Boise Cascade(BCC) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company's Q2 2020 sales were $1.2 billion, up 1% from Q2 2019, with net income of $33.6 million or $0.85 per share, compared to $27.7 million or $0.71 per share in the prior year [7][8] - Wood Products segment income was $17.1 million in Q2 2020, down from $18.9 million in Q2 2019, while Building Materials Distribution (BMD) reported segment income of $43.2 million, up from $33.8 million in the prior year [8][10] - Total U.S. housing starts decreased by 17% year-over-year, with single-family starts down 13% [7] Business Line Data and Key Metrics Changes - Wood Products sales were $282 million in Q2 2020, down from $334 million in Q2 2019, with EBITDA decreasing from $33 million to $31 million [10] - BMD sales were $1.1 billion, up 3% from the previous year, with sales prices increasing by 4% and sales volumes down by 1% [10][14] - The gross margin for BMD increased to 13%, up from 12.4% in Q2 2019, driven by improved margins on commodity products [14] Market Data and Key Metrics Changes - The average plywood net sales price in Q2 2020 was $287, up 6% from the previous year, despite a decrease in sales volume [12] - Commodity wood products pricing saw a sharp rise in July 2020, continuing into the third quarter, with current prices more than 50% of Q2 2020 averages [15][17] - The consensus for U.S. housing starts was expected at 1.19 million for 2020, with demographic trends suggesting potential for higher levels [23] Company Strategy and Development Direction - The company aims to restore production rates to pre-COVID-19 levels in response to strong demand, while managing production levels appropriately in a volatile environment [21][24] - BMD's strategy focuses on executing and responding to market opportunities, with an emphasis on managing commodity price changes [24] - The company plans to freeze accrual of benefits on its pension plan and intends to terminate it, which is expected to have minimal cash flow impact [18][19] Management's Comments on Operating Environment and Future Outlook - Management noted that while there have been strong trends in repair and remodel spending, uncertainties remain due to potential economic impacts from COVID-19 [32][33] - The company has not experienced significant supply chain disruptions, but continues to monitor the situation closely [22] - Management expressed cautious optimism regarding the housing market, anticipating that demand for single-family residential construction may improve as homeowners seek less densely populated areas [23] Other Important Information - The company finished Q2 2020 with $361 million in cash and total available liquidity of approximately $707 million [17] - A $400 million issuance of tenure notes at a 4.875% interest rate was completed to retire existing debt [17] - The company expects to recognize a pre-tax loss on extinguishment of debt of approximately $14 million in Q3 2020 [17] Q&A Session Summary Question: Current supply and demand dynamics in plywood and EWP - Management indicated operating rates are around 5.5 to 6 days a week, with order files extending through August and into early September [29][30] Question: Concerns about pulling forward demand due to stimulus - Management noted strong consistency in repair and remodel spending, with no current signals indicating a change [32][33] Question: Impact of new industry capacity on EWP pricing - Management reported minimal impact from new capacity, with strong order files expected to keep EWP mills running hard [36][37] Question: Managing commodity price risk - The company focuses on being constant buyers and sellers, managing inventory based on customer expectations and market behavior [54][56] Question: Transportation and logistics issues - Management acknowledged challenges in transportation logistics but sees it as an opportunity for BMD due to available product for immediate shipment [59] Question: Decking business performance - The decking business has been strong, driven by conversions from wood and increased project activity [61] Question: Input cost pressures in engineered wood products - Management expects OSB costs to rise due to trailing average contracts, while lumber cost impacts are anticipated to be modest [64][65]