Earnings Call Transcript - BCC Q2 2025

Operator, Operator

Good morning. My name is Corey, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chris Forrey, Vice President of Finance and Investor Relations of Boise Cascade. Mr. Forrey, you may begin your conference.

Chris Forrey, Vice President of Finance and Investor Relations

Thank you, Corey, and good morning, everyone. I'd like to welcome you to Boise Cascade's Second Quarter 2025 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our CEO; Jeff Strom, our COO; Kelly Hibbs, our CFO; Troy Little, Head of our Wood Products Operations; and Joe Barney, Head of our Building Materials Distribution Operations. 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.

Nathan R. Jorgensen, CEO

Thanks, Chris. Good morning, everyone. Thank you for joining us on our earnings call today. I'm on Slide #3. Total U.S. housing starts and single-family housing starts decreased 1% and 8%, respectively, compared to the prior-year quarter. Our consolidated second quarter sales of $1.7 billion were down 3% from second quarter of 2024. Our net income was $62 million or $1.64 per share compared to net income of $112.3 million or $2.84 per share in the year-ago quarter. Included in our second quarter results are $7.7 million of pretax gain on asset sales, where I'm happy to report we monetized nonoperating properties in both Wood Products and BMD. We experienced sequential volume growth driven by seasonally stronger activity. However, underlying demand continued to be constrained due to affordability challenges, elevated existing home inventory and consumer uncertainty. I'm pleased to share that the modernization project at our Oakdale mill is substantially complete, which represents a significant milestone for our Southeast manufacturing system. I want to thank our associates across our organization who made this project successful. We will benefit from enhanced operational efficiency and reliability while advancing our distinct competitive advantage to drive incremental value creation through our self-sufficient veneer production. As we navigate a dynamic marketplace, our actions will address near-term challenges without sacrificing the service standards that our customer and supplier partners have come to expect from us. At the same time, we are well positioned to continue to invest in opportunities that drive enduring, sustainable growth in the years ahead, supported by the strong structural demand drivers we see in residential construction over the long term. Kelly will now walk through our segment financial results, capital allocation priorities, and guidance on our third quarter results, after which I'll make closing comments before we take your questions. Kelly?

Kelly E. Hibbs, CFO

Thank you, Nate, and good morning, everyone. Wood product sales in the second quarter, including sales to our distribution segment, were $447.2 million, down 9% compared to second quarter 2024. The Wood Products segment EBITDA was $37.3 million compared to EBITDA of $95.1 million reported in the year-ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices as well as lower plywood volumes and unfavorable profit and inventory adjustments. In addition, the scheduled Oakdale outage negatively impacted year-over-year EBITDA comparisons. These decreases in segment EBITDA were offset partially by a $3.9 million gain on the sale of a nonoperating property. In BMD, our sales in the quarter were $1.6 billion, down 2% from second quarter 2024. BMD reported segment EBITDA of $91.8 million in the second quarter compared to segment EBITDA of $97.1 million in the prior-year quarter. The decrease in segment EBITDA was driven primarily by increased selling and distribution expenses of $12.1 million. However, BMD's gross margin dollars increased $3.4 million from second quarter 2024. And our gross margin was 15.4%, a 60 basis point year-over-year improvement. In an environment where demand was stagnant and many product prices were declining, we are pleased with our gross margin performance, a reflection of very good execution by our team and our focus to increase the portion of our sales in best-in-class general line products. In addition, segment income benefited from a $3.8 million gain on the sale of a nonoperating property. Turning to Slide 5. Year-over-year and sequentially, second quarter LVL volumes were up 8% and 18%, respectively, while I-joists volumes for the same comparative periods were down 5% and up 14%. As referenced earlier, Wood Products second quarter income included an adjustment to reverse profits associated with inventory sold through our distribution segment that is yet to be sold into the marketplace. This adjustment resulted in an unfavorable sequential variance of approximately $6 million. As it relates to pricing, competitive pressures drove sequential declines for LVL and I-joists of 3% and 2%, respectively. Turning to Slide 6. Our second quarter plywood sales volume was 356 million feet compared to 383 million feet in second quarter 2024. The decrease was primarily driven by the planned outage at our Oakdale mill as well as downtime at our Kettle Falls mill to complete a scheduled maintenance project. The 342 per thousand average plywood net sales price in the second quarter was down 6% on a year-over-year basis and flat compared to first quarter 2025. Moving to Slide 7 and 8, BMD's year-over-year second quarter sales decline of 2% was driven by a 2% decrease in prices as sales volumes were flat. By product line, commodity sales decreased 5%, general line product sales increased 4% and sales of EWP decreased 12%. However, our sequential sales results reflected seasonally stronger activity, with our sales increasing 15% from first quarter. As I mentioned earlier, BMD's second quarter gross margin percentage was 15.4%, up 60 basis points year-over-year. In particular, gross margin dollars were affected by increased margins on general line products, offset partially by decreased margins on commodity and EWP products. BMD's EBITDA margin was 5.7% for the quarter, down from the 5.9% reported in the year-ago quarter but up from the 4.5% reported in the first quarter. After market conditions led to a slow start to the year, increased sales activity in the second quarter and good execution by the BMD team allowed our EBITDA margins to rebound nicely. I'm now on Slide 9. We had capital expenditures of $132 million in the 6 months ended June 2025, with $70 million of spending in Wood Products and $62 million of spending in BMD. We remain committed to the capital plan presented earlier in the year with our capital spending range for 2025 unchanged at $220 million to $240 million. In Wood Products, that range includes the multiyear investments in support of our EWP production capabilities in the Southeast. As Nate mentioned earlier, the Oakdale modernization is substantially complete and startup and optimization activities are going well. Our new line is expected to be operational in the first half of 2026. In BMD, part of our capital deployment strategy is to solidify and expand our market-leading national distribution presence. In the second quarter, we completed two lease buyouts of our highly successful distribution centers in Chicago and Minneapolis. In addition, construction on our greenfield distribution center in Hondo, Texas is nearly complete, and we expect to begin servicing the San Antonio market from there by the end of the third quarter. Speaking to shareholder returns, we paid $18 million in regular dividends in the first half of 2025. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock, which represents a $0.01 per share or approximately 5% increase that will be paid in mid-September. Through the first 7 months of 2025, we repurchased approximately $96 million of Boise Cascade common stock, which includes approximately $32 million in the second quarter and another $10 million in July. Today, we have about 850,000 shares available for repurchase under our current share repurchase program. In summary, our balance sheet remains strong, and we continue to be dedicated to a balanced deployment of capital by investing in our existing asset base, pursuing value-enhancing organic and M&A growth opportunities that position the company for sustainable long-term growth, and returning capital to our shareholders. We're fortunate that our solid financial foundation and resilient free cash flow allow us to simultaneously advance each of these objectives. I'm now on Slide 10. Looking forward to the third quarter, we expect headwinds for residential construction activity will persist. With that in mind and recognizing that even near-term forecasts are difficult to make, given the current market dynamics, we have presented a range of potential EBITDA outcomes and related key drivers. For Wood Products, we currently estimate third quarter EBITDA to be between $20 million and $30 million. We expect our EWP volumes to decline high single digits sequentially as homebuilders moderate their starts pace to align with new home sales and our channel partners reduced inventory levels. On EWP pricing, low to mid-single-digit sequential declines are expected as competition persists. In plywood, we expect mid-single-digit sequential volume increases resulting from the resumption of operations at our Oakdale mill and the avoidance of planned maintenance downtime that we experienced in the second quarter at our Kettle Falls operation. On plywood pricing, July realizations were approximately 5% below our second quarter average. Partially offsetting changes in Wood Products top line are somewhat lower expected manufacturing and web stock costs due to improved operating rates at Oakdale and Kettle Falls and weakness in OSB pricing. For BMD, we currently estimate third quarter EBITDA to be between $70 million and $80 million. BMD's daily sales pace in July was approximately 3% below the second quarter sales pace of $25.2 million per day. Our daily sales pace for the balance of the third quarter will be dependent upon end-market demand, product pricing and our customer partners’ reliance upon us for next day out-of-warehouse service. Lastly, in addition to limited near-term clarity for end-market demand are uncertainties from trade and tariff policy changes that create the potential for meaningful forward pricing volatility for plywood, lumber and other commodity products. I'll now turn it back over to Nate to share our business outlook and closing remarks.

Nathan R. Jorgensen, CEO

Thanks, Kelly. I'm on Slide #11. No matter the operating conditions, our experienced team remains committed to creating value for our shareholders as well as our customers and suppliers by staying resilient, adaptable, and focused on delivering exceptional products and services. Due to our integrated model, we're able to take advantage of increased channel inventory visibility, allowing us to better navigate market uncertainty by aligning production rates and inventory strategies with end-market demand. Cross-divisional efficiencies, combined with our robust balance sheet, provide us the ability to stay focused on the execution of our strategy and creation of long-term value for our stakeholders. We remain confident that long-term demand drivers for residential construction, such as the undersupply of housing units, the age of U.S. housing stock, and the high levels of homeowner equity; remain robust. Additionally, generational tailwinds driven by millennials and Gen Z reaching the peak age for household formation and more seniors opting to age in place continue to support household formation growth. These structural and generational factors underpin the industry's strong core fundamentals. Repair and remodeling activity has been held back by diminished levels of existing home turnover and from homeowners delaying large repair, remodel projects due to the high cost of accessing their equity combined with economic uncertainty. We expect consumer confidence to improve with lower interest rates and greater clarity on U.S. economic policy. These factors collectively create a long runway for growth in repair and remodel projects. In addition, consistent investment in our Wood Products assets across all phases of the business cycle is critical to driving overall growth as it enhances efficiency during market downturns and enables greater operating rate flexibility and product availability for our customer base when demand regains momentum. Lastly, markets with limited clarity make for distribution-friendly environments and we look forward to, again, demonstrating the value proposition of two-step distribution across a broad mix of products in periods where there is near-term demand or price uncertainty like we're experiencing today. As always, we stand ready to serve our customers and expect they will place additional reliance on our warehouse capabilities given the environment. Thank you for joining us today and for your continued support and interest in Boise Cascade. We would welcome any questions at this time. Corey, would you please open the phone lines?

Operator, Operator

Our first question comes from Kurt Yinger of D.A. Davidson.

Kurt Willem Yinger, Analyst

Just wanted to start off on EWP, year-to-date LVL volumes up even as I-joist down 4 is nicely outperforming kind of what we're seeing in terms of single-family starts. Can you talk a little bit about what's driven that performance gap? And similarly, what we should maybe take from the difference between kind of LVL and I-joists volume trends?

Nathan R. Jorgensen, CEO

Kurt, it's Nate. Let me start that. I think when it comes to the LVL market, it has probably a little bit better resiliency in terms of just the different application opportunities that exist in the marketplace today. So when you think about obviously beams and headers, wall framing, those are all growth opportunities for our LVL category. I-joists are pretty much centered on floor systems. And so that can have maybe a more limited opportunity or upside, just given some of the dynamics there, including some of the competitive factors on plated floor trusses and dimensional lumber as well as a slab on grade construction. So overall, we feel really good about our footprint and representation at both LVL and I-joists. And I-joists will have a little bit different cadence in terms of takeaway in some cases, depending upon where those housing starts are, as well as some of the competitive challenges that might be out there.

Kurt Willem Yinger, Analyst

Okay. So is it fair then, Nate, to say in terms of even I-joists kind of outperforming on the single-family side, maybe that's a mix of where starts are occurring, maybe a little bit of share shift kind of back from plated floor truss? Or I guess, as you think about your dealer partnerships and things like that, do you feel like you're kind of gaining wallet share?

Operator, Operator

One moment for a technical difficulty. We'll be right back.

Nathan R. Jorgensen, CEO

Corey, can you hear us now?

Operator, Operator

I can hear you again.

Kurt Willem Yinger, Analyst

Yes, I just wanted to follow up. Regarding the geographic mix of starts and the competitive dynamics of floor systems, across the customer landscape, including builders and dealers, do you feel that you are still gaining wallet share, or is the performance primarily influenced by other factors?

Operator, Operator

One moment while we are addressing some technical issues.

Nathan R. Jorgensen, CEO

Can you hear us? All right. Now we're getting feedback loop, though. Can hear that.

Operator, Operator

Kurt, will you please ask your question one more time?

Kurt Willem Yinger, Analyst

Yes, sure. Maybe just switching gears on the EWP destock kind of referenced in Q3, is there, I guess, a good way to think about the sizing of that and whether that might spill into Q4 as well?

Nathan R. Jorgensen, CEO

In terms of maybe the way I would think about that is not just on EWP, but other products as well, is the purchase profile that's going to be likely changing. So maybe there's going to be less mill direct but there's going to be more activity in terms of units and job packs and pieces out of distribution. That theme has been really clear from our customers in terms of how they're going to manage their working capital as they go through the course of 2025 and probably early into '26 on a range of products. Even though the inventory may change a little bit or the order patterns may change a little bit out of our mills, again, we think the consumption will be heavy out of distribution from our warehouse, which again, we're really well set up to go perform and execute to that standard.

Operator, Operator

Our next question comes from George Staphos of Bank of America.

Brad Barton, Analyst

This is Brad Barton, on for George. Just starting off quickly, if you guys could just talk to the operating rates across the business? And relatedly, I guess, how do you see EWP pricing going forward, given the trend downward over the last several quarters? At what point do we see a bottom? And what's the catalyst to inflect there?

Troy Little, Head of Wood Products Operations

Yes. This is Troy. In the second quarter, we aimed to operate at full capacity to prepare for the building season. As the quarter progressed, we started to see the season unfold. Throughout the quarter, our operational rates were in the low 80s on the EWP side. With Oakdale offline, we focused on maintaining our inventory levels to stay prepared. Now that Oakdale is back online, we ended the quarter at around 70%. Without Oakdale, we would be closer to 80%. Looking ahead, our operating rates are expected to be around 65% to 70%, depending on demand and the effects of destocking.

Brad Barton, Analyst

Okay. Great. And then one follow-up for me. To the extent that you guys can comment, we saw the news about the strike at the Billings facility. Just if you can give any update there. And any color on that facility in terms of the size or potential impact there? That would be very helpful.

Joe Barney, Head of Building Materials Distribution Operations

This is Joe. I can comment on that. So on July 29, we have 19 union representative employees at our BMD facility in Billings, Montana that initiated the strike. That strike is still ongoing as of today. It's limited to just one of our 38 BMD locations. We have implemented business continuity protocols, and our Billings team is doing a very good job of avoiding any disruptions to our customers. At this time, the situation is really limited in scope, and we don't anticipate that there will be a material impact.

Operator, Operator

Our next call comes from the line of Susan Maklari of Goldman Sachs.

Susan Marie Maklari, Analyst

My first question is on the general line part of the business. You saw some really nice results there despite all the pressures that are coming through. Can you talk a bit about how you're thinking about the next couple of quarters there, given some of your suppliers focused on getting price and also maintaining inventories on the ground, given the conditions?

Joe Barney, Head of Building Materials Distribution Operations

This is Joe. Yes. So in Q2, our general line category has actually held up really well. We feel like we're well positioned there from an inventory perspective as our customers have leaned out their inventory. Going into Q2, there's disruption and uncertainty in the market. Our customers have leaned heavily on to our inventories and distribution. So we saw ourselves out of warehouse pick up in Q2 pretty significantly. Our general line categories remain strong. We think that they will remain strong going into the balance of the year. I don't see any changes happening there.

Susan Marie Maklari, Analyst

Okay. That's helpful. And then in your prepared remarks, you talked about aligning production to demand. As you think about the operating backdrop across the business, can you talk about some of those efforts? How we should think about the cost structure of the business and the potential benefits to the margins as those efforts come through to results?

Troy Little, Head of Wood Products Operations

Yes, this is Troy. Regarding our operating posture, we entered the quarter with plans to operate at full capacity. Currently, as we move out of Q2, our mill-level inventory for Engineered Wood Products is on the higher end. We are prepared to shift veneer production to plywood if demand doesn't meet our expectations. By doing so, we can maintain our veneer operations at a fairly full capacity. We also paused some operations in early July and expect to have some downtime related to market conditions, which we would schedule around major holidays if necessary.

Kelly E. Hibbs, CFO

We do not expect to face the same challenges with Oakdale that we experienced in the first half of the year. Additionally, we will benefit from the value of self-sufficient veneer instead of relying on the open market. If OSB prices remain stable, we anticipate some advantages for our web stock costs.

Susan Marie Maklari, Analyst

Okay, that's helpful information, Kelly. Can I ask one more question about EWP? As builders look ahead to 2026 with reduced inventory, can you discuss the competitive landscape and what that might mean for the dynamics of that business in the upcoming quarters?

Nathan R. Jorgensen, CEO

Sue, it's Nate. Sorry. Yes, so I think just in terms of kind of the competitive dynamics on whether EWP or other products, I think it's going to remain a challenge as we go through the course of this year and early next year, just given what we expect in terms of the demand environment. But with that said, I think when you think about EWP and what the builders are still looking to do on the job site, cycle times remain important. We know that I-joists and EWP create a better deliverable in terms of reduced cycle times at the job site. We still feel really good about how we're set up in terms of EWP going through the balance of the year and early next year. The other thing I would comment on is when you think about engineered wood products, the importance of distribution in support of that product is vital. We are really well set up as an organization with our Boise Cascade EWP franchise. We've got great distribution in the marketplace. So having not only product on the ground, but the ability for drawings and services, we feel good about how we're poised to serve the marketplace, even as we close out this year. The competitive landscape won't change, but we believe we're well positioned to compete and win in such an environment.

Operator, Operator

Thank you very much. At this time, I am showing no further calls. I would like to turn it back to Nate Jorgensen for closing remarks.

Nathan R. Jorgensen, CEO

Okay. We appreciate everyone joining us today. And our apologies for the technical challenges, so thank you for your patience as well and your continued interest in support of Boise Cascade. With that, we'll close up the call. Please be safe and be well. Thank you.

Operator, Operator

Thank you very much for your participation. This does conclude the conference.