Boise Cascade Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 9 speakers on the call.

Operator

Good morning. My name is Lisa, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's 4th Quarter and Full Year 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

It is now my pleasure to introduce you to Kelly Hibbs, Senior Vice President, CFO and Treasurer of Boise Cascade. Mr. Hibbs, you may begin your conference.

Speaker 1

Thank you, Lisa, and good morning, everyone. I would like to welcome you to Boise Cascade's 4th quarter 2023 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO Jeff Strom, Head of our Building Materials Distributions Operations and Mike Brown, Head of our Wood Products Operations, who will be retiring May 1 after an outstanding 25 years of service to Boise Cascade. 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 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. Thanks, Kelly. Good morning, everyone.

Speaker 1

Thank you for joining us for

Speaker 2

our earnings call today. I'm on Slide number 3. A few highlights as I reflect on our 2023 results. We reported full year net income of $483,700,000 or $12.12 per diluted share on sales of $6,800,000,000 We further executed our growth strategies through organic and acquisition initiatives and we also provided meaningful returns to our shareholders through share price gains and dividends. I want to thank our associates across the company who continue to execute our strategy that position us to serve and support our vendor and customer partners.

Speaker 2

Let me now turn to 4th quarter results. Total U. S. Housing starts increased a modest 4%, however, the rebound in single family housing starts was evident reflecting a 23% increase compared to the prior year quarter. Both of our businesses again delivered strong operating and financial results.

Speaker 2

Our consolidated 4th quarter sales of $1,600,000,000 were up 1% from Q4 2022. Our net income was $97,500,000 or $2.44 per share compared to net income of $117,400,000 or $2.95 per share in the year ago quarter. Q4 2023 results included 6 $200,000 of pre tax accelerated depreciation related to the curtailment of lumber production in Chapman, Alabama and approximately $3,000,000 of transaction expenses related to the Brosco acquisition. I'm pleased with the status of our Brosco integration efforts and the financial results thus far delivered by our new teammates. As we start 2024, our balance sheet remains very strong and remain committed to our balanced approach to capital allocation.

Speaker 2

We look forward to executing our reinvestment and growth projects included in our expanded capital plan. Kelly will now walk through our segment financial results and provide an update on our capital allocation in more detail, after which I'll provide an outlook before we take your questions. Kelly?

Speaker 1

Thank you, Nate. Wood Products sales in the 4th quarter including sales to our distribution segment were $449,700,000 compared to $425,600,000 in the Q4 of 2022. Wood Products reported segment EBITDA of $92,700,000 down from EBITDA of $99,700,000 reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices and an increase in other manufacturing costs. These decreases were offset partially by higher EWP sales volumes and lower wood fiber costs.

Speaker 1

The previously mentioned $6,200,000 of pre tax accelerated depreciation from our Chapman Lumber curtailment did not affect our EBITDA, but did negatively impact our earnings per share in the quarter by approximately $0.12 per share. BMD sales in the quarter were $1,500,000 up 3% from Q4 20 22. BMD reported segment EBITDA of $80,600,000 in the 4th quarter compared to segment EBITDA of $99,400,000 in the prior year quarter. The decline in segment EBITDA was driven by increased selling and distribution expenses of $12,900,000 compared to the same quarter in the prior year. In addition, general and administrative expenses increased $5,700,000 approximately $3,000,000 of which were Brasco acquisition related costs, which had a negative impact on our reported earnings per share of approximately $0.06 per share.

Speaker 1

We expect total company depreciation and amortization in 2024 to be approximately $140,000,000 This includes the incremental depreciation and amortization from the assets acquired in our recent Brosco transaction. In addition, our anticipated effective tax rate remains at 25%. Turning to Slide 5. On a year over year basis, 4th quarter volumes for I joist and LVL were up 79% 29% respectively, driven by the sharp improvement in single family housing starts. Sequential pricing for both I joists and LVL was up 3% due to better than expected market conditions and 4th quarter rebate adjustments that had a positive impact on net price realizations.

Speaker 1

Looking forward to the Q1, good momentum in single family starts is a nice setup for EWP sales volumes where we expect high single digit growth in LVL volumes and modestly higher I joist volumes on a sequential basis. On pricing, we expect to experience mid single digit sequential declines. Turning to Slide 6. Our 4th quarter plywood sales volumes of wood products was 363,000,000 feet compared to 393,000,000 feet in Q4 2022. Plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP EWP production given the change in demand for EWP.

Speaker 1

The $3.75 per 1,000 average plywood net sales price in 4th quarter was down 5% from Q4 2022 and down 2% sequentially. Thus far in the Q1 of 2024, plywood price realizations are consistent with our 4th quarter average. Moving to Slide 78. BMD's 4th quarter sales were $1,500,000,000 up 3% from Q4 2022 driven by sales volume increases of 13% offset partially by sales price decreases of 10%. Excluding the impact of the Brascaux acquisition, BMD sales were flat.

Speaker 1

By product line, commodity sales decreased 8%, general line product sales increased 13% and sales of EWP increased 10%. Gross margin dollars were flat when compared to the same quarter last year as lower margin dollars on EWP were offset by higher margin dollars generated on general line products. In addition, BMD's overall gross margin percentage was 15.2%, down 60 basis points from the 15.8 excuse me, 5.4% for the quarter, down from excuse me, 5.4 percent for the quarter, down from the 6.9% reported in the year ago quarter and down 90 basis points sequentially. As we typically do, we have grown our inventory since year end and are well positioned to support the upcoming spring building season. Broadly speaking, we view inventory in the channel as lean for most product lines providing a good backdrop for 2 step distribution.

Speaker 1

BMD sales pace thus far in Q1 2024 is approximately 10% below 4th quarter daily sales averages with extreme weather across most of the country in January delaying many shipments to job sites. We anticipate our daily sales pace will accelerate as we move through the quarter and expect our Q1 2024 EBITDA margins to be around 5%. Moving to Slides 910. These slides show the generally stable pricing environment for lumber and panel pricing during Q4 2023 compared with the downward trajectory during the prior year quarter. As we enter 2024, commodity and lumber pricing has remained stable.

Speaker 1

While future commodity pricing volatility is always a possibility, we will maintain our approach to having inventory on hand to support our customer base. I'm now on Slide 11. We had capital expenditures of $215,000,000 in 2023 with $59,000,000 of spending in wood products and $156,000,000 of spending in BMD. In wood products, our capital spending included veneer related projects at mills that support EWP production. In BMD, our capital spending included new door and millwork facilities in Kansas City and Denver, the build out and start up of a new distribution center in Marion, Ohio and the purchase of distribution centers in West Palm Beach, Florida and Modesto, California.

Speaker 1

We are excited about our expanded capital expenditure plan in 2024. In Wood Products, our 2024 capital plan includes spending on previously announced projects to add IJOYCE production capabilities at our Thorsby, Alabama EWP mill and convert the layup line to a parallel laminated veneer line at our Chapman, Alabama plywood facility. At our Oakdale, Louisiana facility, multiple investment projects are planned over the next 2 years, which will include upgrade and redesign of the log utilization center, a new veneer dryer and press and modification of an existing veneer dryer. In BMD, our 2024 capital expenditure plan includes additional spending on the new West Palm Beach and Modesto locations. Progress on permits, site work and design for our greenfield distribution centers in Texas and South Carolina has been slow, but we expect spending to gain notable momentum in 2024 as we work towards anticipated start up of those locations in 2025 and 2026, respectively.

Speaker 1

As we've noted before, the availability of engineering and construction resources and the timing and availability of equipment purchases and construction resources and the timing and availability of equipment purchases will influence our ability to execute upon our plan for $250,000,000 to $270,000,000 of capital expenditures in 2024. Speaking to shareholder returns in 2023, we paid $346,000,000 or a combined $8.70 per share in regular and special dividends and also completed $6,400,000 of share repurchases. We have approximately 1,900,000 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 February 23, payable March 15. In summary, our balance sheet remains very strong and our principal capital allocation focus is to invest in our existing asset base and organic growth projects while remaining committed to our fixed dividend through this business cycle.

Speaker 1

We will also evaluate M and A if it aligns with our strategy and opportunistically return additional capital to shareholders as deemed appropriate by our Board of Directors via special dividends and share repurchases. I will turn it back over to Nate to discuss our business outlook. Thanks, Kelly.

Speaker 2

I'm on Slide number 12. Recent industry forecast for 2024 U. S. Housing starts are generally consistent with actual housing starts of $1,420,000 in 2023 as reported by the U. S.

Speaker 2

Census Bureau. Despite recent declines in mortgage rates and homebuilders responding with various mechanisms to attract buyers, home affordability remains a challenge for consumers. However, with a resilient economy and elevated mortgage rates, which limits existing home inventory for sale, new residential construction is expected to remain an important source of supply for homebuyers. With new residential construction, the recent reduction in rates and potential for future rate reductions has created optimism that single family starts will reflect year over year growth. However, there's reservation that multifamily starts may pull back from recent record highs due to capital costs for developers combined with cooling rents and elevated supply.

Speaker 2

Regarding home improvement spending, the age of U. S. Housing stock and elevated levels of homeowner equity have provided a favorable backdrop of repair and remodel spending. While improvement spending is expected to remain robust compared to history, recent industry forecast project mid single declines in 2024. As Kelly mentioned, we remain well positioned to invest in our existing asset base opportunities in both businesses as reflected in our robust 2024 capital spending plans.

Speaker 2

Our longer term view on housing fundamentals is favorable supported by demographic trends and under built housing stock. As such, we remain clearly focused on execution of our strategies have great conviction around our investments to grow the company. Finally, I would like to take this opportunity to thank and congratulate 3 members of our leadership team on their upcoming retirements. As communicated in January, Tom Hoffman will retiring after 43 years of outstanding service and dedication to Boise Cascade. As we announced yesterday afternoon, Aaron Knoxville, our Senior Vice President of Human Resources will retire on May 3 after 30 years of service and numerous accomplishments across the company.

Speaker 2

We are excited that Angela Brosh will be stepping into the role of Vice President of Human Resources for the company. And finally, Mike Brown will be retiring from Boise Cascade after 25 years of dedicated service. Mike, we're grateful for your work and impact to Boise Cascade and those who we serve and support. Among a number of achievements delivered by Mike, he helps establish the safety culture and systems we benefit from today across our organization. Further, his leadership was fundamental in building our conviction and passion on safety as an organization, both in terms of what's expected and in what is possible.

Speaker 2

We are safer and better organization as a result. Mike has set a very high bar for our Wood Products division. I have complete confidence Troy Little and team will continue to build on that momentum and success. We move forward with great clarity on what has made the Wood Products division successful and we'll maintain that same approach and consistency as we move forward. Mike, all the best to you as you move into your well deserved retirement.

Speaker 2

At this time, we'd welcome any questions. Lisa, would you please open the phone lines?

Operator

Yes. Thank The first question today that we have is coming from Kurt Yinger of D. A. Davidson. Your line is open.

Speaker 3

Great. Thanks and good morning everyone.

Speaker 1

Good morning, Kurt. I was hoping

Speaker 3

we could good morning. I was hoping we could just start on EWP capacity. Can you just level set us on how much capacity you're kind of adding between what you've already outlined with Coastal and some of the recent announcements? And second, I mean, outside of your own moves, we haven't really seen a whole lot of capacity added within the industry as a whole. How do you think that positions you from a competitive standpoint?

Speaker 3

Should we continue to see single family starts momentum grow over the coming years?

Speaker 1

Yes. Thanks for the question, Kurt. This is Kelly and I'll let Mike jump in here as well. I guess let me start by yes, it's the right question around capacity. And so what we spoke to when we did the coastal acquisition was that that provided us relief constraints we had around veneer so that we would have a better opportunity to be able to run volumes that were closer to our nameplate capacity.

Speaker 1

And you'll see our nameplate capacity listed are shown in our 10 ks that we filed yesterday. And so we talked about 5% 12%, I believe by 23% 25% was kind of the capacity numbers we talked about. So it's important to note that we're not talking increases specifically in nameplate, but our ability to run much closer to our nameplate capacity what we weren't able to before. And then some of the capacity additions we've talked about in terms of the I joist line and some of the other things we've referenced in terms of growing our ability to produce more product, that certainly helps us through the cycle and very much helps us through the when we get into the peak building seasons that we see in the summertime and be able to meet demand, the seasonal demands there. Anything you'd add, Mike?

Speaker 4

Good day, Kurt. So the only point I'd probably make relative to our position compared to say some of the other manufacturers is we've had this strategy for a long time to have a very high level of veneer self sufficiency and to be prepared when the market requires product. And I think that puts us in a really strong position, not only today, but for the future, because as far as I'm aware, we have the highest level of veneer self sufficiency as it relates to EWP production. So should we see and we sort of we did see this during the pandemic when we had an uptick in housing starts, we were able to respond very, very quickly to that demand. And I think that's the point also Kelly is making about the seasonal nature of housing starts where we see obviously the majority of the housing starts really in the summer spring and summer period.

Speaker 1

Got it.

Speaker 3

Okay. Thanks for that. And then second, sticking with EWP, we have seen some choppiness the last couple of years in terms of volumes. But if you were to take a step back, how would you say share has shifted over the last couple of years between Ijoy, SolidSawn and OpenWebBoard trusses? And how big of a factor is substitution risk going forward as you think about pricing decisions?

Speaker 4

Yes. Okay. So I'll take a stab at that one too, Kurt. So, yes, I think you saw or we saw some sort of changes in the dynamic during the pandemic where because of the I'll say the relatively constrained supply of I joists mainly due to the lack of people, open web trusses gained some favor. And I don't think that's changed in terms of capacity of open web trusses in the marketplace.

Speaker 4

However, when you think about where we put ourselves relative to the product line, specifically I joist, it is a very, very favorable product line because of the ease of installation and the ability to transport it significantly longer distances. And when you think about what's been happening, I'll say in recent times, we are starting to see our I joist demand improve not insignificantly compared to times gone by. So open web trusses are not going to disappear, but we can make a lot more per unit time, particularly during the peak building season.

Speaker 2

Hey Curtis, Nate, maybe just one other data point on as you look at the competitive backdrop in terms of plated floor trusses or dimensional lumber versus I Choice. The other theme that's certainly out there with our builders is they're looking to reduce cycle times on the job site. And so if you look at, okay, what are the products and tools and solutions that help kind of drive lower cycle time or improve cycle time performance, I joists are very much part of that answer. So as you think about, again, what the expectations are and the needs are on the job side, I think we feel really good about I joists being an important answer to reducing cycle times for the builder.

Speaker 3

Got it. Thanks for that Nate and thanks Mike. Congrats on the retirement and good luck here in Q1 guys.

Speaker 4

Thank you.

Operator

Thank you. One moment for the next question. Our next question will be coming from Susan Maklari of Goldman Sachs. Your line is open.

Speaker 5

Thank you. Good morning, everyone.

Speaker 1

Good morning, Sue. Good morning,

Speaker 5

Sue. My first question is, I want to kind of build on this discussion around your increasing capacity in EWP. When you think about the builders increasingly using I joists in order to realize the labor and the efficiencies that they're getting with those products? Does that mean that the absolute level of starts that the industry is operating at is perhaps not as impactful or do you think about that differently when you're considering the capacity that you're adding or the level of capacity that you want to achieve eventually? So I guess how do you think about the trade off between the actual volume of starts or the actual level of starts relative to the mix shift that's coming through on the ground and builder preferences?

Speaker 1

So I guess to kind of rephrase your question, make sure we understand it. So are you saying I guess there's 2 components to your point. There is what is the absolute level of starts and then there's the penetration opportunity for whether it be LBL or I joists into those starts.

Speaker 6

That's right.

Speaker 1

As we've talked yes, okay, good. So, as we've talked before, it really depends on where that start is created. So, if you have slab on grade construction like you do in many parts of the Southeast, that's really not a floor opportunity for I joist, but it's still very much a good opportunity for LBL. Whereas in Denver, for example, a lot of opportunity for floor systems because you have crawl spaces there. So I may not be directly answering your question, but yes, there is 2 components and we feel really good about our position.

Speaker 1

We feel good about the medium to long term around single family housing and gives us conviction around the projects we're doing to make sure we have products available.

Speaker 4

So Sue, I might add this is Mike. I might add just one other point. So kind of sort of thinking about your question, the projects that we've announced recently really aim to do a couple of things. So as I sort of indicated in one of my prior answers to Kurt, you have to have product available. And you don't want to be running your machinery at attempting to run it at 100% of capacity.

Speaker 4

So when we think about what we're doing in our strategy, it is related to housing starts clearly because more housing starts is good for us. And Kelly's point is correct, particularly in the South Texas is a good example. Maybe there's not as many linear feet of I joist use per start because of the nature of that construction type. But our view is that if we have capacity available and we make it as efficient as efficiently as we can And we have the geographical footprint now with the projects we're going to be doing in the foreseeable future at Thorisby, we will be able to get the product to the market as fast or faster than anybody else at a very competitive pricing level. And I think that puts us in a very good position because as I've reiterated earlier, in the middle of the building season, we need to get product to the site very quickly.

Speaker 4

And I think that even though it may not be 100% correlated with housing starts, I think there is still a very strong correlation that demand for I joists will go up as housing starts increase.

Speaker 5

Yes. Okay. So it's a service level component to it. And it sounds like from what you're saying then, even if the level of starts is on a relative basis incrementally slightly lower, let's say than where we currently are or where steady state is, you could still see that benefit on the volume side because you've got those higher service levels and you're able to get the units out during that busy season. Is that fair?

Speaker 4

Yes, I think that's fair and I think that's part of the relationship that Wood Products is the manufacturer and BMD as the distributor has. We have inventory at our manufacturing sites as well as our distribution sites and we can get it there very quickly. We have a very high service level compared to, I'll say, the remainder of the industry.

Speaker 7

Yes. Yes.

Speaker 1

And then maybe one other thing to think about too is, yes, single is the big driver for EWP, but multifamily also is certainly an opportunity for us to further attack for EWP as well.

Speaker 5

Yes. Okay. All right. That's all helpful color. And then I do want to shift to BMD as well.

Speaker 5

So when you think about the investments that you're making on that side of the business with the doors and the distribution centers and those things, How do you think about the upside in terms of volume there over time? And I guess any thoughts on your existing capacity today and how much these investments will support and how to think about the growth there over time?

Speaker 1

Yes. Good question, Sue. And so as you've seen in over many years and particularly recent years, we have we've made a lot of organic investment in the BMD and that is very purposeful as we look to grow the earnings and earnings stability of the company. And so and included in our IR deck actually that will be published shortly after this call, you'll see where we've shown some sales per start over a period of time. And you'll see that we're growing across all those product lines pretty nicely.

Speaker 1

So that's been very purposely that we said all along we really like the distribution business. We've been shifting the mix to rich in that product mix to be able to continue to grow that business. It looks like Nate has

Speaker 2

a comment here as well. Hey, Sue, it's Nate. Just maybe as you think about the context and the backdrop for BMD in the marketplace, part of our really important responsibility is how do we serve and support all of our suppliers. And if you think about what they're focused on and what some of the things that they'll be working have been working on and we'll continue to roll out as new products and new services. So as you think about the importance of BMD to help execute our supplier strategy in terms of their new products, new services, in many cases there's the SKU intensity is probably getting bigger, not smaller.

Speaker 2

Those are all really important opportunities for us to support both our supply partners and obviously our customers downstream. So I think that narrative will still has been in place and will continue to grow as we go through 2024 and into next year.

Speaker 5

Okay. Okay. I just want to squeeze one more question in. I'm not trying to make this a one on one for me, but I just want to get one more in, which is that the gross margin in the wood products came down in the 4th quarter, but pricing held across most of those products. And so any thoughts on what drove that decrease?

Speaker 5

Is it the volumes that were coming through? Did you take more maintenance or downtime in there? And then any thoughts on where that could go for the Q1?

Speaker 1

Yes. So in the Q4, it is typical that we do take some downtime for projects around the holidays and whatnot. And so we did see that in the Q4. As we go forward from here, I mean, we highlighted a couple of the key things, which will be how does the spring building season play out in terms of what kind of volume growth do we expect to see in the Q1. And then there's continued competitive pressures around EWP pricing.

Speaker 1

So those are

Speaker 2

probably the key things I'd highlight.

Speaker 5

Okay. All right. Thank you for all the color. I appreciate it. I'll turn it over now.

Speaker 5

Good luck guys.

Speaker 2

Thank you.

Operator

Thank you. Thank One moment for the next question. Our next question will be coming from Ketan Mamtora of BMO. Your line is open.

Speaker 6

Thank you and good morning. Maybe to start with on the BMD side, commodity prices have normalized and EWP prices have also come in fair bit in the last 4 or 5 quarters. Yet the margins have held up quite well. So 2 part question here. 1, can you talk a little bit about performance in the general line category and where sort of you are seeing ability to get sort of higher margins than what you've done historically?

Speaker 6

And the second part to it is kind of what you highlighted as for Q1 target, is that what you would consider now in sort of this business mix that you have to be more normalized margins in the distribution business?

Speaker 1

Yes. Let me have I'll have hey, Ketan, this is Kelly. I'll have Jeff maybe take the question around kind of general line and kind of the mix there And then I'll come back and speak to the margin profile. Go ahead, Jeff.

Speaker 8

Okay. On the Generalline stuff, what I would say to you is every investment we made and if you go back to the previous question about our growth, the intention there has been to expand our general end products to get deeper and wider with everything along with the millwork items. And so what you're seeing with that expansion there, those are higher margin profile items of the growth and it's working very well for us exactly what we're trying to do.

Speaker 1

Yes. And then, so Ketan on your normalized margin question, it's a good question. And so I guess I would start that conversation by probably having us all exclude 2020 through 2022 because I think we would all recognize there was a number of very extraordinary events and circumstances during those periods of time. But I think a more reasonable comparison would be if you look at 2023 versus 2019. And in that period of time, you'll see starts is only up, call it, 10% in 2023 compared to 2019.

Speaker 1

And we've seen meaningful growth in both our earnings and EBITDA margins in both of our business over that timeframe. So how and why is that? Well, we think it's because of the focus and execution of our strategy to grow earnings and grow earnings stability. And so while I'm not going to put a fine point on a margin an EBITDA margin percentage for either business, we do feel really good about our strategy, our focus and our ability for our earnings to continue to look meaningfully better than they did in 2019.

Speaker 6

Understood. That's helpful. And just one follow-up on that. Within the general line category, can you provide a little more color in terms of how some of these categories are performing? Obviously, not all of the product categories, but maybe a couple of big ones for you in terms of what you are seeing activity levels as you move into 2024?

Speaker 8

Yes. The general one is really is doing well and is really holding up. I can say that the one thing that we have seen this year maybe a little bit different than last year when we went through all the destocking on some things. Inventory in the channel, I'd tell you it's still lean, but we're seeing a willingness this year that we didn't see last year on some of these winter buys or price increases for people to buy into them a little bit and put a little bit more on the ground for those certain items. And then just it's a reflection of the confidence they have of what's coming down the pike.

Speaker 6

Got it. That's helpful. And then just one last one from me. You talked about mid single digit price erosion in EWP in Q1. Would you say at this point that prices are stabilizing post that or is there kind of more incremental downward pressure as we move through 2024 or is it too early to say at this point?

Speaker 4

So Ketan, it's Mike. Thanks for the question. Well, I think maybe it's a bit too early in the year to have a definitive view of what's going to happen. I can tell you that there are still pricing pressures in specific geographies. And I think the time that we'll have a better idea is clearly once we get into the start of the building season.

Speaker 4

So historically, February has not been the best month of the year for EWP demand just as a generalized statement, excluding the last few years, which have been a bit crazy. But generally speaking, in times gone by, we start to see an uptick in demand going from starting in March and further out into April May. If that comes to pass as it historically has, then I would hope that some of the pricing pressure will be alleviated. But we really don't know yet halfway through February is a bit early to say exactly what's going to happen in the peak building season.

Speaker 6

Yes. No, that's totally fair. Perfect. I'll jump back in the queue. Good luck.

Speaker 4

Thanks.

Operator

Thank you. One moment for the next question. And our next question will be coming from Reuben Garner of Benchmark. Your line is open.

Speaker 7

Thank you. Good morning, everybody.

Speaker 2

Good morning.

Speaker 7

Congrats, Mike, on your retirement. It's been great hearing from you the last few years. So I appreciate your support over that time.

Speaker 3

Thank you.

Speaker 7

So I guess, Kelly, this is kind of a follow-up to your comment about comparing today to 2019. One of the biggest things that's changed has been, I think, the pricing power that you've shown, especially in some of the EWP or in the 2 EWP categories. Can you talk about what's kind of changed today versus 4, 5 years ago that gives you confidence that these levels will hold, whether it's from a competitive standpoint or things you guys have done internally to adjust your pricing methodology? I think you said starts are up 10%. I think pricing is obviously up a lot more than that of that timeframe.

Speaker 7

So any kind of color on how you how confident you are and what's changed internally to kind of make that happen?

Speaker 1

Yes. Good question, Ruben. So yes, my 2019 to 2023 framework, let's break that into a few buckets. If you think about commodities, they looked a lot like today looks a lot 23 looks a lot like 2019 did if you go back and look at the composite averages. So the pricing there is similar.

Speaker 1

Now have we seen growth in EWP pricing? Yes. Have we seen growth in general line pricing? Yes. Today general line pricing is pretty sticky and holding up.

Speaker 1

We are seeing some pricing pressures we've alluded to in EWP. But if you bundle that all together, I think it really comes back to the strategy in BMD in terms of looking to richen that product mix, I. E. Grow EWP, grow general line, but very much stay in commodities. And we've done all that.

Speaker 1

And we've also just continued to scale the business. And so we think capture market share over time as well. So I think it's been a combination of all those things, Ruben, that makes us pretty confident that

Speaker 2

we think we have set a higher bar. Yes Reuben, it's Nate. Maybe just certainly, I think Kelly outlined the BMD strategy and our plan. And again, we feel good about how that's showing up in the marketplace each every day, both for our customers and our suppliers. Maybe just on the Wood Products front just to reinforce that obviously the EWP franchise and the veneer that supports that and plywood is really continues to be the focal point for us.

Speaker 8

So as

Speaker 2

you think about that earnings performance and stability maybe as compared to where we were 5 plus years ago, I think we've strengthened our EWP franchise in terms of our capabilities, our overall footprint in terms of our volume. And also in some cases, we've taken out some products that we simply don't no longer produce. So I think that clarity and that focus in Wood Products has been an important part of the answer as well and we feel good about obviously where we're going given our investments that will be taking place in Alabama and Louisiana here over the next couple of years.

Speaker 7

Okay, great. And since Sue took all my questions, I'm going to jump to the capital allocation one. I'm just kidding, Sue. The last few years, you guys have obviously built a bit of a fortress of a balance sheet. I'm just curious if there's been any change or if you anticipate any change in maybe the philosophy in returning cash to shareholders, whether it's via ramping share repurchases versus the way you guys have paid out a dividend in the past or if you think you'll stick to a similar philosophy going forward assuming that you don't have places to put it to work for organic growth or M and A?

Speaker 1

Yes, sure. Thanks, Ruben. Good question. So the overarching capital allocation strategy is unchanged. We're going to focus on reinvestment and growth and via organic or M and A opportunities and obviously have a big big capital spend ahead of us here in 2024 and 2025.

Speaker 1

And so I guess in terms of then return to shareholders, we'll look to continue to grow the regular dividends over time. But as I look forward here into 2024 a little bit and absence M and A, my expectation would be that we will be speaking to further shareholder returns as we work our way through 2024 and those could be in the form of special dividends or stock repurchases or frankly a combination of the 2. I don't want to get ahead of my board on that topic in terms of the puts and takes and how we think about it, but that's our expectation sitting here today.

Speaker 7

Got it. Thank you guys and good luck going forward.

Speaker 1

Thanks, Mig Kermit.

Operator

Thank you. One moment. We do have a follow-up question

Speaker 3

taking my follow-up. Not to beat a dead horse on EWP, but Mike, I wanted to go back to your comment around pockets of pricing pressure kind of persisting in certain geographies. Is that primarily competitors vying to pick up some share and secure a bit more volume ahead of the building season, general pushback from builders or dealers, potentially some import competition. I mean, what would you say are kind of the biggest underlying drivers of kind of this trickle down and slow discounting that we've seen, I guess, late into 2023 and maybe even here to start 2024? Yes.

Speaker 4

Sure, Kurt. So maybe part of the answer you asked around imports, that's really not much of a thing. Okay. They show up and disappear. There are a little bit of an annoyance in certain geographies at certain times, but that tends to be very spasmodic.

Speaker 4

The kind of sort of the overarching issue is the manufacturing. And so in certain geographies, and I won't go into obviously specifics, there are some folks that think the answer is lead with price. And as a result, we respond accordingly. It's not in one particular producer necessarily in one in all geographies. It's sort of a combination of things.

Speaker 4

And we have as I know you know this, but we have a particular way of going to market where we bring a variety of items in the package that we supply. So there's the product, there's the service obviously that BMD provides. We have obviously software as well as our source systems. So we look at it that over the longer term, the value that we bring is different to others. And hence, our pricing structure is different to others.

Speaker 4

But in the intermediary times, sometimes we just have to react because that's what we need to do because we have product that we would like to sell into those geographies and we have very good partners that are in those geographies that we wish to support.

Speaker 2

Hey, Kurt, it's Nate. Maybe just to add to Mike's comments. I think as you look at kind of a pricing conversation on EWP this time of year, this is not unusual when you kind of go back through time. So fact we hadn't had that maybe during the COVID period was represented something maybe that was different. So this is I think in a typical environment in terms of some of the competitive conversations.

Speaker 2

And as Mike described, we'll look at those case by case, market by market. I think as we move transition to the building season, I think the conversation then, they always have to be competitive, but it always comes down to can you serve and support the marketplace. And it's really critical obviously during the building season that you have that provide that great capability and experience for both obviously the lumber yard side of things as well as the homebuilders. And so that execution and making sure our team stays very focused on that is going to be front and center for us. And to the extent we do that well, we feel that we'll continue to earn the business that's out there again both from our dealer partners as well as our builder partners.

Speaker 2

So again, not unusual that we're in this moment today, but as things kind of tension up, the conversation will be who can serve and support my business. And again, as Mike described, we feel good about how we're positioned to do that.

Speaker 3

Okay. Makes a lot of sense. Thanks guys. I'll leave it there.

Speaker 1

Thanks, Kurt. Thanks, Kurt.

Operator

Thank you. This concludes today's Q and A session. I would now like to turn the call back over to Nate Jurkison for closing remarks. Please go ahead.

Speaker 2

Great. Thanks, Lisa. We appreciate everyone joining us on the call this morning for update and we thank you for your continued interest and support of Boise Cascade. With that, you all and be safe. Thank you.

Operator

Thank you all for joining today's conference call. This concludes today's conference. You all may disconnect.

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Earnings Conference Call
Boise Cascade Q4 2023
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