spk13: Thank you very much. First question, just following off on that, this trend that you saw in March, has that continued into April as well? Any additional color you can provide on that?
spk04: Yeah, sure, Keaton. So, yes, March was very strong, as I alluded to in the prepared comments. The sales pace for BMD was off slightly. in April compared to March, but still at healthy levels. And then in terms of on the wood products manufacturing side, feeling good about the momentum in EWPs. It continues to be solid. It might be a little bit weaker than what we would have anticipated, but still is solid as we head into May here.
spk13: Got it. That's helpful. And then, Kelly, when you talked about in BMD daily sales being up 5% sequentially. Are there any shipping date differences that we should be mindful of between Q1 and Q2?
spk04: Yeah, I would have factored those into my math I gave you, Keaton. But yeah, there are 64 workdays in both first and second quarter.
spk13: Got it. So if that's the case, that would still imply BMD to be down versus last year's second quarter, if I'm just doing my math correctly?
spk04: Yeah, that's fair. If we maintain the same pace we've had in April, that would be true. But we will see how May and June plays out as we continue to see seasonally better weather and see what the ultimate activity is. activity around housing is. But yes, you have the right question there.
spk13: Got it. And then just one last one from me. On the margin side, you know, we talked about some margin pressure, you know, some price pressure from EWP, OSP going down here recently, plywood maybe. But then you also have just seasonally sort of volume leverage in Q2. As you think about margins,
spk04: uh you know how would you sort of you know weigh in those factors as it relates to q1's 5.6 margin yeah so so april margins were healthy they were good um you know may is going to be the discovery period here around commodity prices as we've talked so we do expect some some pressure here in may and and and to the extent of it will depend on the duration of the weakness we've seen but Fundamentally, it doesn't change. While we might get some pressure here in the second quarter because of the commodity market, we still feel good about kind of the underlying earnings capability of VMD moving forward to be consistent with what we've been putting up of late.
spk02: Hey, Keaton, it's Nate. Maybe just to add to Kelly's comment is if you think about a marketplace that maybe has some hesitancy in terms of both on price and demand, again, the dependence on out-of-warehouse services only increases. So as you think about how that shows up for BMD in terms of sales volume and margin performance out-of-warehouse, that's a clear-tail win for us as well. So I think we're well set up to do what we need to do in BMD, again, kind of no matter what the demand environment is as we go through the quarter.
spk13: Sorry, if that's helpful. And on EWP prices, you talked about sort of the price erosion moderating, so is it fair to say that after Q2 we are sort of stable at those Q2 levels, or it's hard to tell at this point?
spk04: Yeah, so where we were going with that comment, Keaton, was we just put up sequential declines of about 4%, and we expect that to moderate. you know, somewhere between zero and negative four is kind of our current expectation.
spk13: And beyond that, you would expect it to sort of stabilize or difficult to say at this point?
spk04: I'd say it's difficult to say. It'll be depending upon market demand and that sort of environment.
spk02: I mean, with EWP, it's, you know, the market supply and demand is really what kind of, you know, sets the framework for pricing. So it's has maybe less to do with input costs, more around what the market environment is. So to Kelly's point, it's hard to see the second half from here, but as long as starts remain stable and steady, I think that'll be favorable for the EWP pricing environment as well.
spk13: Got it. That's very helpful. I'll jump back in the queue. Thank you.
spk11: Thanks, Pete. Thank you very much. One moment for our next question. And our next question comes from Kurt Jinger of DA Davidson. Kurt, your line is open.
spk10: Great. Thanks. And good morning, everyone. I just wanted to start off on kind of competitive dynamics between iJoyce and open web at this stage. I'm just curious, is it harder than you would have thought maybe getting some of those builder customers to convert back after some of the availability driven kind of shifts in usage and I know it's a complex topic and a lot of different inputs, but at a high level, how would you kind of describe the pricing differential for a builder customer at this stage between the two products, and how does that kind of factor in?
spk02: Hey, Curtis, Nate. Yeah, I would just say on, you know, the EWP or the iChoice comparison to play the floor trusses, that, you know, so it's not a new, you know, phenomenon. That's obviously been in place for a number of years, and I think there are times when IJOY systems are preferred relative to the plated floor trusses and vice versa. I think when I look at kind of the competitive dynamic and environment today, I think IJOY systems set up well against plated floor trusses, both in terms of cost as well as lead times. I think the other component that we talked about is that when it comes to the builders, they are looking to drive cycle time out of the equation. TAB, Mark McIntyre, When you look at an eye joy system versus either dimensional lumber play the floor trust is typically the speed on the. TAB, Mark McIntyre, On the construction side is superior and allows again the builder to drive down cycle time so, which is an important part of how they think about value today. TAB, Mark McIntyre, And going forward, so I think I joy system EDP is well set up to compete against both dimensional lumber and open trusses. And again, I think that dynamic about how do we add speed and simplicity to the job site continues to be an important part of what the builder's expecting.
spk10: Got it. Thanks for that, Nate. And as we think about builders trying to address affordability challenges, perhaps building smaller homes, taking complexity out, is there any sort of current or medium term impact do you think that has on kind of the EWP business or the relative attractiveness of those products? I mean, obviously a smaller home potentially has some sort of volume implication, but beyond that, is there anything that kind of jumps to mind in terms of how that impacts your wood products business?
spk02: yeah good question i think the um yeah i think it's your point on if the footprint is smaller um you know that can that'll obviously have a uh you know influence in terms of the amount of um ewp um or or structural materials in general that can be sold um so i think that you know that that that's in place and again the builders are looking to take cost out i think there are times uh kurt that you know when the builders have um You know, for them, if they want to look at how do they lower cost, sometimes going vertical is the right answer, given the cost of land. And so if they go vertical in terms of adding a second story, that creates an opportunity for EWP, obviously given that second floor construction. Yeah, so I think, you know, EWP I think is going to be an important part of it, but as we look at the tradeoffs in terms of lower square footage, you know, that will show up in our EWP as well as the other products and services we distribute as well.
spk10: Got it. Okay, that's super interesting. Thanks for that. And then just switching gears to BMD, Kelly, I thought you mentioned kind of lower gross profit dollars on EWP sales within BMD in the quarter. which I guess is a little bit surprising considering the double digit sales increase. So is that just a dynamic where, you know, based on how you're kind of transferring pricing and kind of the bleed in terms of sales prices there, there's a little bit of a timing mismatch, maybe pressuring margins, or is there something else driving that?
spk04: It's not anything to do with transfer pricing or anything like that. It's all market-based. It's, It's just a function of the market, and as we've seen and experienced some of the pricing pressure, you know, we see some of that in wood products, and then obviously you see that in distribution as well.
spk10: Got it. Okay. Makes sense. And then just lastly, I mean, Jeff, we've kind of seen five consecutive quarters now where BMD gross margins are right in that 15% zip code. outside of what we've seen in OSB and maybe a little bit of BWP, is there anything else that you're kind of keeping an eye on that maybe gives you concern that 15% could have some downward pressure to it, or are you feeling pretty comfortable with those levels given kind of the current state of the market?
spk18: Yeah, there's always competition out there is one thing I'll say. So you have to keep your eye on that and what's going on, but You know, if you think about what we've done over the past few years and the growth that we've done and the capacity we've added, that's all about general line and some of the millwork items, which are the higher margin ones. And so our focus and growth on that is what's been holding it steady. But, you know, there's a little pressure on the millwork side, and there's always competition and everything else. But for where we sit right now, we feel good.
spk10: Got it. All right. Well, appreciate all the details, guys, and good luck here in Q2.
spk19: Thanks, Rick.
spk11: Thank you very much. One moment for our next question. Our next question comes from Ruben Garner of Benchmark. Ruben, your line is open.
spk15: Thank you. Good morning, everyone.
spk09: Sorry to harp on this, but I think it's pretty critical right now, and I just want to clarify. On the inventory side, I understand you guys become more valuable in these sort of environments. You're suggesting that your customers maybe go shorter on inventory when there's uncertainty like this and commodity downside. Is that something that has already played out and is done in the first quarter? Is it something that's ongoing and impacted your business in April and you're expecting it to continue to impact the business? Can you just kind of clarify where we stand on that sort of channel destock?
spk18: but I don't know if it's a D stock as much as what, if you can get it and eliminate risk, why wouldn't you just buy exactly what you need when you need it? And that's what's happening. So we're seeing right now as, for example, on the OSP side, as prices are decelerating, you know, people don't want to step in and buy directs. They want to get what they need to cover it quick. And so our warehouse business, we're seeing it right now is picking back up.
spk09: Okay. And then, um, I guess, On the general line side, last time we kind of saw a jump in rates and some uncertainty kick in. The distribution channel, including yourselves, got pretty conservative and destocked in some certain categories. I guess, how are you thinking about that? It looks like general line had a pretty strong first quarter. Is it different this time? Are there trends that are hanging in in some of those areas that are different than the commodity side and aren't maybe as rate sensitive as you thought. Can you just kind of update us on your thoughts there?
spk18: Yeah, and the general line, the one big difference I'd say that we saw this year compared to last was in the winter buy and the price increases that were announced on some products. Before people were, last year, for example, people were hesitant to step in. They just didn't know. And this year, there was confidence in what was going to happen this year in the market. And so when those things came along, people jumped in and they purchased them. So as far as destocking goes, We don't see that. In fact, in some of the winter buys, we're starting to see people step back in and buy some more. So the general one has really been pretty stable.
spk09: Okay, great. And then pricing, are there certain categories within VMD outside of the commodity that are facing more pressure than others? It sounds like you had some successful increases. Anything going the other direction?
spk18: Yeah, I think right now, I mentioned it earlier, there's always some EWP pricing pressure just for competition. And then the millwork side, there's been a little bit there. And a lot of that has been driven by some of the components and things that come in from offshore and just what the freight has done and things like that. But those would probably be the two biggest areas that we're seeing right now.
spk09: Okay, great. Thanks, guys. Congrats on the strong quartering. Good luck.
spk17: Thanks.
spk11: Thank you. One moment for our next question. Back up is Keaton Mamatora from BMO. Keaton, your line is open.
spk13: Keaton Mamatora Thank you. Just one quick one. Were there any sort of geographic variations what you saw in Q1 or in April in terms of, you know, regions, east versus west? Anything to call out there?
spk02: Nate Kuehnert Hey, Keaton, it's Nate. I don't, you know, I think it was pretty, I mean, there's always weather-driven events that can kind of shape the first quarter, but I don't think there's anything kind of unique in terms of strength or weaknesses from a geographic perspective. I think it was pretty steady and consistent kind of across our franchise.
spk13: Got it. Okay. And then just one last one on capital allocation. I'm just curious sort of, you know, obviously the balance sheet is very strong. But as you sit here today, you know, there's still uncertainty around, you know, kind of housing, you know, repair and remodeling. So, how do you sort of approach it so far as, you know, share repurchases is concerned versus kind of, you know, maintaining even more dry powder? Can you talk about sort of what context there?
spk04: Yeah, sure. I mean, we have the balance sheet to execute on our Hispanic capital program. We're going to charge forward there. Now, to your point, is there uncertainty in the marketplace in general? Yes, but we still have plenty of dry powder to go pursue acquisitions if they make sense. And if they don't come to fruition, again, I do expect we'll be returning additional capital to shareholders. Fortunately, we've got plenty of optionality, and we'll be thoughtful and prudent. And again, we'll just kind of stay abreast of the market, stay abreast of M&A, and we will look to shareholder returns if we think that's the right thing to do as the year develops.
spk13: Got it. That's very helpful. Good luck.
spk00: Thanks, Keith.
spk13: Thank you.
spk11: Stand by for our next question. Our next question comes from the line of Susan McLaurie of Goldman Sachs.
spk12: Thank you. Good morning, everyone. It's actually Susan this time.
spk16: Hi, Sue.
spk12: Good morning. I just wanted to quickly ask about the M&A pipeline. And I guess both just in terms of what you're hearing from some of your key partners in BMD today, especially maybe across the general line, as they kind of look out at their businesses over the next couple years and think about growth. And then as well as just obviously, you know, the initiatives you've got and the potential for further acquisitions.
spk04: Yeah, I mean, I guess certainly at the dealer levels, still quite a bit of activity there, much more fragmented marketplace than where we sit in the channel. For us, we will... Dave Kuntz, be aware and be acquisitive if it's the right thing to do, but I think my view is. Dave Kuntz, My view is for us it's going to be our organic is going to be our focus and it's going to be the main driver of our capital deployment here here at least near term unless unless something surfaces that that we're not not working on today.
spk02: Hey, Sue, it's Nate. Yeah, I think to Kelly's point, it's, you know, the M&A always has to be aligned, you know, with our strategy and also our values just in terms of, you know, who we are and how we think about the marketplace. The other thing we are pretty insistent on is, you know, one plus one has to be greater than two, you know, both in terms of the customers we serve and support as well as the suppliers. So, you know, those are, you know, really important parts of our equation and how we think about it. And so we'll continue to look through that lens as opportunities emerge.
spk12: Okay. All right. That's helpful. And then just one more from me. You know, when you think about the commentary that we've heard from the builders this earnings season, I mean, they're pretty bullish. And a lot of them have actually taken up their expectations for full year closings, even with the move-in rates that we've seen recently. I guess as you think about some of that coming through to your business, what do you think it could imply in terms of seasonality as we move through the next couple quarters and just the potential for some continued strength to come through on that new home construction side?
spk04: Yeah, you're right, Sue, and you probably know better than us around the national builders. They continue to be pretty optimistic. They continue to deploy their balance sheet as necessary to get folks into homes. So they seem to be still, I don't know, on average kind of mid to high single digits, if you will, in terms of their growth expectations. But then you balance that a little bit with the overall narrative that you know, in some cases it feels a little softer in terms of broadly across the marketplace. And so there's kind of, you know, we're kind of in an interesting period here where there's kind of multiple data points and data sets and commentary. And so it's a little interesting to kind of sort out how the market shapes for us here in the next quarter or two.
spk02: Yeah, I think, Sue, the other thing I would comment on, I think the – you know, the large production builders, national builders, public builders, I think they're really well positioned, as Kelly described, just given the strength of their balance sheet. They've got great clarity on the marketplace, the customers they serve, and I suspect they'll continue to grow share relative to, you know, their position as compared to others in the marketplace. So I think they're obviously an important part of the marketplace today, and we think that that'll continue to grow over time, just given, you know, their strength and both from a financial perspective as well as their great understanding of the marketplace and what their customers need and expect.
spk12: Yeah. Okay. All right. Yes. No, thank you both for the color and good luck with everything.
spk17: Thank you. Yep.
spk11: Thank you very much. This concludes the question and answer session. I would now like to turn it back to Nate Jorgensen for closing remarks.
spk02: Great, thank you. We appreciate everyone joining us this morning for our update, and thank you for your continued interest and support in Boise Cascade. Please be safe and be well. Thanks.
spk11: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Hello. Thank you. Thank you. Thank you. Bye. Good day. My name is Corey, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascades first quarter 2024. Please note, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce you to Chris Forey, Vice President of Finance and Investor Relations, Boise Cascade. Mr. Forey, you may begin your conference.
spk06: Thank you, Corey, and good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2024 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO, Kelly Hibbs, our CFO and Treasurer, Troy Little, Head of our Wood Products Operations, and Jeff Strum, 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 to segment EBITDA. I will now turn the call over to Nate.
spk02: Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide number three. Total US housing starts only increased 1%. However, single family starts increased 27% compared to the prior year quarter. Our consolidated first quarter sales of 1.6 billion were up 7% from first quarter of 2023. Our net income was 104.1 million or $2.61 per share compared to net income of 96.7 million or $2.43 per share in the year ago quarter. Both of our businesses delivered strong financial results during the quarter, which were influenced by seasonal factors and the relative strength of new single-family housing starts. In addition, our expanded capital spending program is progressing consistent with our expectations as we provided meaningful returns to our shareholders through share price gains, dividends, and share repurchases. I want to thank our associates across the company who continue to execute our strategies that position us to serve and support each of our stakeholders. Kelly will now walk through our segment financial results and provide an update on a capital allocation in more detail, after which I'll provide our outlook before we take your questions. Kelly?
spk04: Thank you, Nate, and good morning, everyone. Wood product sales in the first quarter, including sales for our distribution segment, were $468.9 million, compared to $437.4 million in first quarter 2023. Wood products reported segment EBITDA of $95.6 million, up from EBITDA of $93.2 million reported in the year-ago quarter. The increase in segment EBITDA was due primarily to higher EWP sales volumes and higher plywood sales prices. These increases were offset partially by lower EWP prices and higher wood fiber costs. B&B sales in the quarter were $1.5 billion, up 9% from first quarter 2023. BMD reported segment EBITDA of $83.6 million in the first quarter compared to segment EBITDA of $76.8 million in the prior year quarter. The increase in segment EBITDA was driven by a gross margin increase of $22.9 million, resulting primarily from higher sales volumes and improved margins on general line and commodity products. The gross margin improvement was offset partially by increased selling and distribution expenses and depreciation and amortization expense of $16.5 million and $4 million, respectively. We expect total company depreciation and amortization in 2024 to be approximately $140 million. In addition, our anticipated effective tax rate remains at 25%. Turning to slide five, on a year-over-year and sequential basis, first quarter volumes for LVL were up 31% and 16% respectively, and I-JOIS volumes over the same comparative periods were up by 46% and 5%. Our EWP volume growth exceeded the underlying single-family housing start increases for both comparative periods. Sequential pricing for both IJOYS and LVL was down 4% due to continued pricing pressure in the market. Looking forward to the second quarter, production builders have maintained optimism in spite of increasing mortgage rates, and we expect our EWP volumes to increase sequentially. On pricing, we expect sequential price erosion to moderate during the quarter. Turning to slide six, our first quarter plywood sales volume in wood products was 372 million feet compared to 406 million feet in first quarter 2023. As expected, plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP production, given improved demand for EWP. The 378 per thousand average plywood net sales price in the first quarter was up 3% from first quarter 2023 and up 1% sequentially. Thus far in the second quarter 2024, plywood price realizations are consistent with our first quarter average. However, we expect downward pricing pressure as we move through the second quarter given uncertainty in the panel markets. Moving to slide seven and eight. BMP's first quarter sales were $1.5 billion, up 9% from first quarter 2023, driven by sales volume increases of 12%, offset partially by sales price decreases of 3%. Byproduct line commodity sales increased 1%, general line product sales increased 16%, and sales at EWP increased 12%. Gross margin dollars increased $22.9 million when compared to the same quarter last year. Higher margin dollars on general line and commodity products were offset partially, by lower margin dollars generated on EWP. In addition, BMV's overall gross margin percentage was 15.1%, up 30 basis points from the 14.8% reported in the first quarter of 2023, and down 10 basis points sequentially. BMV's EBITDA margin was 5.6% for the quarter, flat with the year-ago quarter, and up 20 basis points sequentially. B&D sales pace thus far in second quarter 2024 has moderated slightly from the strong levels experienced in March, but is still approximately 5% above first quarter daily sales averages. Although commodity markets have created hesitancy in the marketplace currently, we anticipate our daily sales pace will strengthen as we move through the quarter given a healthy single family environment and seasonally better weather. Second quarter EBITDA margins will be sensitive to the ultimate sales pace for the period and the trajectory of product pricing. Moving to slide nine. This slide shows the weak pricing environment for lumber over the last five quarters. As such, recent capacity reductions in certain geographies have been announced and there is speculation of additional production curtailments if weak pricing persists. Moving to slide 10. The late first quarter increase in composite panel prices was driven by OSB due to strength in single family starts and supply limitations. As we enter the second quarter, sharp price declines in OSB have created cautious buyer behavior across panel markets in general. For our distribution business, periods of uncertainty create both risk and opportunity. Despite the uncertainty in commodity markets currently, we will maintain our longstanding approach to having inventory on hand to support our customer base. I'm now on slide 11. We had capital expenditures of $34 million in the first quarter, with $19 million of spending in wood products and $15 million of spending in BMD. Our capital spending range for 2024 remains at $250 to $270 million, with the pace of spending to accelerate as we move through the year. Speaking to shareholder returns, we paid $11 million in regular dividends to shareholders and completed the repurchase of approximately 206,000 of our common shares for $27 million in the first quarter. We have approximately 1.7 million shares still available for repurchase under our share repurchase program. In addition, our board of directors recently approved a 20 cent per share quarterly dividend for shareholders of record as of June 3rd, payable June 17th. In summary, our balance sheet remains very strong and we are committed to our balanced approach to capital allocation that includes ongoing investment in our existing asset base, organic growth projects, and returns to our shareholders. Looking forward, unless a meaningful M&A transaction surfaces, we would expect to return additional capital to our shareholders during the balance of 2024 via special dividends or share repurchases or a combination of the two. I will turn it back over to Nate to discuss our business outlook.
spk02: Thanks, Kelly. I'm on slide number 12. Current industry forecasts for 2024 U.S. housing starts are generally consistent with actual housing starts of $1.42 million in 2023 as reported by the U.S. Census Bureau. Home affordability remains a challenge for many consumers due to the cost of housing combined with elevated mortgage rates. However, with low unemployment and an undersupply of existing housing stock available for sale, new residential construction is expected to remain an important source of supply for homebuyers. Recent pressures on multifamily starts are expected to continue due to the increased capital cost for developers combined with cooling rents and elevated supply. Regarding home improvement spending, the age of U.S. housing stock and elevated levels of homeowner equity have provided a favorable backdrop for repair and remodel spending. In 2023, year-over-year growth rates and renovation spending moderated due to economic uncertainty and higher borrowing costs. While home improvement spending is expected to remain healthy compared to history, recent industry forecasts project mid-single-digit declines in 2024. Ultimately, Macro environment factors, the level and expectations for mortgage rates, home affordability, home equity levels, and other factors will likely influence the near-term demand environment for products we manufacture and distribute. As Kelly mentioned, we remain well-positioned to invest in our existing asset base and organic growth projects in both businesses, as reflected in our robust 2024 capital spending plans. Our longer-term view on housing fundamentals remains favorable, supported by demographic trends and under-built housing stock. As such, we remain clearly focused on the execution of our strategies and have great conviction around the investments that continue to grow the company. Thank you for joining us today and for your continued support and interest in Boise Cascade. We would welcome any questions at this time. Corey, would you please open the phone lines?
spk11: Thank you. At this time, we will now conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first call comes from Susan McClary of Goldman Sachs. Susan, your line is open.
spk05: Hey, good morning, everyone. This is Charles Perron in for Susan. Thanks for taking my question.
spk03: Hey, good morning, Charles. Or Charles.
spk05: Maybe first, talking about EWP, obviously it's encouraging to see that the market dynamic is favorable for the volume outlook for the coming quarters. But when you think about iJoyce specifically, you've seen obviously OSB prices rising significantly through the first quarter, obviously being quite elevated right now. You talk about pricing erosion on EWP moderating, which is encouraging. But how should we think about the input cost and basically the margin dynamic, especially for iJoyce in the near term, considering those dynamics together?
spk04: Yeah, sure, Charles. So, yeah, we feel really good about our iJoyce position in the marketplace in general. And then specifically to your question around cost, yeah, OSB and WebStock is a meaningful input cost for iJoyst. As we've spoken before, though, we do have a kind of a 13-week average pricing mechanism at which we procure our OSB. And so we kind of lag on the way up, and we also lag on the way down. you know, feel good about our ability to kind of continue to manage our cost base across EWP in general.
spk05: Okay, yeah, that's helpful. And then sticking to that point about the commodity price moving, when you think about BMD specifically, how do you approach holding inventories in this environment where you see this price weakness? And what is your ability to an extent to protect that margin for the segment, let's say, above the historical average of three to four deaths you've mentioned in the past.
spk04: Yeah, so let me kick it off here, and then we'll see if Jeff or Nate want to provide some input here. So, you know, we're certainly at a bit of a discovery period here. OSB has fallen significantly, still at very high levels compared to history, as you'll note, but it's a It's fallen quite sharply, so we're still in a bit of a discovery mode there. Plywood has been stable, but yet it's showing a little bit of weakness as well. I think it's kind of correlating with OSB in that regard, a little more in the south than in the west. So our ability to manage and mitigate, we're going to be in the marketplace every day. We have really good visibility of what's on the ground, what our cost position is. And, you know, we're not going to fall in love with our inventory. We're going to move it, we're going to turn it, and we'll continue to work down our position. But, again, we're going to be there for our customers. Anything you'd add, Jeff?
spk18: Yeah, I would just add that, you know, overall, we saw this coming, and we worked really, really hard to lighten our position before it hit. So, obviously, we'd always like to have a little bit less when print comes down as big as it is, but, you know, we're pretty well positioned for it.
spk05: Okay, that's very helpful, Collier, there. And maybe one last one. On the balance sheet, you guys repurchased some stock this quarter, which was encouraging to see, considering your leverage. You know, when you think about capital allocation going forward, is this something that we should expect more going forward, or should we think about the dividends still remaining your favorite way of distributing capital to shareholders?
spk04: Yeah, I guess I would say it this way, Charles. So we're TAB, You know committed to our approach we're very committed to our expanded capital program. TAB, You know i'd reiterate that we do expect to you know provide additional shareholder returns assuming there's no meaningful emanated surfaces and then our playbook includes both not share repurchases and special dividends. But it wouldn't be appropriate in this forum to really communicate more than that in terms of timing and sizing and how that plays out exactly. But our expectation is we will be returning additional capital to shareholders absent M&A in the balance of the year.
spk05: Okay. Thank you for the time, guys.
spk11: Thanks, Jerome. Thank you very much. One moment for our next question. Our next question comes from the line of Mike Roxland at Truist. Mike, your line is open.
spk07: Thank you, Nate, Kelly, Jeff, and Chris for taking my questions. Just wanted to follow up on the last one. Jeff, you mentioned that you sort of saw this commodity price decline coming, so you worked really hard to lighten your positions. Can you comment? Where do backlogs stand or order books stand on OSB, lumber, plywood relative to normal?
spk18: I would say that on the lumber side, you can get what you need relatively quickly. you know, without any issues. And OSB, I'll tell you, during the run-up, it was very, very difficult to get. And now there's definitely more available and people are looking for a home for it.
spk07: Gotcha. But in terms of your own inventory levels and how much you have in stock relative to, let's say, where a normal level, a normalized level of inventory would be for, let's say, OSB and lumber, are you at that normalized level? Did you take it down below, given the fact that you had some foresight that the turn was coming?
spk18: No, we're actually in really good shape. There's been no real reason to take any kind of position on the lumber or studs. And so we say we're going to have it in stock and be ready, and we do. So I think we're in a really good position there. On plywood, I think we have plenty. We're in a good spot there. On OSD, which definitely had a big run and was tough to get, you could tell it was slowing down a little bit. We really did work hard. So overall, I'd say we're kind of right where we should be, and it's kind of a normal level.
spk02: Hey, Mike, it's Nate. Maybe just to add to Jeff's comments is in these kind of environments where commodities have come off, and obviously OSB is the most recent example, there's obviously hesitancy in the marketplace. And I think our customers and suppliers as well look to us as a bit of a safe harbor. And so they're going to go short. They're going to be buying more heavily out of warehouse. Maybe instead of rail cars and trucks, it goes to trucks and units. And, again, we're really well supported to deliver on that. So it's important that we remain in stock and we can provide, you know, that important service and value when our customers are in need of it and today represents that opportunity.
spk07: Got it. Thank you. That's great, Colin. Then just a little follow-up on BMD. You know, you guys did a terrific job shifting your mix to general line and EWP while minimizing commodity. Given the volatility in commodities we're currently seeing and we have seen in the past, I mean, is there a certain percent of commodity that you're ultimately targeting? Is it going to be 30% of BMDs, maybe 25%? And over what time frame are you looking to achieve that?
spk04: Yeah, good question, Mike. So, yeah, I mean, currently in the first quarter, we were, I guess, right around 37% of the mix. Obviously, price can influence the ultimate how big that piece of the sales pie is, but I think at the end of the day, I think we would still probably be in the mid to low 30s when we fully execute our strategy. But as we've said many times, we're not exiting commodity. We're good at it. We like it. The return on investment capital is really good.
spk18: I'm just going to add to that. We absolutely like the commodity business. The last few weeks of print hasn't been fun. But if that share is going to go down a little bit, it's just because of the growth in the other categories. But the commodity business has been good to us. Our customers rely on us, and we're going to stay right in there with it.
spk04: Yeah, and I guess I would just follow along. We have a really good commodity sales team, great awareness of our data, and I look forward to kind of seeing how they navigate us through this near-term period we're working through.
spk07: Got it. One last question, then I'll turn it over. Kelly, you mentioned that your EWP volume growth – this quarter exceeded the single family start increases. Given that 80 to 85, you know, EWP correlation to single family, where did those additional volumes head, especially given the weakness in multifamily?
spk04: Yeah, so our volumes were heavy to single, Mike. I guess I didn't quite follow the balance of that question. Can you hit me again, Mike? Sure, sure, no problem.
spk07: I mean, so you said your EWP volumes exceeded single the amount of the single family start increases. I guess what I'm getting at is given the fact that you have 80 to 85% of EWP goes towards single family, what other categories did you see growth in that absorbs some of your EWP volume?
spk04: Yeah, I mean, I can't point to it specifically. This is a bit anecdotal for sure, but I feel really good about our ability to capture share given the nice job on the manufacturing side. And then also having the benefit of having a leading national distributor, I think, shows up well and helps us capture share.
spk07: Got it. Thank you very much, and good luck in 2Q. Thank you.
spk11: Thanks, Mike. One moment for our next question. Our next question comes from George Staffos of Bank of America. Securities, George, your line is open.
spk08: Hey, guys. This is actually Lucas Hudson on for George Staffos. He's currently traveling right now. So first and foremost, thanks for the details. My first question is, what is your outlook for repair and remodel? And is there more momentum in do-it-yourself projects or pro-contractor? And what are the implications for BMD and Wood?
spk02: Hey, Lucas. It's Nate. Maybe just I think the theme, as we kind of described in our opening remarks, is that repair and remodel is Has come off a bit, but it's still historically, you know kind of above You know where trends typically are I would say that the pro side of repair remodel still feels good and and pretty steady Maybe relative to the the weekend the over-the-shoulder crowd. So I think the overall, you know View of repair and remodel is is good and I think the backdrop in terms of that again that aging housing stock is um homeowner equity um there's there's still you know a good foundation there from to work on so um again while it's off from from what we experienced maybe over the last 12 24 months it still represents i think an important opportunity for our company on a range of products and services thank you that's uh that's great killer um just a quick follow-up as well um was bmd revenue better than initially expected and if so what created that positive variance
spk04: I would say BMD's revenue probably came out pretty consistent with what our expectations were. I think the quarter started slower than we would have anticipated, and it finished very strong in March.
spk08: Okay. Thank you so much. I'll hop back in the queue.
spk04: Thanks, Lucas.
spk11: Thank you very much. One moment for our next call, please. Our next call comes from the line of Keaton Mamatora of BMO. Your line is open.
spk13: Thank you very much. First question, just following off on that, this trend that you saw in March, has that continued into April as well? Any additional color you can provide on that?
spk04: Yeah, sure, Keaton. So, yes, March was very strong, as I alluded to in the prepared comments. The sales pace for B&B was off slightly. in April compared to March, but still at healthy levels. And then in terms of on the wood products manufacturing side, feeling good about the momentum in EWPs. It continues to be solid. It might be a little bit weaker than what we would have anticipated, but still is solid as we head into May here.
spk13: Got it. That's helpful. And then, Kelly, when you talked about in BMD daily sales being up 5% sequentially. Are there any shipping date differences that we should be mindful of between Q1 and Q2?
spk04: Yeah, I would have factored those into my math I gave you, Keaton. But yeah, there's 64 workdays in both first and second quarter.
spk13: Got it. So if that's the case, that would still imply BMD to be down versus last year's second quarter, if I'm just doing my math correctly?
spk04: Yeah, that's fair. If we maintain the sales pace the same pace we've had in April, that would be true. Now, but we will see how May and June plays out as we continue to see seasonally better weather and see what the ultimate activity is. pace activity around housing is. But yes, you have the right question there.
spk13: Got it. And then just one last one from me. On the margin side, you know, we talked about some margin pressure, you know, some price pressure from EWP, OSP going down here recently, plywood maybe. But then you also have just seasonally sort of volume leverage in Q2. As you think about margins,
spk04: uh you know how would you sort of you know weigh in those factors as it relates to q1's 5.6 margin yeah so so april margins were healthy they were good um you know may is going to be the discovery period here around commodity prices as we've talked so we do expect some some pressure here in may and and and to the extent of it will depend on the duration of the weakness we've seen but Fundamentally, it doesn't change. While we might get some pressure here in the second quarter because of the commodity market, we still feel good about kind of the underlying earnings capability of VMD moving forward to be consistent with what we've been putting up of late.
spk02: Hey, Keaton, it's Nate. Maybe just to add to Kelly's comment is if you think about a marketplace that maybe has some hesitancy in terms of both on price and demand, again, the dependence on out-of-warehouse services only increases. So as you think about how that shows up for BMD in terms of sales volume and margin performance out-of-warehouse, that's a clear-tail win for us as well. So I think we're well set up to do what we need to do in BMD, again, kind of no matter what the demand environment is as we go through the quarter.
spk13: Got it. That's helpful. And on EWP prices, you talked about sort of So, is it fair to say that after Q2, we are sort of stable at those Q2 levels, or it's hard to tell at this point?
spk04: Yeah. So, where we were going with that comment, Keaton, was we just put up sequential declines of about 4%, and we expect that to moderate. you know, somewhere between zero and negative four is kind of our current expectation.
spk13: And beyond that, you would expect it to sort of stabilize or difficult to say at this point?
spk04: I'd say it's difficult to say. It'll be depending upon market demand and that sort of environment.
spk02: I mean, with EWP, it's, you know, the market supply and demand is really what kind of, you know, sets the framework for pricing. So it's has maybe less to do with input costs, more around what the market environment is. So to Kelly's point, it's hard to see the second half from here, but as long as starts remain stable and steady, I think that'll be favorable for the EWP pricing environment as well.
spk13: Got it. That's very helpful. I'll jump back in the queue. Thank you.
spk11: Thanks, Keith. Thank you very much. One moment for our next question. And our next question comes from Kurt Gingher of DA Davidson. Kurt, your line is open.
spk10: Great. Thanks. And good morning, everyone. I just wanted to start off on kind of competitive dynamics between iJoyce and open web at this stage. I'm just curious, is it harder than you would have thought maybe getting some of those builder customers to convert back after some of the availability driven kind of shifts in usage and I know it's a complex topic and a lot of different inputs, but at a high level, how would you kind of describe the pricing differential for a builder customer at this stage between the two products, and how does that kind of factor in?
spk02: Hey, Curtis, Nate. Yeah, I would just say on, you know, the EWP or the iChoice comparison to palliative floor trusses, you know, so it's not a new, you know, phenomenon. That's obviously been in place for a number of years, and I think there are times when IJOY systems are preferred relative to the plated floor trusses and vice versa. I think when I look at kind of the competitive dynamic and environment today, I think IJOY systems set up well against plated floor trusses, both in terms of cost as well as lead times. I think the other component that we talked about is that when it comes to the builders, they are looking to drive cycle time out of the equation. TAB, Mark McIntyre, When you look at an eye joy system versus either dimensional lumber play the floor trust is typically the speed on the. TAB, Mark McIntyre, On the construction side is superior and allows again the builder to drive down cycle time so, which is an important part of how they think about value today. TAB, Mark McIntyre, And going forward, so I think I joy system bwp is well set up to compete against both dimensional lumber and open trusses. And again, I think that dynamic about how do we add speed and simplicity to the job site continues to be an important part of what the builder's expecting.
spk10: Got it. Thanks for that, Nate. And as we think about builders trying to address affordability challenges, perhaps building smaller homes, taking complexity out, is there any sort of current or medium-term impact do you think that has on kind of the EWP business or the relative attractiveness of those products? I mean, obviously a smaller home potentially has some sort of volume implication, but beyond that, is there anything that kind of jumps to mind in terms of how that impacts your wood products business?
spk02: Yeah, good question. I think to your point on if the footprint is smaller, that'll obviously have an influence in terms of the amount of EWP or structural materials in general that can be sold. So I think that's in place. And again, the builders are looking to take costs out. I think there are times, Kurt, that when the builders have TAB, Mark McIntyre, You know, for them if they want to look at how do they lower cost sometimes going vertical is the right answer, given the cost of. TAB, Mark McIntyre, Land, and so, if they if they go vertical in terms of adding a second story that creates an opportunity for you to BP obviously given that second floor construction so. Yeah, so I think, you know, EWP I think is going to be an important part of it, but as we look at the tradeoffs in terms of lower square footage, you know, that'll show up in our, in EWP as well as the other products and services we distribute as well.
spk10: Got it. Okay, that's super interesting. Thanks for that. And then just switching gears to BMD, Kelly, I thought you mentioned kind of lower gross profit dollars on EWP sales within BMD in the quarter. which I guess is a little bit surprising considering the double digit sales increase. So is that just a dynamic where, you know, based on how you're kind of transferring pricing and kind of the bleed in terms of sales prices there, there's a little bit of a timing mismatch, maybe pressuring margins, or is there something else driving that?
spk04: It's not anything to do with transfer pricing or anything like that. It's all market-based. It's, It's just a function of the market, and as we've seen and experienced some of the pricing pressure, you know, we see some of that in wood products, and then obviously you see that in distribution as well.
spk10: Got it. Okay. Makes sense. And then just lastly, I mean, Jeff, we've kind of seen five consecutive quarters now where BMD gross margins are right in that 15% zip code. outside of what we've seen in OSB and maybe a little bit of BWP, is there anything else that you're kind of keeping an eye on that maybe gives you concern that that 15% could have some downward pressure to it, or are you feeling pretty comfortable with those levels given kind of the current state of the market?
spk18: Yeah, there's always competition out there is one thing I'll say. So you have to keep your eye on that and what's going on, but You know, if you think about what we've done over the past few years and the growth that we've done and the capacity we've added, that's all about general line and some of the millwork items, which are the higher margin ones. And so our focus and growth on that is what's been holding it steady. But, you know, there's a little pressure on the millwork side, and there's always competition and everything else, but for where we sit right now, we feel good.
spk10: Got it. All right. Well, appreciate all the details, guys, and good luck here in Q2.
spk11: Thanks, Rick. Thank you very much. One moment for our next question. Our next question comes from Ruben Garner of Benchmark. Ruben, your line is open.
spk15: Thank you. Good morning, everyone.
spk09: Sorry to harp on this, but I think it's pretty critical right now, and I just want to clarify. On the inventory side, I understand you guys become more valuable in these sort of environments. You're suggesting that your customers maybe go shorter on inventory when there's uncertainty like this and commodity downside. Is that something that has already played out and is done in the first quarter? Is it something that's ongoing and impacted your business in April and you're expecting it to continue to impact the business? Can you just kind of clarify where we stand on that sort of channel destock?
spk18: but I don't know if it's a D stock as much as what, if you can get it and eliminate risk, why wouldn't you just buy exactly what you need when you need it? And that's what's happening. So we're seeing right now as, for example, on the OSP side, as prices are decelerating, you know, people don't want to step in and buy directs. They want to get what they need to cover it quick. And so our warehouse business, we're seeing it right now is picking back up.
spk09: Okay. And then, um, I guess, On the general line side, last time we kind of saw a jump in rates and some uncertainty kick in. The distribution channel, including yourselves, got pretty conservative and destocked in some certain categories. I guess, how are you thinking about that? It looks like general line had a pretty strong first quarter. Is it different this time? Are there trends that are hanging in in some of those areas that are different than the commodity side and aren't maybe as rate sensitive as you thought. Can you just kind of update us on your thoughts there?
spk18: Yeah, and in general, the one big difference I'd say that we saw this year compared to last was in the winner buy and the price increases that were announced on some products. Before people were, last year, for example, people were hesitant to step in. They just didn't know. And this year, there was confidence in what was going to happen this year in the market. And so when those things came along, people jumped in and they purchased them. So as far as destocking goes, We don't see that. In fact, in some of the winter buys, we're starting to see people step back in and buy some more. So the general one has really been pretty stable.
spk09: Okay, great. And then pricing, are there certain categories within BMD outside of the commodity that are facing more pressure than others? It sounds like you had some successful increase. Is anything going the other direction?
spk18: Yeah, I think right now, I mentioned it earlier, there's always some EWP pricing pressure just for competition. And then the millwork side, there's been a little bit there. And a lot of that has been driven by some of the components and things that come in from offshore and just what the freight has done and things like that. But those would probably be the two biggest areas that we're seeing right now.
spk09: Okay, great. Thanks, guys. Congrats on the strong quartering. Good luck.
spk11: Thanks. Thank you. One moment for our next question. Back up is Keaton Mamatora from BMO. Keaton, your line's open.
spk13: Keaton Mamatora Thank you. Just one quick one. Were there any sort of geographic variations what you saw in Q1 or in April in terms of, you know, regions, east versus west? Anything to call out there?
spk02: Nate Kuehnert Hey, Keaton, it's Nate. I don't, you know, I think it was pretty, I mean, there's always weather-driven events that can kind of shape the first quarter, but I don't think there was anything kind of unique in terms of strength or weaknesses from a geographic perspective. I think it was pretty steady and consistent kind of across our franchise.
spk13: Got it. Okay. And then just one last one on capital allocation. I'm just curious, sort of, you know, obviously the balance sheet is very strong. But as you sit here today, you know, there's still uncertainty around, you know, kind of housing, you know, repair and remodeling. So, how do you sort of approach it so far as, you know, share repurchases is concerned versus kind of, you know, maintaining even more dry powder? Can you talk about sort of puts and takes there?
spk04: Yeah, sure. I mean, we have the balance sheet to execute on our Hispanic capital program. We're going to charge forward there. Now, to your point, is there uncertainty in the marketplace in general? Yes, but we still have plenty of dry powder to go pursue acquisitions if they make sense. And if they don't come to fruition, again, I do expect we'll be returning additional capital to shareholders. Fortunately, we've got plenty of optionality, and we'll be thoughtful and prudent. And again, we'll just kind of stay abreast of the market, stay abreast of M&A, and we will look to shareholder returns if we think that's the right thing to do as the year develops.
spk13: Got it. That's very helpful. Good luck.
spk00: Thanks, Keith.
spk11: Thank you. Stand by for our next question. Our next question comes from the line of Susan McLaurie of Goldman Sachs.
spk12: Thank you. Good morning, everyone. It's actually Susan this time.
spk16: Hi, Sue.
spk12: Good morning. I just wanted to quickly ask about the M&A pipeline. And I guess both just in terms of what you're hearing from some of your key partners in BMD today, especially maybe across the general line, as they kind of look out at their businesses over the next couple years and think about growth. And then as well as just obviously, you know, the initiatives you've got and the potential for further acquisitions.
spk04: Yeah, I mean, I guess certainly at the dealer levels, still quite a bit of activity there, much more fragmented marketplace than where we sit in the channel. For us, we will... Dave Kuntz, be aware and be inquisitive if it's the right thing to do, but I think my view is. Dave Kuntz, My view is for us it's going to be our organic it's going to be our focus and it's going to be the main driver of our capital deployment here here at least near term unless unless something surfaces that that we're not not working on today.
spk02: Hey, Sue, it's Nate. Yeah, I think to Kelly's point, it's, you know, the M&A always has to be aligned, you know, with our strategy and also our values just in terms of, you know, who we are and how we think about the marketplace. The other thing we're pretty insistent on is, you know, one plus one has to be greater than two, you know, both in terms of the customers we serve and support as well as the suppliers. So, you know, those are, you know, really important parts of our equation and how we think about it. And so we'll continue to look through that lens as opportunities emerge.
spk12: Okay. All right. That's helpful. And then just one more from me. You know, when you think about the commentary that we've heard from the builders this earnings season, I mean, they're pretty bullish. And a lot of them have actually taken up their expectations for full year closings, even with the move-in rates that we've seen recently. I guess as you think about some of that coming through to your business, what do you think it could imply in terms of seasonality as we move through the next couple of quarters and just the potential for some continued strength to come through on that new home construction side?
spk04: Yeah, you're right, Sue, and you probably know better than us around the national builders. They continue to be pretty optimistic. They continue to deploy their balance sheet as necessary to get folks into homes. So they seem to be still, I don't know, on average kind of mid to high single digits, if you will, in terms of their growth expectations. But then you balance that a little bit with the overall narrative that you know, in some cases it feels a little softer in terms of broadly across the marketplace. And so there's kind of, you know, we're kind of in an interesting period here where there's kind of multiple data points and data sets and commentary. And so it's a little interesting to kind of sort out how the market shapes for us here in the next quarter or two.
spk02: Yeah, I think, Sue, the other thing I would comment on, I think the – the large production builders, national builders, public builders, I think they're really well positioned, as Kelly described, just given the strength of their balance sheet. They've got great clarity on the marketplace, the customers they serve, and I suspect they'll continue to grow share relative to their position as compared to others in the marketplace. I think they're obviously an important part of the marketplace today, and we think that that'll continue to grow over time, just given their strength and both from a financial perspective as well as their great understanding of the marketplace and what their customers need and expect.
spk12: Yeah. Okay. All right. Yes. No, thank you both for the color and good luck with everything.
spk17: Thank you.
spk11: Yep. Thank you very much. This concludes the question and answer session. I would now like to turn it back to Nate Jorgensen for closing remarks.
spk02: Great, thank you. We appreciate everyone joining us this morning for our update, and thank you for your continued interest and support in Boise Cascade. Please be safe and be well. Thanks.
spk11: Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
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