Boise Cascade Company (NYSE:BCC) Q4 2023 Earnings Call Transcript
Boise Cascade Company (NYSE:BCC) Q4 2023 Earnings Call Transcript February 21, 2024
Boise Cascade Company isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good 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 Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] 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.
Kelly Hibbs: Thank you, Lisa, and good morning, everyone. I would like to welcome you to Boise Cascade's fourth 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 Distribution 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. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Nate.
Nate Jorgensen: Thanks, Kelly. Good morning, everyone. Thank you for joining us for 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 $483.7 million or $12.12 per diluted share on sales of $6.8 billion. We further executed our growth strategy 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. Let me now turn to fourth 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. Our consolidated fourth quarter sales of $1.6 billion were up 1% from fourth quarter 2022. Our net income was $97.5 million or $2.44 per share compared to net income of $117.4 million or $2.95 per share in the year ago quarter. Fourth quarter 2023 results included $6.2 million of pretax accelerated depreciation related to the curtailment of lumber production in Chapman, Alabama, and approximately $3 million 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.
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?
Kelly Hibbs: Thank you, Nate. Wood Products sales in the fourth quarter, including sales to our distribution segment were $449.7 million compared to $425.6 million in the fourth quarter of 2022. Wood Products reported segment EBITDA of $92.7 million, down from EBITDA of $99.7 million 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. The previously mentioned $6.2 million of pretax 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 $1.5 billion, up 3% from fourth quarter 2022. BMD reported segment EBITDA of $80.6 million in the fourth quarter compared to segment EBITDA of $99.4 million in the prior year quarter. The decline in segment EBITDA was driven by increased selling and distribution expenses of $12.9 million compared to the same quarter in the prior year. In addition, general and administrative expenses increased $5.7 million, approximately $3 million of which were BROSCO acquisition-related costs, which had a negative impact on our reported earnings per share of approximately $0.06 per share. We expect total company depreciation and amortization in 2024 to be approximately $140 million. 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, fourth quarter volumes for I-joists and LVL were up 79% and 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 fourth quarter rebate adjustments that had a positive impact on net price realizations. Looking forward to the first quarter, 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 fourth quarter plywood sales volumes in Wood Products was 363 million feet compared to 393 million feet in fourth quarter 2022. Plywood volumes decreased during the current quarter as we shifted a higher proportion of our internally produced veneer into EWP production, given the change in demand for EWP. The $375 per 1,000 average plywood net sales price in fourth quarter was down 5% from fourth quarter 2022 and down 2% sequentially. Thus far in the first quarter of 2024, plywood price realizations were consistent with our fourth quarter average. Moving to Slide 7 and 8. BMD's fourth quarter sales were $1.5 billion, up 3% from fourth quarter 2022, driven by sales volume increases of 13%, offset partially by sales price decreases of 10%.
Excluding the impact of the BROSCO acquisition, BMD sales were flat. 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% reported in fourth quarter 2022. BMD's EBITDA margin, including the previously mentioned acquisition-related costs, was 5.6 -- excuse me, 5.4% 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. BMD's sales pace thus far in the first quarter of 2024 is approximately 10% below fourth 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 first quarter 2024 EBITDA margins to be around 5%. Moving to Slides 9 and 10. These slides show the generally stable pricing environment for lumber and panel pricing during fourth quarter of 2023 compared with the downward trajectory during the prior year quarter. As we entered 2024, commodity and lumber pricing has remained stable.
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 million in 2023, with $59 million of spending in Wood Products and $156 million 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. 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 I-joists production capabilities at our Thorsby, Alabama, EWP mill and convert the layup line to a parallel laminated veneer line in 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 drier and press and modification of an existing veneer driver. 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 '25 and '26, respectively.
As we've noted before, the availability of engineering and construction resources and the timing and availability of equipment purchases will influence our ability to execute upon our plan for $250 million to $270 million of capital expenditures in 2024. Speaking to shareholder returns in 2023, we paid $346 million or a combined $8.70 per share in regular and special dividends and also completed $6.4 million of share repurchases. We have approximately 1.9 million shares still available for repurchase under our share repurchase program. In addition, our Board of Directors recently approved a $0.20 per share quarterly dividend for shareholders of record as of 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.
We will also evaluate M&A as 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.
Nate Jorgensen: Thanks, Kelly. I'm now on Slide number 12. Recent industry forecasts for 2024 U.S. housing starts are generally consistent with actual housing starts of $1.42 million in 2023 as reported by the U.S. Census Bureau. 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 cost for developers combined with cooling rents and elevated supply. Regarding home improvement spending, the age of U.S. housing stock and elevated levels of homeowner equity have provided a favorable backdrop of repair and remodel spending. While improvement spending is expected to remain robust compared to history, recent industry forecasts project mid-single declines in 2024. As Kelly mentioned, we remain well positioned to invest in our existing asset base and organic growth opportunities in both businesses as reflected in our robust 2024 capital spending plans. Our longer-term view on housing fundamentals is favorable, supported by demographic trends and underbilled housing stock.
As such, we remain clearly focused on execution of our strategies and have great conviction around our investments to grow the company. Finally, I would like to take this opportunity to thank and congratulate three members of our leadership team on their upcoming retirements. As communicated in January, Tom Hoffmann will be retiring after 43 years of outstanding service and dedication to Boise Cascade. As we announced yesterday afternoon, Erin, our Senior Vice President of Human Resources, retired on May 3, after 30 years of service and numerous accomplishments across the company. We are excited that Angella Broesch 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 grateful for your work and impact of Boise Cascade and those that we serve and support. Among a number of achievements delivered by Mike, he helps establish a safety culture and systems that 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. 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 the 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 of you as he moved into your well-deserved retirement. At this time, we'd welcome any questions. Lisa, would you please open the phone lines?
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