Earnings Call Transcript - BCC Q4 2021

Operator, Operator

Good morning. My name is Kevin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Fourth Quarter 2021 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. Before we begin, I remind you that this call may contain forward-looking statements about the company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance, and the company undertakes no duty to update them. Although these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ from those expressed or implied in this call. For a discussion of the factors that may cause the actual results to differ from the results anticipated, please refer to Boise Cascade's recent filings with the SEC. 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, CFO

Thanks Kevin, and good morning everyone. I would like to welcome you to Boise Cascade's fourth quarter 2021 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Mike Brown, Head of our Wood Products Operations; and Jeff Strom, Head of our Building Materials Distribution operations. I will now turn the call over to Nate.

Nate Jorgensen, CEO

Thanks, Kelly. Good morning everyone. Thank you for joining us on our earnings call today. I want to start off by expressing my appreciation for the tireless work of our associates. While the uncertainty experienced in the last year has presented us with many challenges, I'm proud of our associates and their unwavering focus on supporting each other and our vendor and customer partners. Our fourth quarter sales of $1.8 billion were up 21% from fourth quarter 2020. Our net income of $169.1 million, or $4.26 per share, compared to net income of $26 million, or $0.66 per share in the year-ago quarter. In fourth quarter 2021, total U.S. housing starts increased 6% year-over-year. Irrespective of the headline starts data, the pace of activity in the fourth quarter was unseasonably strong. Housing fundamentals finished the year on firm footing. Our Wood Products manufacturing business reported segment income of $98.4 million in the fourth quarter compared to $40.8 million in the year-ago quarter. Wood Products benefited from improved EWP sales realizations compared to last year's fourth quarter. Our Building Materials Distribution business reported segment income of $138 million on sales of $1.6 billion for the fourth quarter compared to $67.1 million of segment income on sales of $1.3 billion in the comparative prior year quarter. We remain well positioned with sufficient cash and reserves to remain focused on the execution of our strategies, including future organic and acquisition growth opportunities. Thank you for joining us on our call today and your continued support and interest.

Kelly Hibbs, CFO

Thank you, Nate. I'm on Slide 4. Wood Products sales in the fourth quarter, including sales to our distribution segment, were $446.6 million. The increase in segment income was primarily due to higher EWP sales prices offset partially by higher wood fiber and other manufacturing costs. BMD sales in the quarter were $1.6 billion, up 24% from fourth quarter 2020. The business reported segment income of $138 million and EBITDA of $144.2 million in the fourth quarter. We expect working capital increases to use cash in the first quarter of 2022. We finished the fourth quarter with $749 million of cash. Our total available liquidity at December 31 was approximately $1.1 billion, which reflects our cash and availability under our committed bank line. Our effective tax rate is expected to be between 25% and 27%. I'm pleased to note that we returned $214 million of cash to our shareholders through regular and supplemental dividends during 2021.

Nate Jorgensen, CEO

Thanks, Kelly. I'm on Slide number 12. The demand environment for new residential construction continues to be favorable, supported by mortgage rate levels, continuation of work-from-home practices by many, and demographics in the U.S. which we expect to continue in 2022. The February Blue Chip consensus for U.S. housing starts is 1.6 million for 2022 and 1.56 million for 2023. In addition, limited new and existing home inventory availability will continue to provide a favorable backdrop for residential construction and repair and remodel spending. In Wood Products, we continue to enjoy strong demand and pricing momentum for EWP. We expect continued firm pricing in our EWP and general line product categories and are prepared to capture the opportunities associated with expected price volatility and commodity products. We remain well positioned with sufficient cash and reserves to remain focused on the execution of our strategies.

Mark Wilde, Analyst

I wondered Nate and Kelly… Can you give us some sense of what the order backlogs look like in EWP, whether you're on allocation?

Mike Brown, Head of Wood Products Operations

Yes, our order files are still very strong. We continue to be on allocation. I suspect given the situation we're experiencing with demand that that will continue probably at least through the remainder of 2022.

Mark Wilde, Analyst

And is it possible just on the price side in EWP to help us think about the cadence over the next four quarters?

Kelly Hibbs, CFO

I guided to low single-digits for the sequential quarter coming up in the first quarter. I would also say the same for the second quarter of 2022 compared to the first quarter 2022. We're seeing significant price increases announced in the market.

Nate Jorgensen, CEO

The announcement was pretty recent. We’re still in the early stages of getting that kind of rolled out and communicated. So there may be some variability to that.

Reuben Garner, Analyst

I guess all of us who follow Boise Cascade know that this is not always an easy sector to recruit talent. What might you be doing right now to share some of the benefits of this windfall with the long-term employees?

Nate Jorgensen, CEO

We’ve put in place, supplemental bonuses again, to recognize the performance of the organization. Our team is a huge part of what we do.

Operator, Operator

Our first question comes from Mark Wilde with Bank of Montreal. Good morning.

Nate Jorgensen, CEO

Good morning.

Mark Wilde, Analyst

I thought that maybe Wayne took the punch bowl when he retired, but I guess not.

Kelly Hibbs, CFO

Well, I'm sure Wayne is listening in. So, hello, Wayne.

Nate Jorgensen, CEO

Hi, Mark. It's Nate. Just one other maybe comment on that. The announcement was pretty recent. And so, we're still in the early stages of getting that kind of rolled out and communicated.

Mark Wilde, Analyst

So I appreciate your insights here and navigating what's clearly a favorable yet nuanced environment.