Boise Cascade Company (NYSE:BCC) Q1 2024 Earnings Call Transcript

Boise Cascade Company (NYSE:BCC) Q1 2024 Earnings Call Transcript May 7, 2024

Boise Cascade Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: 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 Cascade First Quarter 2024 Conference Call. Please note all participations and in a listen only mode. After the speakers presentation there will question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce you to Chris Forrey, Vice President, Finance and Investor Relations, Boise Cascade. Mr. Fory, you may begin your conference.

Chris Forrey: 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 Strom, Head of our Building Materials Distribution operations. Turning to Slide 2. 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.

Nate Jorgensen: Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I’m on Slide #3. Total U.S. 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 capital allocation in more detail after which I’ll provide our outlook before we take your questions. Kelly?

Kelly Hibbs: Thank you, Nate, and good morning, everyone. Wood Products sales in the first quarter, including sales to 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. BMD 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.

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Q&A Session

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 5. On a year-over-year and sequential basis, first quarter volumes for LVL were up 31% and 16%, respectively, and I-joist 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 I-joists 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 6. Our first quarter plywood sales volume in Wood Products were 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 1,000 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 of 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 7 and 8. BMD’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%. By product line, commodity sales increased 1%. General line product sales increased 16% and sales of EWP increased 12%. Gross margin dollars increased $22.9 million when compared to the same quarter last year as higher margin dollars on general line and commodity products were offset partially by lower margin dollars generated on EWP.

In addition, BMD’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. EBITDA margin was 5.6% for the quarter, flat with the year ago quarter and up 20 basis points sequentially. BMD 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 9. This slide shows the weak pricing environment for lumber over the last 5 quarters. As such, recent capacity reductions in certain geographies have been announced and there are speculation of additional production curtailments if weak pricing persists. Moving to Slide 10. The late first quarter increase in composite panel prices were 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 fire behavior across panel markets in general. For our distribution business, periods of uncertainty trade both risk and opportunity. Despite the uncertainty in commodity markets currently, we will maintain our long-standing 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 million 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 $0.20 per share quarterly dividend for shareholders of record as of June 3, payable June 17.

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 surpluses, 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.

Nate Jorgensen: Thanks, Kelly. I’m on Slide #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 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. Our 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 that 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 underbuilt 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?

Operator: [Operator Instructions] Our first call comes from Susan Maklari of Goldman Sachs.