Portland General Electric Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 5, 2023

There are 10 speakers on the call.

Operator

Good morning. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Boise Gas Paid First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period.

Operator

Cascade. Mr. Hibbs, you may begin your conference.

Speaker 1

Thank you, Michelle, and good morning, everyone. I would like to welcome you to Boise Cascade's Q1 2023 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO, Mike Brown, Head of our Wood Products Operations and Jeff Strom, Head of our Building Materials Distribution Operations. Turning to Slide 2. This call will contain forward looking statements.

Speaker 1

Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks SEC filings 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.

Speaker 2

Thanks, Kelly. Good morning, everyone. Thank you for joining us earnings call today. I'm on Slide number 3. Both of our businesses delivered solid financial results despite the expected weaker environment from lower single family housing starts and commodity product pricing.

Speaker 2

Total U. S. Housing starts declined 18% driven by a decrease in single family housing starts at 29% compared to the prior year quarter. Our consolidated first quarter sales of $1,500,000,000 were down 34 segment from Q1 2022. Our net income was $96,700,000 or $2.43 per share compared to net income of $302,600,000 or $7.61 per share in the year ago quarter.

Speaker 2

Wood Products reported segment EBITDA of $93,200,000 in the Q1 compared to $203,800,000 in the year ago quarter. Wood Products team delivered very good financial results in an environment that required thoughtful management of production levels given the uncertainties relative to demand. Building Materials Distribution reported segment EBITDA of $76,800,000 on sales of $1,400,000,000 for the 1st quarter compared to $232,500,000 of segment EBITDA on sales of $2,100,000,000 in the comparative prior year quarter. BMD was negatively impacted by significantly lower commodity pricing and also experienced lower sales volumes compared to the prior year quarter due to decline in housing starts. However, demand for 2 Step Distribution remains healthy.

Speaker 2

Our ability to provide next day service on a range of products and services provides value to our customers as we collectively partner to manage volume and price risk during periods of market uncertainty. Kelly will now walk through the financial results in more detail and provide an update on capital allocation cast presentation after which I'll provide our outlook before we take

Speaker 1

your questions. Kelly? Thanks Nate. Wood product sales in the Q1 including sales to our distribution segment for $437,400,000 compared to $558,900,000 in Q1 2022. As Nate mentioned, Wood Products reported segment EBITDA of $93,200,000 down from EBITDA of $203,800,000 in the year ago quarter.

Speaker 1

The decrease in segment EBITDA was due primarily to lower plywood sales prices, lower EWP sales volumes and higher per unit conversion costs. These decreases were offset partially by higher EWP sales prices, higher plywood sales volumes and lower EBIT OSB costs used in the manufacture of I joists. BMD sales in the quarter were $1,400,000,000 down 35% from Q1 2022. BMD reported segment EBITDA of $76,800,000 in the Q1 compared to segment EBITDA of $232,500,000 in the prior year quarter. The decrease in segment EBITDA was driven by a gross margin decrease of $177,300,000 resulting primarily from lower margins on commodity products and lower sales volumes across product lines offset partially by decreased selling and distribution expenses of 20,300,000 Turning to Slide 5.

Speaker 1

Our first quarter sales volumes for I joists and LVL were down 41% and 22% respectively on a year over year basis. On a sequential basis, volumes increased by 28% 15%, A favorable result when compared to new single family housing starts data. Pricing in the Q1 for I joist and LVL were down 15% and 9% respectively on a sequential basis. Looking forward to Q2, we are experiencing good seasonal momentum and currently expect both I joists and LBL volumes to be higher on a sequential basis. New single family starts will continue to be an important demand driver for EWP volumes with I joists also impacted by product substitutes and construction methods in certain geographies that reduce the wood floor opportunity.

Speaker 1

We continue to experience pricing pressures for EWP and we expect further EWP price declines in the 2nd quarter, although at slower rates of decline than experienced in the Q1. Turning to Slide 6. Our first quarter plywood sales volumes in wood products was 406,000,000 feet compared to 317,000,000 feet in Q1 2022. The increase in plywood sales volumes was partially attributed to the acquisition of the Chapman, Alabama and Havana, Florida Mills in July of last year. In addition, less demand for veneer from our EWP operations resulted in more plywood production from our legacy plywood facilities.

Speaker 1

The $367 per 1,000 average plywood net sales price in Q1 was down 47% from Q1 2022 and down 7% sequentially. Thus far in the Q2 of 2023, plywood price realizations are flat compared to our Q1 average. Moving to Slide 78. BMD's 1st quarter sales were $1,400,000,000 down 35% from Q1 2022, driven by sales price and sales volume decreases of 20%

Speaker 3

and 15%

Speaker 1

respectively. By product line commodity sales decreased 50%, General line product sales decreased 13% and sales of EWP decreased 24%. The gross margin percentage for BMD was 14.8%, down 3 20 basis points from the 18% reported in Q1 2022. BMD's EBITDA margin was 5.6% for the quarter, down from the 11% reported in the year ago quarter. Looking forward, BMD sales pace thus far in Q2 2023 is seasonally stronger with our daily average sales pace up low double digits from 1st quarter levels.

Speaker 1

The continued flat pricing environment for commodity products when coupled with price erosion risks on other products will limit margin expansion opportunities. However, we fully expect BMD to continue to execute at a high level and deliver solid financial results. Moving to Slides 910. These slides show the generally flat environment for lumber and panel pricing during Q1 2023 compared with noticeable increases for the majority of the prior year quarter. For further context, year over year average deposit lumber and panel prices have declined by more than 50%.

Speaker 1

As previously referenced, this sharp price deflation has meaningful impacts on the portion of Sales related to commodity products. Future commodity products pricing may be volatile, but within tighter ranges than seen in recent years as the industry attempts to adjust supply to levels needed to support an uncertain near term demand environment. I'm now on Slide 11. We had capital expenditures of $30,000,000 in the first quarter with $7,000,000 of spending in Wood Products and $23,000,000 of spending in BMD. In BMD, our capital expenditures included the previously announced purchase of a new facility to house an additional door shop in Kansas City, Missouri, which we expect to be operational in late Q2 of this year.

Speaker 1

Our capital spending range for 2023 remains $120,000,000 to $140,000,000 which includes the continuation of our multiyear Test capacity expansion projects in EWP and further investment in BMD organic growth projects. As we've noted before, Supply chain challenges and availability of engineering and construction resources will influence our ability to execute on these levels of capital expenditures. In addition, our balance sheet allows us the ability to pursue additional growth organically or via M and A. Speaking to shareholder returns, we paid $8,000,000 in regular dividends to shareholders in the Q1 and yesterday Our Board approved a quarterly dividend of $0.15 per share as well as a special dividend of $3 per share both payable on June 15. We have no near term debt maturities and had total available liquidity at March 31 of approximately $1,400,000,000 which reflects our cash and availability under our committed bank line.

Speaker 1

After payment of our 2nd quarter dividends, which will total approximately 125,000,000 Our balance sheet will remain very strong and our balanced approach to capital allocation is unchanged. We will continue to invest in our existing asset base Test and organic growth projects, pursue M and A that aligns with our strategy, remain committed to our fixed dividend through the business cycle and return additional capital to shareholders as appropriate via special dividends or share repurchases. I will turn it back over to Nate to discuss our business outlook. Thanks, Kelly. I'm on Slide number 12.

Speaker 1

Housing starts in March 2023 were approximately 1,420,000

Speaker 2

housing on a seasonal adjusted annual rate basis as reported by the U. S. Census Bureau. In addition, mortgage rates have declined from peak levels in late 2022 and measures of builder sentiment have improved from Q4 of 2022 levels. However, home affordability remains a challenge for consumers and the Federal Reserve's ongoing actions in response to inflationary data and what impacts these actions have on future mortgage rates and the broader economy will influence the near term demand environment.

Speaker 2

Uncertainty in the full year outlook for 2023 is reflected in various industry forecasts for 2023 U. S. Housing starts, which generally range from 1,200,000 to 1 point 4,000,000 housing start units compared with actual housing starts of 1,550,000 in 2022 as reported by the U. S. Census Bureau.

Speaker 2

Despite the near term uncertainty, we believe the longer term demand drivers for new residential construction continue to be favorable, supported by strong demographic trends and Under Built Housing Stock. Regarding home improvement spending, the age of U. S. Housing stock and elevated levels of homeowner equity that provided a favorable backdrop of repair and remodel spending. However, industry forecasts project continued moderation in year over year growth in renovation spending And economic uncertainty may also negatively impact homeowners' further investment in the residences.

Speaker 2

In Wood Products, we are focused cast. We continue to execute on our targeted investments to expand our EWP capacity in the Southeast U. S. The near term weakness in new residential construction does not detract from our conviction grow EWP capacity. We will also closely monitor the changing housing market landscape and maintain the flexibility to adjust production levels as appropriate to meet sales demand.

Speaker 2

BMD continues with its steady execution of organic growth. For example, our brownfield project in Walton, Kentucky is operational. We expect a late Q2 start up in our new door assembly operation in Kansas City and our greenfield expansion in Marion, Ohio should be complete and functional by the end of this year. Our new distribution centers planned in Hondo, Texas and Walterboro, South Carolina are further on the horizon and remain well positioned to continue our pursuit of additional organic growth and M and A growth opportunities. BMD's approach and consistency in the marketplace remains unchanged.

Speaker 2

Test. We'll continue to prudently manage our inventory levels and price risk, while at the same time not sacrificing our service commitment to our vendor and customer partners. Lastly, I want to express my gratitude to our associates whose proven strength and resilience when coupled with our effectiveness of our business model has allowed us to continue to deliver solid financial results despite the weaker environment. Thank you for joining us today and your continued support and interest in Boise Cascade.

Operator

The first question comes from Kurt Yinger with D. A. Davidson. Your line is now open.

Speaker 3

Great. Thanks and good morning everyone.

Speaker 1

Good morning, Kurt.

Speaker 3

I just wanted to start off on BMD. Sorry about that. As you look at the volume down 20% in Q1, is your view that that's really just end market demand or Were there any kind of lingering destocking impacts in certain areas? And then second, you talked about Kind of the reasons it might be difficult to generate margin expansion versus Q1. But is there anything that's working against you?

Speaker 3

Or are you seeing Any normalization in certain product categories that would make it worse?

Speaker 4

Kurt, it's Jeff. I would tell you on demand in the Q1 that there was still a little bit of residual destocking that was going on As people are really focused on their net working capital and they're trying to get their inventories in line and we feel like we're there, There's been a big focus on that. So that definitely was going on all quarter long. And then obviously with the less decrease in housing starts that played a big impact on that.

Speaker 1

Yes. And then I think on your second question, Kurt, around the comments around our The pricing environment limiting our margin expansion opportunity. So the concept there is if we continue to have a generally flat commodity pricing environment and there is some exposure to price degradation, Some in EWP and potentially in general line that will limit our margin expansion opportunities. That's what we're trying to get at there.

Speaker 3

Got it. Okay. No, that's great. And then on EWP pricing, you talked about some additional pressure in Q2, which Hopefully, it doesn't surprise anyone, but we've also kind of heard that with orders coming back, there's been some nice stabilization. I guess without pinning you down on where you think prices will be in the back half, are you any more confident in the idea that we could see pricing find the bottom here in the next few months relative to where you might have been at the start of the year.

Speaker 5

Good day, Kurt. It's Mike. I'll take a stab at answering that. So DWP pricing, as I'm sure you are well aware, is obviously very market specific and market driven. So when we started the year, we have estimation of housing starts for one thing.

Speaker 5

And I think actually, if anything, they're probably a bit more robust at this point in time than we had originally anticipated, which may be part of the explanation of the relatively small decline that we've seen in EWP pricing thus far. As we look out further into the year, I think the same analogy or process of determining pricing applies. If we have Pretty good housing starts. I think the decline in EWP pricing will be relatively speaking somewhat more muted. If that's not the case, then it could be quite somewhat more significant.

Speaker 1

So it'd

Speaker 5

be hard to tell at the moment, but I'm sort of Quite happy with where we ended up at the end of Q1.

Speaker 3

Got it. That's helpful. Thanks, Mike. And then just my last one. If my eyes don't deceive me, it looks like you might have purchased a bit of stock in Q1.

Speaker 3

Any change in terms of how that ranks in the capital allocation stack or priorities, just given where valuation is and the performance of the business thus far?

Speaker 1

Guest. Yes. Good question, Kurt. So let me maybe just kind of hit the overarching capital allocation discussion as part of that question. Test.

Speaker 1

Yes, we did purchase a very modest amount of shares during the Q3. But I would tell you in terms of our overall approach Capital Allocation. We did note that the Board announced an ample, but we think appropriately sized special dividend at this stage of the year. We're fully committed to our capital spending plans that Nate spoke to and we have a handful of additional growth opportunities that we're currently working. So you line all that up and then we will continue to have Our ongoing dialogue on capital allocation with our Board and it's reasonably likely we will be having additional Thanks to discuss around growth initiatives and additional shareholder returns to share before we close the books on 2023.

Speaker 1

And included in that, The rewarding shareholders that's got 3 prongs as we've always talked about, the regular quarterly dividend, special dividends and or share repurchases. So really no change to the strategy and the thinking.

Speaker 3

Got it. Okay. Thanks for that, Kelly, and good luck here in Q2, guys.

Speaker 1

Thank you, Baker.

Operator

Please stand by for the next question. The next question comes from Susan Maklari with Goldman Sachs. Your line is open.

Speaker 6

Thank you. Good morning, everyone.

Speaker 1

Good morning, Sam. Good morning, Sue.

Speaker 6

My first question is, I want to go back to the commentary on the potential for the margin Deceleration in the general line of BMD in there. When we think about some of the commentary we've heard from the building product companies in the last few weeks and What the builders are telling us on the ground, it actually sounds like activity is seasonally building into the spring and the summer. And so I guess what are the factors that you're thinking about that are off that needs some of that. How are you thinking about the puts and the takes of where that margin can go and how those factors should come together given the macro

Speaker 1

Gas. Yes. So let me start that one specific to your question around general line and I'll let Jeff jump in here cast. As he deems it appropriate. We have not seen a lot of price pressure on general line.

Speaker 1

It's holding it's been holding and that's generally across product lines. EWP, yes, we have seen some pressure and that impacts both wood products And does impact BNB as well. And then on commodities, again, we were just flagging that because Test. As you know, when prices escalate, that gives us margin expansion opportunity. And if they come off, the reverse cast.

Speaker 1

We've seen a little bit of strength of late in OSB and so maybe we'll get a little bit of tailwind there. But I think Back to your other part of your question around order files and kind of some seasonal strength, yes, we are seeing that. We are experiencing that. Order files in plywood are kind of 2 to 3 weeks kind of a thing. In EWP, our order files Have expanded nicely compared to where we were at the start of the year.

Speaker 1

So we and there's a fair bit of positive commentary coming out from the whole builders. So there certainly is

Speaker 7

Voisey cast.

Speaker 4

So this is Jeff. On the general line margins, we may have been very sticky and they've been holding in there very, very well Overall general, there's been an item or 2 that's moved back a little bit. And if there's any real pressure on that at all right now, it's on items that are imported. And the pressure is not that the base material has dropped, it's that the ocean freight has dropped so significantly. And those are some of the things we're feeling it.

Speaker 4

Test.

Speaker 1

Hey, Suez, maybe just a final

Speaker 2

thought on that. Sorry, Suez, one final thought on that is, if you think about the purchase kind of cadence from our customers, Instead of kind of bulk in terms of railcar and truck, we're still experiencing a lot of auto warehouse services support units, job packs and pieces. So As you think about margin profile and what that kind of represents in DMD, we think that that's going to be remain a tailwind as we go through the course of 2023 because customers are still Really managing their inventory risk and reward pretty carefully.

Speaker 6

Okay. All right. That's helpful. Would you say in general that What you're hearing on the ground from your suppliers versus your customers is in line, is it consistent or do you think one is a little more optimistic relative to the other?

Speaker 2

Cast. Yes, Fermi, we had a chance to work that. I think there's a range of opinions and some of it is cast. Depending upon the markets that they're in, those that are maybe more centered on single family have had a tougher go, just given what the demand dynamics have been. Test.

Speaker 2

But I think to me, probably the optimism that's in the market today speaks to Maybe an improved environment relative to maybe their expectations 90 or 120 days ago. So while it's off, maybe it's not off to the degree that they were expecting. I think there is good sentiment in the marketplace overall. But again, I think there is still risk out there relative to Things like debt ceilings, some of the banking issues that are out there. So I think there's the right level of kind of hesitancy as well as we kind of go through the Q2 and the second half of the year.

Speaker 6

Okay. All right. And then, one more question is, you gave us an update on some of those B and D expansion initiatives, which is helpful. As you think about the setup here and where we are, can you talk to your appetite for new projects? Is there anything else in the horizon that you're looking at or that we should be aware of.

Speaker 1

Nothing specifically that we can flag for you today, Sue, but in terms of what we spoke to in terms of handful of additional opportunities we are working, Those are the same kind of things we've been executing on over the last couple of years in terms of looking to scale our door shop operations, looking to expand In existing footprint as well as look for additional footprints we can expand to. So it's very much the same sort of strategy and the same kind of things, Nothing we can speak to specifically today.

Speaker 6

Okay. All right. That's helpful. Thank you and good luck with everything.

Speaker 2

Thank you.

Operator

The next question comes from George Sabos, Bank of America. Your line is now open.

Speaker 8

Hi, everyone. Good morning. Hope you're doing well. Thanks for the details. Hope you can hear me well too.

Speaker 8

I guess the first question that I had Was related to what your customers are telling you about their inventories, either of wood products or of other products that you would be selling into them. Where do you think inventories are right now guys? The second question I had is around EWP, recognizing you don't disclose this, Where would you say EWP margins are relative to what you think a normal or trend line would be over the last 10 years. And then a couple of follow ons.

Speaker 4

Hey, George, this is Jeff. I'll take the inventory question and start with that because we're in constant conversations with our dealers about that and where they sit. And as I said earlier, it has been An unbelievable focus on net working capital and days of inventory, days of sales on hand and people have really Been driving to that. The one thing that maybe has changed in the last few days a little bit, in the beginning of the year, I'd tell you nobody would take a position on a commodity Test. In some of the bigger markets right now, people are feeling a little bit better, cautiously optimistic that they may add a few days for commodities, But otherwise it is strictly managing as a tight range right now.

Speaker 8

Understood.

Speaker 5

Okay, George, it's Mike. Good to hear you. I'll address the EWP margins question. So I think as everybody is aware over the last couple of years, the expansion in margins on that particular Product lines have been really very strong relative to any historical numbers that we've seen. Obviously, there's been some pullback.

Speaker 5

But if you think about where I'll say in general the market is today relative to where it might have been before the pandemic or for this latest run up, We're still above what historically would have been called normal. My personal view is I hope that test. Remains to be the case because of the situation, not the least of which is the changing cost structure that we face in manufacturing. So as a result of things like increasing wages and Various other components of our cost structure. I'm not sure that the prior normal pricing be it On EWP or for that matter, other wood products is sort of a good metric to be used going forward.

Speaker 8

Yes. But Mike, that's one just following on that. I was speaking specifically about margin, which would incorporate the labor and other costs of manufacturing, at least in terms of the way I was thinking about as I asked Test. So if you incorporate that and think about the margin for EWP, recognizing You're not going to give us to the basis point. Would you say that margins are still above normal?

Speaker 8

And is there a way to maybe roughly Sort of give us guardrails on that on how much they might be? And is the expectation you hold these levels because of the Secular trends that favor EWP over time or not?

Speaker 1

Yes. So George, let me try it and you're right. We're done. Okay. Test.

Speaker 1

Yes. No, you're good. Yes, we won't give you to the basis point for sure. And I guess I would Test. As a good reminder, we really need to think about margins kind of in BMD in totality because we are very There's a lot of integration between our plywood and veneer facilities and our EWP facilities.

Speaker 1

And so Has the margin expanded from where it was several years back? Yes, absolutely, because the price escalation has exceeded the cost escalation. That's true. In terms of where it goes from here and where normal might be several years from now. I don't we don't want to make that call.

Speaker 1

I think it's going to be dependent upon markets and supply and demand. But I would tell you in terms of EWP capacity, there's really no new capacity that's been announced. We're going to be able to grow more because we now have the veneer availability that we now have from Chapman and Havana. But in terms of when markets recover to a more normalized level, we feel good about our position and our ability to Maintain share in our position in the market.

Speaker 8

Understood. I appreciate that, Kelly. On that point, can you remind us how much of Coastal's capacity is ultimately going to be integrated Into LVL for that matter, I, Joyce. And then one last one and I will turn it over and come back to queue. What do you recognizing that commodity prices will swing these percentages around, Do you have a longer term target that you remind us of in terms of where you would like BWK and general line to be in your overall revenue mix in BMD, whatever interval you want to give us next year, 5 years from now, what have you?

Speaker 8

Thanks.

Speaker 5

So George, I'll have a stab at your question around the Chapman and Havana thing. So when we made the acquisition, we put out some numbers. It really is not so much about how much of the veneer production at Chapman and Havana would go into EWP initially. I think what we said was that after we have made some additional capital investments in our existing PWP Mills and some other small investments in our existing plywood mills That we saw that the total increase in billet volume, EWP billet volume was going to be approximately 3,500,000 cast. We didn't go into the details as I recall about how much of the Gas capacity from Havana and Chapman that represented.

Speaker 5

But what I will tell you as a sort of a general statement is, We should have some additional stress rated veneers, so that is the veneer that is suitable to go into EWP over and beyond the 3,500,000 cubic feet of LVL or fillers capacity that we would initially see. To utilize that would require us to make some additional investments. So that was really part of the rationale behind us not getting out in front of ourselves too early in this discussion. So I think it's best to leave it like that at the moment. And we are very, very focused on getting the capital investments made to be able To get that 3,500,000 cubic feet of PWP additional EWP production.

Speaker 1

Yes. And then specific to your question around BMD sales mix and the portion between commodity general and EWP. Over the last five quarters, it swung between 40% and low 50%, the commodity portion of that. Obviously, there's been a whole lot of price fluctuation within that. We're with commodity prices where they are, maybe we're back to a more of a normal mix, kind of 40% general commodity, 40% -ish general line and 20 percent -ish EWP.

Speaker 1

So I think if we go forward from here, I want to make it clear, we're not looking to downsize our position in commodity. We just expect it to be a smaller proportion of our sales as we move forward. So we would expect the general line and EWP portions to grow, and then commodity portion as opposed to being around 40. I think over time, probably something more like mid-30s would be a more what we'd expect to see in terms of the mix.

Speaker 8

Kelly, that's great. Thank you so much. I'll turn it over. You bet.

Operator

Thank you, Jordan. Please stand by for our next question. The next question comes from Ketan Mamtora with BMO. Your line is open.

Speaker 9

Good morning and thanks for taking my questions. First one, Nate or Kelly, I was curious, I mean, it Sounds like Millwork is a focus area for you guys. Can you talk about sort of the relative attractiveness of the Millworks business as we think about the total distribution chain whether it is 2 steppers and 1 steppers?

Speaker 2

Yes, Ketan, good question. I think in terms of our millwork and our door investment, We feel, as always, we always start the conversation with how do we better serve the marketplace and our customers. And our customers have looked to us to Test. We continue to kind of grow that capability in that franchise in support of what they're trying to get accomplished. So for us, it matches really well with our current customers, kind of Test.

Speaker 2

Across the spectrum in terms of how they think about supporting their millwork business. I think the other thing for me is we have strong vendor alignment and partnerships Test. And we feel good about those relationships as

Speaker 1

we move forward. The other thing that

Speaker 2

we talked about, Ketan, is just that earnings stability and consistency. And for me, our door franchise, our millwork business absolutely supports that and reinforces that and allows us to continue to We need to kind of drive our earnings performance as an organization as we move forward. So to me, it's again starts with kind of the customer is always the marketplace and The support and I think the expectations they have from us are high there, which is great. And again, it matches very well with our strategy in terms of that growing that capability, including The earnings performance as a result.

Speaker 9

Got it. No, that's helpful. And maybe just one follow-up on that. You talked about the earnings stability in that business. Is the margin profile in general over

Speaker 5

a period of time, if you

Speaker 9

look Is the margin profile also different materially different in terms of just the level of margin in that business?

Speaker 2

Test. Yes, absolutely. I think that the margin profile is higher. It's more consistent and steady. We don't see The volatility that you would see perhaps on other products, including in general lines.

Speaker 2

So higher levels, I think there's a high ability to serve and touch in terms of some of the services that we provide, and certainly margin profile as part of that storyboard, Keaton. So, yes, I would say each of those is how we think about it. And again, reinforces, I think, we have, our commitment and excitement about how do we continue to grow that platform.

Speaker 9

Understood. No, that's helpful. And then just one last one from my side. As we think about capital allocation and to Kelly's comment earlier In terms of additional optionality, can you just remind us again your thought process around kind of guest. It does share repurchases of special, obviously you guys have a pretty good history in recent years of special dividends.

Speaker 9

But just remind us kind of How you approach these 2 and what are sort of the puts and takes as you think about capital allocation?

Speaker 1

Guest. Yes, I'll take that, Ketan. So I think your question was centered mostly on when we get to the shareholders and how do we think about returning capital there.

Speaker 3

Capital there. That's correct.

Speaker 1

But yes, our first part is really 1st and foremost thinking about the company, how we make sure we to support the asset base we have and look to grow the asset base we have in the right places and in the right manners. Test. And then and also what might be ahead of us and how does that then stack up versus What our balance sheet capabilities are. And so then we begin the discussion with that dialogue and then we follow-up Okay. Now how do we want to think about returning cash to shareholders?

Speaker 1

And so what you said in terms of share repurchases And dividends, which either that's regular quarterly, which we look to grow over time or special. Cast. That's all of that's part of the conversation. But I would say that's just an ongoing active dialogue and I wouldn't Test. It's that can vary quarter by quarter just depending upon what the opportunities are, what the landscape is And we'll continue that dialogue with the Board and we'll never lose sight of the shareholders.

Speaker 9

Understood. Thank you. I'll jump back in the queue. Good luck.

Speaker 2

Thanks, Steve. Thanks, Steve.

Operator

Please standby for the next question. The next question comes from Michael Ryskin with Truist Securities. Your line is open.

Speaker 7

Thank you. Thanks, Nate, Kelly. Mike, congrats on the very good quarter.

Speaker 5

Thank you.

Speaker 1

Thanks. Good morning.

Speaker 7

Good morning. One quick question just for you on the margin profile in BMD. I think we met your as mentioned on this call, as mentioned last call, we were raising the mix there. And if you look at performance, this guest. Thank you, given where housing was particularly impressive.

Speaker 7

So I'm wondering if you could help us frame where do you think EBITDA margins could openly wind up in BMD.

Speaker 1

Yes. Good question, Mike, yes, the business has done a really good job in margin performance and in an environment here in the Q1 where Really no opportunity to expand margins in commodities and then we continue to execute well for our vendor and customer partners on general line and EWP. So the question in terms of where do we go from here, it's guest. We've been on record now for at least several quarters of reminding folks that historically we were Kind of the 3% to 3.5% range in that business. And I think going forward, we view that business as a 4 plus Grow the EWP and grow the general line portion of the business that runs through BMD that will allow us to And those margins compared to what they were historically.

Speaker 2

Mike, it's maybe just one other comment on that. Just that again, I think Test. The earlier discussion around auto warehouse services in terms of how that's going to show up certainly in 2023. And we think probably even into next year, again, as customers Manage that risk reward in terms of book volume and price, I think their dependency out of warehouse is going to will continue to be there. Margin profile, as you might expect on units and job packs and pieces is different than kind of direct trucks and cars.

Speaker 2

So I think that's going to be a tailwind, continue to be a tailwind For B&D as we move forward through 2023 as well.

Speaker 1

Got it. So would it be fair to say

Speaker 7

it's a 4% So that's a 4% and there's nothing more upside we have. Given your execution thus far, I mean, you could be looking at an EBITDA margin, but going forward that levels off at at least 4.5% to 5% and grows from there. Given the mix shift and given what you just mentioned in terms of how the

Speaker 1

cast. Yes. We're certainly focused on execution And looking to maximize our margin and grow our earnings and earnings stability. So, yes, Your thought process there and relative to where we want to what we want to do to the business, yes, that's a fair statement. That's a fair sentiment and that is how

Speaker 2

we think. Test. And that's how Mike, to your question, that's how we've invested as well. I mean, so in terms of areas of focus and growth and prioritization, Test. It does again always starts with the customer and our supplier base, but in terms of, they can have margin profile and the consistency and how do we elevate that, That is very much part of our discussion on day in and day out basis and again how we think long term in terms of our investments as well.

Speaker 7

Got it. I appreciate the color. And then just quickly on EWP, obviously, leasing prices are going to continue to erode in 2Q, although they will be sequentially better. Can you just talk about maybe your operating stance and the broader industry operating posture? And just want to get a sense of whether is there any Downtime as well.

Speaker 7

Do you have additional downtime, if another downtime could help minimize EWP price business?

Speaker 1

Maybe let me Take the pricing question, make sure clarify what we said there and then I'll let Mike kind of take the operating stands. So, yes, what we've said there in terms of forward pricing, we are experiencing pressure still. And as far as we've gone out in terms of given some guidance is just sequentially 2nd quarter versus 1st, which we do expect Further price declines, but at lower rates of decline than what we just experienced sequentially. Julien. We haven't shadowed anything beyond that.

Speaker 1

The marketplace is pretty fluid and it will be very dependent upon housing starts and operating rates, But Mike, you want to take the operating stance question, please?

Speaker 5

Yes, sure. So Mike, as it relates To Boise's operating posture for EWP at the moment, which also sort of rolls over into how we operate our plywood or veneer producing facilities. I think it's fair to say that at Pretty much every location we're not running at full capacity and haven't done so now since Q4 of last year. So there's ample upside in terms of capacity to produce more veneer and more EWP should the market demand cast. And thank goodness over the last or during the Q1, you've seen by our numbers, we had a bit of an uptick.

Speaker 5

So As and when necessary, we can start to add additional shifts or days in several different locations to produce more EWP and Veneer as required. So geographically speaking, I would say that The Pacific Northwest has been a little bit more challenged than the Southeastern United States. And as a result, there's been, I would say, as a general statement, More curtailments for us in the Pacific Northwest as compared to the Southeast. I really Can't give you a lot of good insight into the industry. I think most of the industry is probably looking at it in a similar vein As it relates to it's all about demand.

Speaker 5

And I suspect, if there was more demand, they would do similar things To what we have been doing and what we would do. That's about as much as I can tell you about the industry.

Speaker 7

Got you. And just one quick follow-up, guest. Can you just provide some more details around why the Pacific Northwest was more challenged than the Southeast?

Speaker 5

Yes. Test. Yes. So, yes, it's not to put because it's not funny, but In any stretch of imagination, but the weather that we have experienced in the Pacific Northwest seems to just it won't quit. Test.

Speaker 5

So California has been underwater. We've had record snow here and everywhere and it's very difficult to build houses and Particularly in the state of California, but not only because of the weather. They have very, very, very stringent requirements around what you can and can't do. And so we haven't really got to spring yet in the Pacific Northwest. In the Southeast, again, it's not been perfect, but They've had a better run and you can sort of see that when we look at our order files, particularly for EWP.

Speaker 5

I mean, they have been catastrophe stronger in the Southeast relative to the Pacific Northwest.

Speaker 7

Got it. Thanks very much for the color and good luck in 2Q.

Speaker 1

Cast.

Operator

Please stand by for the next question. The last question comes from George DeBose, Bank of America Securities. Your line is now CapEx.

Speaker 8

Hi, everyone. Thanks for taking me at the end here for a follow on. Two quick ones. One, can you remind us What you think normal CapEx would look like for Boise Cascade once you're done with the expansions recognizing that You intend to grow. And so from that normal level, there'll be growth thereafter.

Speaker 8

But in a couple of years, what might CapEx look like, Whatever the interval that you would say would be. And then secondly, back to repair a model, Test. We know all the stories, all the facts behind why repair model is

Speaker 5

shared around the time we have

Speaker 8

an aging and housing stock, People are locked in with rates and so on. On the ground, are your customers truly thinking that that will be the case with test. The state of the consumer, the state of rates, what are they telling you in terms of their outlook for their model units over the next year or so given some of those constraints and recognizing fully what the secular positives are. Thanks guys and good luck in the quarter.

Speaker 1

Test. You bet, George. Thank you. I'll take the they'll take the first one, then I'll pass off the second one. So you have the first one around kind of what's our normalized Test.

Speaker 1

Capital spending levels here going forward. It's a great question. We actually had a good dialogue on that exact topic just a day or 2 ago with our Board of Directors. And so several couple of things to figure to factor into the equation there. 1, yes, we have grown.

Speaker 1

We have added operations in both Wood Products and in BMD. And then inflation has definitely impacted That equation also. So I would tell you, it wasn't but a few years ago, we probably thought of our kind of normalized CapEx that included maybe a little bit of cast. Strategic in it was probably in the $80,000,000 to $90,000,000 range as a company. I would tell you now, we're probably thinking like 100 and cast.

Speaker 1

$120,000,000 on a normalized basis going forward. Again, that's we have more facilities to support and we're going to support them. We have higher costs because of inflation. And if you think about just kind of the rolling stock requirements in BMD And the more facilities, more trucks, more trailers, more hysters, all that kind of factors into that nucleus. And so if you pay back to the $115,000,000 it's probably something 65 in wood and $50,000,000 for BMD.

Speaker 1

The R and R question, I think Jeff will start on that one.

Speaker 4

Hey, George, it's Jeff. On the R and R question, I'd tell you, we're still seeing very good takeaway on that front right there. The pros are busy, But probably not to the same level they were during COVID, but they're still busy. We really expect the do it yourself part is going to pick up with the seasonality and with the pricing. And then what are the customers saying?

Speaker 4

They still feel good. There's a lot of work to still be done out there. Some things got put off because you couldn't get labor and pricing materials too expensive Those projects are coming forward. So the feeling out there from the customers is that segment is still going to continue to be strong for a while.

Speaker 8

Okay. Guest. I appreciate the thoughts on both questions and we'll answer the call. Have a great rest of the day and great quarter guys. Thank you.

Speaker 2

Thanks George. Thanks George.

Operator

The question comes from Curtissinger, D. A. Davidson. Your line is now open. Great.

Speaker 3

Thanks. I appreciate you squeezing one more in. I just wanted to go back to George's earlier question on trend in EWP margins because It is a really interesting one. And I don't want to put words in your mouth, but if you look at the historical margin profile of Wood Products With EWP encompassed within that, I think there's an argument that they've kind of underperformed relative to the fact that EWP is a list price product. You have a captive relationship with distribution, consolidated number of manufacturers, Test.

Speaker 3

And there is a relationship and partnership with the end user. So I guess at a high level, would you kind of agree with that view or any thoughts Around just the evolution of the category and the margin profile over time?

Speaker 5

Yes, Kurt. That's a very interesting question. I guess my Broad answer to this is that within the EWP category, there are a variety of different approaches to go to market. Test. We have a particular approach and we have an excellent set of distribution and dealer partners And we work in conjunction with all the biggest and best builders in the country.

Speaker 5

So when I think about Your sort of question is, has it underperformed? I don't think it's underperformed really at all. I just think that ultimately the margin It is determined by what the market will bear. And so in certain circumstances, There is, I'll say ample availability of product. And as a result, That can end up seeing a compression of margins generally across all manufacturers of EWP.

Speaker 5

In other market circumstances, the reverse is true. There's not enough supply and margin expands. And so I don't I wouldn't support the thesis that PWP margins Haven't performed as certainly as I would have expected or that they have disappointed. I think that's just the way the market works. I think Mike would have some views on this too.

Speaker 2

Yes, Kurt, it's Nate. Just to maybe to echo Mike's points and maybe just a couple of others. As I about the EWP business and the franchise. Ultimately, it's a product category that does that solves problem for the builder In terms of its design capabilities and functionality and flexibility, that continues to be really important. The other thing that the builders have been insisting on rightly so is cycle times.

Speaker 2

How do they take time out of the construction cycle and EWP is very much part of that equation guest. And helps drive that. So as I think about today and moving forward in terms of the relevance of EWP, including the supply and demand balance, I feel good about how that category is set up and that really speaks to our investment as an organization, as a company in terms of continuing to grow that important franchise. So Yes, again, time will tell here as we go through the course of the year and what the housing start environment will be especially on single family. Again, we feel really good about that franchise as we go through the course of this year and next year, and we're investing and building our capabilities as a result.

Speaker 3

Okay. All right. I appreciate the thoughts, guys. Thank you.

Speaker 2

Thanks, Eric.

Operator

I show no further questions at this time. I would now like to turn the call back to Nate Jorgensen for closing remarks.

Speaker 2

Thanks, Michelle. We appreciate everyone joining us on the call today and for our update and thank you for your continued interest and support of Boise Cascade. Please be safe and be well. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Portland General Electric Q1 2023
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