Boise Cascade Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 12 speakers on the call.

Operator

My name is Corey, and I will be your conference facilitator. At this time, I would like to welcome everyone to Boise Cascade's First Quarter 20 24 Earnings Conference Call. Please note all participants are in a listen only mode. Please be advised that today's conference is being recorded. It is now my pleasure to introduce you to Chris Forry, Vice President, Finance and Investor Relations, Boise Cascade.

Operator

Mr. Forry, you may begin your conference.

Speaker 1

Thank you, Corey, and good morning, everyone. I would like to welcome you to Boise Cascade's Q1 2024 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our CEO Kelly Hibbs, our CFO and Treasurer Troy Little, Head of our Wood Products Operations and Jeff Strum, Head of our Building Materials Distribution Operations. Turning to Slide 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.

Speaker 2

Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide number 3. Total U.

Speaker 2

S. Housing starts only increased 1%, however, single family starts increased 27% compared to the prior year quarter. Our consolidated 1st quarter sales of $1,600,000,000 were up 7% from Q1 of 2023. Our net income was $104,100,000 or $2.61 per share compared to net income of $96,700,000 or $2.43 per share in the year ago quarter. Both of our businesses delivered strong financial results during the quarter, which were influenced by seasonal factors and the relative strength of new single family housing starts.

Speaker 2

In addition, our expanded capital spending program is progressing consistent with our expectations as we provided meaningful returns to our shareholders through share price gains, dividends and share repurchases. I want to thank our associates across the company who continue to execute our strategies that position us to serve and support each of our stakeholders. Kelly will now walk through our segment financial results and provide an update on our capital allocation in more detail, after which I'll provide our outlook before we take your questions. Kelly?

Speaker 3

Thank you, Nate, and good morning, everyone. Wood Products sales in the Q1, including sales for our distribution segment were $468,900,000 compared to $437,400,000 in Q1 of 2023. Wood Products reported segment EBITDA of 95,600,000 dollars up from EBITDA of $93,200,000 reported in the year ago quarter. The increase in segment EBITDA was due primarily to higher EWP sales volumes and higher plywood sales prices. These increases were offset partially by lower EWP prices and higher wood fiber costs.

Speaker 3

BMD sales in the quarter were $1,500,000,000 up 9% from Q1 2023. BMD reported segment EBITDA of $83,600,000 in the 1st quarter compared to segment EBITDA of $76,800,000 in the prior year quarter. The increase in segment EBITDA was driven by a gross margin increase of $22,900,000 resulting primarily from higher sales volumes and improved margins on general line and commodity products. The gross margin improvement was offset partially by increased selling and distribution expenses and depreciation and amortization expense of $16,500,000 $4,000,000 respectively. We expect total company depreciation and amortization in 20 24 to be approximately $140,000,000 In addition, our anticipated effective tax rate remains at 25%.

Speaker 3

Turning to Slide 5. On a year over year and sequential basis, 1st quarter volumes for LVL were up 31% 16% respectively, and I joist volumes over the same comparative periods were up by 46% and 5%. Our EWP volume growth exceeded the underlying single family housing start increases for both comparative periods. Sequential pricing for both I joists and LVL was down 4% due to continued pricing pressure in the market. Looking forward to the 2nd quarter, production builders have optimism in spite of increasing mortgage rates and we expect our EWP volumes to increase sequentially.

Speaker 3

On pricing, we expect sequential price erosion to moderate during the quarter. Turning to Slide 6. Our first quarter plywood sales volume in Wood Products were 372,000,000 feet compared to 406,000,000 feet in Q1 2023. As expected, plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP production given improved demand for EWP. The $378 per 1,000 average plywood net sales price in the Q1 was up 3% from Q1 2023 and up 1% sequentially.

Speaker 3

Thus far in the Q2 of 2024, plywood price realizations are consistent with our Q1 average. However, we expect downward pricing pressure as we move through the Q2 given uncertainty in the panel markets. Moving to Slide 78. BMD's 1st quarter sales were $1,500,000,000 up 9% from 1st quarter 2023 driven by sales volume increases of 12%, offset partially by sales price decreases of 3%. Byproductline commodity sales increased 1%, general line product sales increased 16% and sales of EWP increased 12%.

Speaker 3

Gross margin dollars increased $22,900,000 when compared to the same quarter last year as higher margin dollars on general line and commodity products were offset partially by lower margin dollars generated on EWP. In addition, BMD's overall gross margin percentage was 15.1%, up 30 basis points from the 14.8% reported in Q1 2023 and down 10 basis points sequentially. BMD's EBITDA margin was 5.6 percent for the quarter, flat with the year ago quarter and up 20 basis points sequentially. BMD sales pace thus far in Q2 2024 has moderated slightly from the strong levels experienced in March, but is still approximately 5% above 1st quarter daily sales averages. Although commodity markets have created hesitancy in the marketplace currently, anticipate our daily sales pace will strengthen as we move through the quarter given a healthy single family environment and seasonally better weather.

Speaker 3

2nd quarter EBITDA margins will be sensitive to the ultimate sales pace for the period and the trajectory of product pricing. Moving to Slide 9. This slide shows the weak pricing environment for lumber over the last five quarters. As such, recent capacity reductions in certain geographies have been announced and there is speculation of additional production curtailments if weak pricing persists. Moving to Slide 10.

Speaker 3

The late 1st quarter increase in composite panel prices was driven by OSB due to strength in single family starts and supply limitations. As we enter the Q2, sharp price declines in OSB have created cautious buyer behavior across panel markets in general. For our distribution business, periods of uncertainty create both risk and opportunity. Despite the uncertainty in commodity markets currently, we will maintain our long standing approach to having inventory on hand to support our customer base. I'm now on Slide 11.

Speaker 3

We had capital expenditures of $34,000,000 in the Q1 with $19,000,000 of spending in wood products and 15,000,000 of spending in BMD. Our capital spending range for 2024 remains at $250,000,000 to 270,000,000 with the pace of spending to accelerate as we move through the year. Speaking to shareholder returns, we paid $11,000,000 in regular dividends to shareholders and completed the repurchase of the repurchase of approximately 206,000 of our common shares for $27,000,000 in the Q1. We have approximately 1,700,000 shares still available repurchase under our share repurchase program. In addition, our Board of Directors recently approved a $0.20 per share quarterly dividend for shareholders of record as of June 3rd, payable June 17.

Speaker 3

In summary, our balance sheet remains very strong and we are committed to our balanced approach to capital allocation that includes ongoing investment in our existing asset base, organic growth projects and returns to our shareholders. Looking forward, unless a meaningful M and A transaction surfaces, we would expect to return additional capital to our shareholders during the balance of 2024 via special dividends or share repurchases or a combination of the 2. I will turn it back over to Nate to discuss our business outlook.

Speaker 2

Thanks, Kelly. I'm on Slide number 12. Current 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.

Speaker 2

S. Census Bureau. Home affordability remains a challenge for many consumers due to the cost of housing combined with elevated mortgage rates. However, with low unemployment and undersupply of existing housing stock available for sale, new residential construction is expected to remain an important source of supply for homebuyers. Recent pressures on multifamily starts expected to continue due to increased 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 for repair and remodel spending. In 2023, year over year growth rates and renovation spending moderated due to economic uncertainty and higher borrowing costs. While home improvement spending is expected to remain healthy compared to history, recent industry forecasts project mid single digit declines in 2024.

Speaker 2

Ultimately, macro environment factors, the level and expectations for mortgage rates, home affordability, home equity levels and other factors will likely influence the near term demand environment for products we manufacture and distribute. As Kelly mentioned, we remain well positioned to invest in our existing asset base and organic growth projects in both businesses as reflected in our robust 2024 capital spending plans. Our longer term view on housing fundamentals remains favorable supported by demographic trends and under built housing stock. As such, we remain clearly focused on the execution of our strategies and have great conviction around the investments that continue to grow the company. Thank you for joining us today and for your continued support and interest in Boise Cascade.

Speaker 2

We would welcome any questions at this time. Corey, would you please open the phone lines?

Operator

Thank you. At this time, we will now conduct a question and answer session. Our first call comes from Susan Maklari of Goldman Sachs. Susan, your line is open.

Speaker 4

Hey, good morning, everyone. This is Charles Perron in for Susan. Thanks for taking my question.

Speaker 5

Hey, good

Speaker 3

morning, Charles. Good morning, Charles.

Speaker 4

Maybe first, talking about EWP, obviously, it's encouraging to see that the market dynamic is favorable for the volume outlook for the coming quarters. But when you think about Ijoy specifically, you've seen obviously OSB prices rising significantly through the Q1, obviously being quite elevated right now. You've talked about pricing erosion on EWP moderating, which is encouraging. But how should we think about the input costs and basically the margin dynamic, especially for I joist in the near term considering those dynamics together?

Speaker 3

Yes, sure, Charles. So yes, we feel really good about our I joist position in the marketplace in general. And then specific to your question around cost, yes, OSB and web stock is a meaningful input cost for I joist. As we've spoken before though, we do have a kind of a 13 week average pricing mechanism at which we procure our OSB. And so we kind of lag on the way up and we also lag on the way down and feel good about our ability to kind of continue to manage our cost base across CWP in general.

Speaker 4

Okay. Yes, that's helpful. And then sticking to that point about the commodity price moving, when you think about BMD specifically, how do you approach holding inventories in this environment where you see this price weakness? And what is your ability to some extent to predict that margin for the segment, let's say, in the above the historical average of 3% to 4% that you've mentioned in the past?

Speaker 3

Yes. So let me kick it off here and then we'll see if Jeff or Nate want to provide some input here. So we're certainly at a bit of a discovery period here. OSB has fallen significantly, still at very high levels compared to history, as you'll note, but it's fallen quite sharply. So we're still in a bit of a discovery mode there.

Speaker 3

Plywood has been stable, but yet it's showing a little bit of weakness as well. Just I think it's kind of correlating with OSB in that regard a little more in the South than in the West. So, our ability to manage and mitigate, we're going to be in the marketplace every day. We have really good visibility of what's on the ground, what our cost position is. And we're not going to fall in love with our inventory.

Speaker 3

We're going to move it. We're going to turn it and we'll keep continuing to work down our position. But again, we're going to be there for our customers. Anything you'd add, Jeff?

Speaker 6

Yes. I would just add that overall, we saw this coming and we worked really, really hard to lighten our position before it hit. So obviously, we'd always like to have a little bit less when print comes down as big it is, but we're pretty well positioned for it.

Speaker 4

Okay. That's very helpful color there. And maybe one last one, on the balance sheet. You guys repurchased some stock this quarter, which was encouraging to see considering your leverage. When you think about capital allocation going forward, is this something that we should expect more going forward?

Speaker 4

Or should we think about the dividends still remaining your favorite way of distributing capital shareholders?

Speaker 3

Yes. No, I guess I would say it this way, Charles. So we're committed to our approach. We're very committed to our expanded capital program. I'd reiterate that we do expect to provide additional shareholder returns assuming there's no meaningful M and A that surfaces.

Speaker 3

And then our playbook includes both, not share repurchases and special dividends, but it wouldn't be appropriate in this form to really communicate more than that in terms of timing and sizing and how that plays out exactly. But our expectation is we will be returning additional capital to shareholders absent M and A in the balance of the year.

Speaker 4

Okay. Thank you for the time guys.

Speaker 3

Thanks, Charles.

Operator

Thank you very much. One moment for our next question. Our next question comes from the line of Mike Roxland at Truist. Mike, your line is open.

Speaker 5

Thank you, Nate, Kelly, Jeff and Chris for taking my questions. Just wanted to follow-up on the last one. Jeff, you mentioned that you sort of saw this commodity price decline coming. So you really you worked really hard to lighten your positions. Can you comment so you can comment like where do backlog stand or order books down OSB, lumber, plywood relative to normal?

Speaker 6

I would say that on the lumber side, you can get what you need relatively quickly without any issues. And OSB, I'll tell you during the run up, it was very, very difficult to get. And now there's definitely more available and people are looking for a home for it.

Speaker 5

Got you. But in terms of your own inventory levels and how much you have in stock relative to, let's say, we're in normal level normalized level of inventory would be for, let's say, OSB and lumber. Are you at that normalized level? Did you take it down below, given the fact that you had some foresight that the turn was coming?

Speaker 2

No. We're actually in really

Speaker 6

good shape. There's been no real reason to take any kind of position on the lumber studs. And so we say we're going to have it in stock and be ready and we do. I think we're in really good position there. On plywood, I think we're we have plenty.

Speaker 6

We're in a good spot there. And OSB, which definitely had a big run and it's tough to get. And you could tell it was slowing down a little bit. We really did work hard. So overall, I'd say we're kind of right where we should be and it's kind of a normal level.

Speaker 2

Hey, Mike, it's Nate. Maybe just to add to Jeff's comments is in these kind of environments where commodities have come off and obviously OSB is the most recent example, there's obviously hesitancy in the marketplace. And I think our customers and suppliers as well look to us as a bit of a safe harbor. And so they're going to go short. They're going to be buying more heavily out of warehouse.

Speaker 2

Maybe instead of railcars and trucks, it goes to trucks and units. And again, we're really well supported to deliver on that. So it's important that we remain in stock and we can provide that important service and value when our customers are in need of it and today represents that opportunity.

Speaker 5

Got it. Thank you. That's great color. And then just one quick follow-up on BMD. You guys have done a terrific job shifting your mix to general line and EWP while minimizing commodity.

Speaker 5

Given the volatility in commodities we're currently seeing and we have seen in the past, I mean, was there a certain percent of commodity that you're ultimately targeting? Is it going to be 30% of BMDs, makes 25%? And over what time frame do you are you looking to achieve that?

Speaker 3

Yes. Good question, Mike. So, yes, I mean, currently in the Q1, we were, I guess, right around 37% of the mix. Obviously, price can influence the ultimate how big that piece of the sales pie is. I think at the end of the day, I think we would still probably be in the mid to low 30s when we fully execute our strategy.

Speaker 3

But we're not but we've as we've said many times, we're not exiting commodity. We're good at it. We like it. The return on invested capital is really good.

Speaker 6

And Mike, I'm just going to add to that. We absolutely like the commodity business. Now the last few weeks of print hasn't been fun, but if that share is going to go down a little bit, it's just because of the growth in the other categories. But the commodity business has been good to us, our customers rely on us and we're going to stay right in there with it.

Speaker 3

Yes. And I guess I would just follow-up. We have a really good commodity sales team, great awareness of our data and I look forward to kind of seeing how they navigate us through this near term period we're working through.

Speaker 5

Got it. One last question and I'll just turn it over. Just Kelly, you mentioned that your EWP volume growth this quarter exceeded the single family start increases. Given that 80 to 85 part EWP correlation to single family, where do those additional volumes head, especially given the weakness in multifamily?

Speaker 3

Yes. So our volumes were heavy to single, Mike. I guess I didn't quite follow the balance of that question. Can you hit me

Operator

Sure, sure. No problem.

Speaker 5

I mean, so you said your EWP volumes exceeded the amount of the single family start increase. So I guess what I'm getting at is given the fact that you have 80% to 85% of EWP goes towards single family, what other categories did you see growth in that absorbed some of your EWP volume?

Speaker 3

Yes. I mean, I can't point to it specifically. This is a bit anecdotal for sure, but I feel really good about our ability to capture share, given our given the nice job on the manufacturing side and then also having the benefit of having a leading national distributor, I think shows up well and helps us capture share.

Speaker 5

Got it. Thank you very much and good luck in 2Q.

Speaker 2

Thank you. Thanks Mike.

Operator

One moment for our next question. Our next question comes from George Staphos of Bank of America Securities. George, your line is open.

Speaker 7

Hey, guys. This is actually Lucas Hudson on for George Staphos. He's currently traveling right now. First and foremost, thanks for the details. My first question is, what is your outlook for repair and remodel?

Speaker 7

And is there more momentum in do yourself projects or pro contractor? And what are the implications for BMD and Wood?

Speaker 2

Hey Lucas, it's Nate. Maybe just, I think the theme as we kind of described in our opening remarks is that repair and remodel has come off a bit, but it's still historically kind of above where trends typically are. I would say that the pro side of repair and remodel still is good and pretty steady, maybe relative to the weekend, the over the shoulder crowd. So I think the overall view of repair and remodel is good. And I think the backdrop in terms of that again that aging housing stock, homeowner equity, there's still a good foundation there from the work on.

Speaker 2

So, again, while it's off from what we experienced maybe over the last 12 months, 24 months, it still represents, I think, an important opportunity for our company on a range of products and services.

Speaker 7

Thank you. That's great color. Just a quick follow-up as well. Was BMD revenue better than initially expected? And if so, what created that positive variance?

Speaker 3

I would say BMD's revenue probably came out pretty consistent with what our expectations were. I think the quarter started slower than we would have anticipated and it finished very strong in March.

Speaker 7

Okay. Thank you so much. I'll hop back in the queue.

Speaker 3

Thanks Lucas.

Operator

Thank you very much. One moment for our next call, please. Our next call comes from the line of Ketan Mamtora of BMO. Your line is open.

Speaker 8

Thank you very much. First question, just following off on that. The strength that you saw in March, has that continued into April as well? Any additional color you can provide on that?

Speaker 3

Yes, sure, Ketan. So, yes, March was very strong. As I alluded to in the prepared comments, The sales pace for BMD was off slightly in April compared to March, but still at healthy levels. And then in terms of on the wood products manufacturing side, feeling good about the momentum in EWPs, It continues to be solid. It might be a little bit weaker than what we would have anticipated, but still is solid as we head into May here.

Speaker 8

Got it. That's helpful. And then, Kelly, when you talked about in BMD daily sales being up 5% sequentially. Are there any shipping day differences that we should be mindful of between Q1 and Q2?

Speaker 3

Yes. I would have factored those into my math I gave you, Ketan. But yes, we have there are 64 workdays in both 1st and second quarter.

Speaker 8

Got it. So that if that's the case, that would still imply BMD to be down versus last year's Q2, if I'm just doing my math correctly?

Speaker 3

Yes, that's fair. If we maintain at the sales pace, the same pace we've had in April, that would be true. Now but we will see how May June plays out as we continue to see seasonally better weather and see what the ultimate activity pace activity around housing is. But yes, you have the right question there.

Speaker 8

Got it. And then just one last one from me. On the margin side, you talked about some margin pressure, some price pressure from EWP, OSP going down here recently, plywood maybe. But then you also have just seasonally volume leverage in Q2. As you think about margins, how would you weigh in those factors as it relates to Q1's 5.6% margin?

Speaker 3

Yes. So April margins were healthy. They were good. May is going to be the discovery period here around commodity prices as we've talked. So we do expect some pressure here in May and to the extent of it will depend on the duration of the weakness we've seen.

Speaker 3

But fundamentally, it doesn't change. While we might get some pressure here in the Q2 because of the commodity market, we still feel good about kind of the underlying earnings capability of VMD moving forward to be consistent with what we've been putting up of late.

Speaker 2

Hey, Ketan, it's Nate. Maybe just to add to Kelly's comment is, as you think about a marketplace that maybe has some hesitancy in terms of both on price and demand, again the dependence on auto warehouse services only increases. So as you think about how that shows up for BMD in terms of sales volume and margin performance out of warehouse that's a clear tailwind for us as well. So I think we're well set up to do what we need to do in BMD, again, kind of no matter what the demand environment is as we go through the quarter.

Speaker 8

Got it. That's helpful. And on EWP prices, you talked about the price erosion moderating. So is it fair to say that after Q2, we are sort of stable at those Q2 levels or it's hard to tell at this point?

Speaker 3

Yes. So where we were going with that comment, Ketan, was we just put up sequential declines of about 4% and we expect that to moderate. So, somewhere between 0 and negative 4 is kind of our current expectation.

Speaker 8

And beyond that, you would expect it to sort of stabilize or difficult to say at this point?

Speaker 3

I'd say it's difficult to say. It will be depending upon market demand and that sort of environment.

Speaker 2

Hey, Ketan, it's Nate. I mean with the EWP, it's the market supply and demand is really what kind of sets the framework for pricing. So it has maybe less to do with input costs more around what the market environment is. So to Kelly's point, hard to see the second half from here, but as long as starts remain stable and steady, I think that will be favorable for the EWP pricing environment as well.

Speaker 8

Got it. That's very helpful. I'll jump back in the queue. Thank you.

Speaker 2

Thanks, Keith.

Operator

Thank you very much. One moment for our next question. And our next question comes from Kurt Yinger of D. A. Davidson.

Operator

Kurt, your line is open.

Speaker 9

Great. Thanks and good morning everyone.

Speaker 2

Good morning, sir.

Speaker 9

I just wanted to start off on kind of competitive dynamics between I joist and Open Web at this stage. I'm just curious, is it harder than you would have thought maybe getting some of those builder customers to convert back after some of the availability driven kind of shifts in usage? And I know it's a complex topic and a lot of different inputs. But at a high level, how would you kind of describe the pricing differential for a builder customer at this stage between the two products? And how does that kind of factor in?

Speaker 2

Hey, Kurt, it's Nate. Yes, I would just say on the EWP or the iChoice comparison to a platelet floor trusses, is that so it's not a new phenomenon that's obviously been in place for a number of years. And I think there are times when I joist systems are preferred relative to platelet floor trusses and vice versa. I think when I look at kind of the competitive dynamic and environment today, I think I joist system set up well against plated floor trusses, both in terms of cost as well as lead times. I think the other component that we talked about is that when it comes to the builders, they are looking to drive cycle time out of the equation.

Speaker 2

And so when you look at an I joist system versus either dimensional lumber or plate of floor trusses typically the speed on the construction site is superior and allows again the builder to drive down cycle times. So which is an important part of how they think about value today and going forward. So I think Ijoy system EWP is well set up to compete against both dimensional lumber and open trusses. And again, I think that dynamic about how do we add speed and simplicity to the job site continues to be an important part of what the builder is expecting.

Speaker 9

Got it. Thanks for that, Nate. And as we think about builders trying to address affordability challenges, perhaps building smaller homes, taking complexity out. Is there any sort of current or medium term impact do you think that has on kind of the EWP business or the relative attractiveness of those products? I mean, obviously, a smaller home potentially has some sort of volume implication.

Speaker 9

But beyond that, is there anything that kind of jumps to mind in terms of how that impacts your Wood Products business?

Speaker 2

Yes, good question. I think the yes, I think it's your point on if the footprint is smaller, that can that will obviously have an influence in terms of the amount of EWP or structural materials in general that can be sold. So I think that's in place and again the builders are looking to take cost out. I think there are times Kurt that when the builders have for them, if they want to look at how do they lower cost, sometimes going vertical is the right answer given the cost of land. And so if they go vertical in terms of adding a second story that creates an opportunity for E2BP obviously given that second floor construction.

Speaker 2

So yes, I think EWP I think is going to be an important part of it. But as we look at the trade offs in terms of lower square footage that will show up in our in EWP as well as the other products and services we distribute as well.

Speaker 9

Got it. Okay. That's super interesting. Thanks for that. And then just switching gears to BMD.

Speaker 9

Kelly, I thought you mentioned kind of lower gross profit dollars on EWP sales within BMD in the quarter, which I guess is a little bit surprising considering the double digit sales increase. So is that just a dynamic where based on how you're kind of transferring pricing and kind of the bleed in terms of sales prices there, there's a little bit of a timing mismatch maybe pressuring margins or is there something else driving that?

Speaker 3

It's not anything to do with transfer pricing anything like that. That's all market based. It's just a function of the market. And as we've seen and experienced some of the pricing pressure, we see some of that in wood products and then obviously you see that in distribution as well.

Speaker 9

Got it. Okay. Makes sense. And then just lastly, I mean, Jeff, we've kind of seen 5 consecutive quarters now where BMD gross margins are right in that 15% zip code outside of what we've seen in OSB and maybe a little bit of BWP. Is there anything else that you're kind of keeping an eye on that maybe gives you concern that 15% could have some downward pressure to it?

Speaker 9

Or are you feeling pretty comfortable with those levels given kind of the current state of the market?

Speaker 6

Yes. There's always competition out there is one thing I'll say. So you have to keep your eye on that and what's going on. But if you think about what we've done over the past few years and the growth that we've done and the capacity we've added, that's all about general line and some of the millwork items, which are the higher margin ones. And so our focus and growth on that is what's been holding it steady.

Speaker 6

But there's a little pressure on the millwork side and there's always competition and everything else, but for where we sit right now, we feel good.

Speaker 9

Got it. All right. Well, appreciate all the details guys and good luck here in Q2.

Speaker 2

Thanks, Kurt.

Operator

Thank you very much. One moment for our next question. Our next question comes from Reuben Garner of Benchmark. Reuben, your line is open.

Speaker 10

Thank you. Good morning, everyone. Sorry to harp on this, but I think it's pretty critical right now. And I just want to clarify, on the inventory side, I understand you guys become more valuable in these sort of environments. You're suggesting that your customers maybe go shorter on

Speaker 5

inventory when there's uncertainty like

Speaker 10

this and commodity downside. Is Q1? Is it something that's ongoing and impacted your business in April and you're expecting it to continue to impact the business? Can you just kind of clarify where we stand on that sort of channel destock?

Speaker 6

I don't know if it's a destock as much as what if you can get it in a limited risk, why wouldn't you buy exactly what you need when you need it? And that's what's happening. So we're seeing right now as for example on the OSB side as prices are decelerating, people don't want to step in and buy direct. They want to get what they need to cover as quick. And so our warehouse business we're seeing it right now is picking back up.

Speaker 4

Okay. And then,

Speaker 10

I guess, on the general line side, last time we kind of saw a jump in rates and some uncertainty kick in the distribution channel, including yourselves got pretty conservative and destocked in some certain categories. I guess, how are you thinking about that? It looks like general line had a pretty strong Q1. Is it different this time? Are there trends that are hanging in, in some of those areas that are different than the commodity side and aren't maybe as rate sensitive as you thought?

Speaker 10

Can you just kind of update us on your thoughts there?

Speaker 6

Yes. And in general, the one big difference I'd say that we saw this year compared to last was in the winter buy and the price increases that were announced on some products before people were hit last year for example, people were hesitant to step in, they just didn't know. And this year there was confidence in what was going to happen this year in the And so when those things came along, people jumped in and they purchased them. So as far as destocking goes, we don't see that. In fact, on some of the winter buys, we're starting to see people step back in and buy some more.

Speaker 6

So the general line has really been pretty stable.

Speaker 10

Okay, great. And then pricing, are there certain categories within BMD outside of the commodity that are facing more pressure than others? It sounds like you had some successful increases, anything going the other direction?

Speaker 6

Yes. I think right now I mentioned it earlier, there's always some EWP pricing pressure just for competition. And then the millwork side, there's been a little bit there. And a lot of that has been driven by some of the components and things that come in from offshore and just what the freight has done and things like that. But those would probably be the 2 biggest areas that we're seeing right now.

Speaker 10

Okay, great. Thanks guys. Congrats on the strong quarter and good luck.

Speaker 2

Thanks.

Operator

Thank you. One moment for our next question. Back up is Ketan Mamtora from BMO. Ketan, your line is open.

Speaker 8

Thank you. Just one quick one. Were there any sort of geographic variations what you saw in Q1 or in April in terms of regions, East versus West, anything to call out there?

Speaker 2

Hey, Ketan, it's Nate. I don't I think it was pretty, I mean there's always weather driven events that can kind of shape the first quarter, but I don't think there was anything kind of unique in terms of strength or weaknesses from a geographic perspective. I think it was pretty steady and consistent kind of across our franchise.

Speaker 8

Got it. Okay. And then just one last one on capital allocation. I'm just curious sort of, obviously, the balance sheet is very strong. But as you sit here today, there's still uncertainty around housing, repair and remodeling.

Speaker 8

So how do you sort of approach it so far as share repurchases is concerned versus kind of maintaining even more dry powder? Can you talk about sort of puts and takes there?

Speaker 3

Yes, sure. I mean, we have the balance sheet to execute on our expanded capital program. So anticipate we're going to charge forward there. And to your point, is there uncertainty in the marketplace in general? Yes.

Speaker 3

But we still have plenty of dry powder to go pursue acquisitions if they make sense. And if they don't come to fruition, again, I do expect we'll be returning additional capital to shareholders. We've got fortunately, we've got plenty of optionality and we'll be thoughtful and prudent. And again, we'll just got to stay abreast of the market, stay abreast of M and A and we will look to shareholder returns if we think that's the right thing to do as the year develops.

Speaker 8

Got it. That's very helpful. Good luck.

Speaker 3

Thanks, Katy.

Operator

Thank you. Stand by for our next question. Next question comes from the line of Susan Maklari of Goldman Sachs.

Speaker 11

Thank you. Good morning, everyone. It's actually Susan this time.

Speaker 2

Hi, Sue.

Speaker 11

Good morning. I just wanted to quickly ask about the M and A pipeline. And I guess both just in terms of what you're hearing from some of your key partners in BMD today, especially maybe across the general line as they kind of look out at their businesses over the next couple of years and think about growth? And then as well as just obviously the initiatives you've got and the potential for further acquisitions?

Speaker 3

Yes. I mean, I guess certainly at the dealer levels, so quite a bit of activity there, much more fragmented marketplace than where we sit in the channel. For us, we will be aware and be acquisitive if it's the right thing to do. But I think my view is for us, it's going to be organic. Is going to be our focus and it's going to be the main driver of our capital deployment here at least near term unless something surfaces that we're not working on today.

Speaker 2

Hey, Sue, it's Nate. Yes, I think to Kelly's point, it's the M and A always has to be aligned with our strategy and also our values just in terms of who we are and how we think about the marketplace. The other thing we are pretty insistent on is 1 plus 1 has to be greater than 2 both in terms of the customers we serve and support as well as the suppliers. So those are really important parts of our equation and how we think about it. And so we'll continue to look to that lens as opportunities emerge.

Speaker 11

Okay. All right. That's helpful. And then just one more for me. When you think about the commentary that we've heard from the builders this earnings season, I mean they're pretty bullish and a lot of them have actually taken up their expectations for full year closings even with the move in rates that we've seen recently.

Speaker 11

I guess as you think about some of that coming through to your business, what do you think it could imply in terms of seasonality as we move through the next couple of quarters and just the potential for some continued strength to come through on that new home construction side?

Speaker 3

Yes. You're right, Sue, and you probably know better than us around the National Builders. They are they continue to be pretty optimistic. They continue to play their balance sheet as necessary to get folks into homes. So they seem to be still, I don't know, on average kind of mid to high single digits, if you will, in terms of their growth expectations.

Speaker 3

But then you balance that a little bit with the overall narrative that in some cases, it feels a little softer in terms of broadly across the marketplace. And so, is kind of we're kind of in an interesting period here where there is kind of multiple data points and data sets and commentary. And so it's a little interesting to kind of sort out how we how the market shapes for us here in the next quarter or 2.

Speaker 2

Yes. I think Sue, it's Nate. The other thing I would comment on, I think the large production builders, national builders, public builders, I think they're really well positioned as Kelly described as given the strength of their balance sheet. They've got great clarity on the marketplace, the customers they serve. And I suspect they'll continue to grow share relative to their position as compared to others in the marketplace.

Speaker 2

So I think they're obviously an important part of the marketplace today and we think that that will continue to grow over time just given their strength and both from a financial perspective as well as their great understanding of the marketplace and what their customers need and expect.

Speaker 11

Yes. Okay. All right. Yes. Thank you both for the color and good luck with everything.

Speaker 2

Thanks, Hugh. Hugh.

Operator

Thank you very much. This concludes the question and answer session. I would now like to turn it back to Nate Jorgensen for closing remarks.

Speaker 2

Great. Thank you. We appreciate everyone joining us this morning for our update and thank you for your continued interest and support in Boise Cascade. Please be safe and be well. Thanks.

Operator

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

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Earnings Conference Call
Boise Cascade Q1 2024
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