Devin Stockfish: Yes. So lumber kind of in the high 70% operating rate; in OSB, it was the low 90s; EWP was the high 70s. And so again, I think we saw on the lumber side, that operating rate was a little lower probably than we would have anticipated, but that should move back up in Q2. Really, operating rates for all 3 businesses should move up in Q2.
Ketan Mamtora: Understood. That’s very helpful. I’ll turn it over. Good luck.
Devin Stockfish: All right. Thanks.
Operator: Our next question is from Kurt Yinger with D.A. Davidson. Please proceed with your question.
Kurt Yinger: Great. Thanks and good morning, everyone.
Devin Stockfish: Good morning.
Kurt Yinger: I just wanted to circle back on EWP. You talked about the extended lead times late last year. What have you done from either a labor or operating posture or capacity perspective to kind of ensure that if the single-family strength continues, you don’t run into those same issues again in 2024?
Devin Stockfish: Sure. Well, a couple of things going on last year in 2023. First of all, I think we are still struggling to get fully staffed up across our mill set. I think we are in a much better place today than we were a year ago. So that’s number one. Number two, if you remember back at the beginning of 2023 with where mortgage rates were going, I think our view was that it was going to be a much more challenging housing environment. And so we made a decision to pull back a little bit on production to align with what we thought was going to happen in the housing market. Now obviously, that’s not how things turned out. And the challenge with EWP is once you get behind the 8 ball, it’s hard to get back to even. And so it took us a good chunk of the year to really get our volumes to customers back where they needed to be.
We are in allocation for most of the year. So I think heading into this year, just a different view. I think we’ve seen that the market can operate well even in a higher mortgage rate environment. And so we were running in Q1 at normal operating levels and we’ll continue to do that. So I don’t expect us to have the same challenge this year.
Kurt Yinger: Got it. Thanks for that. And then since Mark had asked about CCS, I wanted to ask a similar question around the solar opportunities. Could you just maybe help us understand some of the differences between signing the agreements and the go live or when you might expect kind of any substantive kind of contributions from that? And is there a typical or general rule of thumb in terms of the time line between when you would think of signing an agreement and not ultimately materializing?
Devin Stockfish: Sure. Yes. I mean, I think historically, you would think it’s a several year process. So typically, you sign up an agreement for a number of acres. Usually, that initial acreage is going to be larger. The counterparty will go in, do their work, do the assessment on just the economics of the size and scale, et cetera. And that process is pretty straightforward. I think that things really extended this time line of late is there is so much solar activity going on right now. The permitting process has become quite challenging. I think whether it’s at the federal, state, local level, they just don’t have the resources available to work through the level of permitting activity, that’s number one. Number two, even after you get to that point, tying into the grid, we have an aging infrastructure.
And so just the ability to tie new renewable projects into the grid takes a little bit longer than it probably should. You have to work through the utilities. There aren’t enough energy engineers to do the balancing assessment and work as things get tied into the grid. So there’s just — the pipeline is fairly large, but there are some pinch points along the way that extends this out. So you’re typically now from signing to actually having a solar project up and running, it’s a multiyear process, three, four years if things are working well.
Kurt Yinger: Got it. Appreciate the color.
Devin Stockfish: But I will just reiterate the point. That all being said, once these come on, you have a 30-year recurring revenue that just increases with every year and you’ve got escalators for inflation. So it’s a wonderful revenue stream once they’re up and running.
Kurt Yinger:
Operator: Our next question comes from Anthony Pettinari with Citibank. Please proceed with your question.
Anthony Pettinari: Good morning. In Wood Products, you’ve been EBITDA negative in lumber for a couple of quarters and Random Lengths seems like it’s taken another step down over the last couple of weeks. I’m just wondering, are there steps that you’re taking in terms of OpEx or projects or staffing or shifts to improve profitability and kind of your own controllables within the lumber business to the extent you’re able to discuss?
Devin Stockfish: Sure. Well, I mean, the good news is we’ve been working on OpEx and cost for a decade. So I think we’re, relatively speaking, well positioned on the cost curve. When you think about the last two quarters, it’s obviously been a tougher pricing environment. But the real challenge for us has been primarily in the Pacific Northwest and British Columbia. And the challenge there is if prices come down a lot quicker than log prices, it can create an environment that’s very difficult. Now it’s important to remember, even in the Pacific Northwest where lumber profitability has been challenged as a system we’re still obviously profitable when you think about our Timberlands and Wood Products business together. But as we think about our system as a whole, Pacific Northwest, British Columbia, you’re going to be hard-pressed to find anybody that has a lower cost — unit cost to manufacture lumber than Weyerhaeuser.
And so as the prices come up, which we believe they will, and to some extent, SPF and Green Doug Fir are already coming up a little bit. I think we’re going to be positioned just fine in those markets. And in the South, the vast majority of our mills are top quartile cost structure mills. So even at today’s prices, where I think much of the industry is going to have a hard time driving profitability. We should as long as we run reasonably well, we should still be black at the bottom really under any circumstance in the U.S. South. So yes, it’s been a little bit more challenging the last couple of quarters, but I think we’re well positioned moving forward. Our relative position in the industry is still very strong, and I think we’ll see that play out over the coming quarters.
And obviously, at some point, we do believe that lumber prices are going to move up materially, whether that’s next week, next month or sometime after that. And I think we’ll be very well positioned when that does happen.
Anthony Pettinari: Okay. That’s very helpful. And then if you look across your portfolio in Wood Products and maybe Timberlands and Real Estate as well, are there end markets or exposures or customer sets that you would view as maybe more sensitive to kind of short-term changes in interest rates and with mortgage rates above 7% now. I’m just wondering, with those exposures or customers, are you seeing any impact in terms of customer discussions or tone? Or just any color you can give there?
Devin Stockfish: Sure. Maybe I’ll break it down by some of the key components. From a single-family residential construction, that’s particularly true for the bigger builders. I mean, I think they’ve been remarkably nimble and resilient in managing through this environment. They’re still going to build. I think they figured out how to build through this higher rate environment. So, I think they’re doing just fine. I do think on the multifamily segment, you have seen more interest rate sensitivity. I think that’s the one I would highlight really more so than others that has been impacted by the higher interest rate environment and the inflationary dynamic at play right now. I would just point out, as you think about multifamily, one, obviously, single-family is a more important market for us than multifamily.
But even within multifamily, if you look at the spike of volume that’s hit the market last year and this year, I think you’d see it’s primarily that increases in those higher rise multifamily projects, the — and those don’t typically use all that much wood. The lower rise, the mid-rise, those kind of one to three, four to six kind of type multifamily, you haven’t seen that same spike of volume coming to the market in that space. And so consequently, we don’t necessarily think that’s going to come down as much. And those units do typically use more wood. So I’m not sure that falloff in multifamily is going to impact us as much as you might think. And then on the repair and remodel, the Pro segment seems to be doing fine even in these higher interest rate environments.
I think do-it-yourself has been impacted somewhat, whether that’s inflation, whether that’s interest rates. As I said earlier, I think that’s probably a little bit softer this year. We’ll see how that progresses as the year continues.
Anthony Pettinari: Okay. That’s very helpful. And maybe just one follow-up for me on Wood Products. As a reminder, black at the bottom, you would define that as free cash flow positive in all quarters? Or can you just remind us kind of how you define black at the bottom.
Devin Stockfish: Yes. It’s cash flow positive at trough level prices.
Anthony Pettinari: Got it. Got it. That’s very helpful. I’ll turn it over.
Devin Stockfish: Thanks.
Operator: Our next question comes from Matthew McKellar with RBC Capital Markets. Please proceed with your question.
Matthew McKellar: Hi. Good morning. Thanks for taking my questions. I’d like to start by circling back on maybe George’s earlier question around Engineered Wood Products and some of the timing issues there. And please correct me if I’m wrong, but I think you’ve previously talked about there being a bit of a lag in pricing actually for some components of the business. I think you’ve guided to comparable realizations quarter-over-quarter with higher raw material costs and how much OSB prices have increased, which I think maybe is mostly specific to Trus Joist. I was wondering if you could talk about the impact to margins there and then your ability to maybe push pricing higher to reflect the higher cost of inputs and just how to think about that sort of timing dynamic?
Devin Stockfish: Sure. Yes, the timing lag is accurate. Typically, price actions can be anywhere from 30, 60, 90 days to come to effect depending on the specific dynamic with that customer. So you have seen — and that’s kind of the Q1 story is some of those prior actions taking full effect in Q1. With respect to the fiber cost or input costs, that’s primarily an OSB web stock comment with I-joist, you’re right about that. I do think as that price moves up, does that take some of the lower-cost competitors trying to take market share, that puts a little bit more pressure on them. Do remember that for us, the OSB web stock comes from our internal mills. And so to the extent you see higher web stock pricing for EWP or cost for EWP, that means you’re getting it on the other side with OSB.
