Boise Cascade Company - Q1 2024

Transcript

Operator (participant)

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 First Quarter 2024. Please note, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce you to Chris Forrey, Vice President of Finance and Investor Relations, Boise Cascade. Mr. Forrey, you may begin your conference.

Christopher Forrey (VP of Finance and Investor Relations)

Thank you, Corey, and good morning, everyone. I would like to welcome you to Boise Cascade's First Quarter 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 Strom, 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.

Nate Jorgensen (CEO)

Thanks, Chris. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on slide number 3. Total U.S. housing starts only increased 1%, however, single-family starts increased 27% compared to the prior year quarter. Our consolidated first quarter sales of $1.6 billion were up 7% from first quarter of 2023. Our net income was $104.1 million, or $2.61 per share, compared to net income of $96.7 million, 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.

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 capital allocation in more detail, after which I'll provide our outlook before we take your questions. Kelly?

Kelly Hibbs (CFO and Treasurer)

Thank you, Nate, and good morning, everyone. Wood Products sales in the first quarter, including sales to our distribution segment, were $468.9 million, compared to $437.4 million in first quarter of 2023. Wood Products reported segment EBITDA of $95.6 million, up from EBITDA of $93.2 million 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. BMD sales in the quarter were $1.5 billion, up 9% from first quarter of 2023. BMD reported segment EBITDA of $83.6 million in the first quarter, compared to segment EBITDA of $76.8 million in the prior year quarter.

The increase in segment EBITDA was driven by a gross margin increase of $22.9 million, 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 $16.5 million and $4 million, respectively. We expect total company depreciation and amortization in 2024 to be approximately $140 million. In addition, our anticipated effective tax rate remains at 25%. Turning to Slide 5. On a year-over-year and sequential basis, first quarter volumes for LVL were up 31% and 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-joist and LVL was down 4% due to continued pricing pressure in the market. Looking forward to the second quarter, production builders have maintained optimism in spite of increasing mortgage rates, and we expect our EWP volumes to increase sequentially. On pricing, we expect sequential price erosion to moderate during the quarter. Turning to Slide 6. Our first quarter plywood sales volume and Wood Products with 372 million feet, compared to 406 million feet in first quarter of 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 thousand average plywood net sales price in the first quarter was up 3% from first quarter of 2023 and up 1% sequentially.

Thus far in the second quarter of 2024, plywood price realizations are consistent with our first quarter average. However, we expect downward pricing pressure as we move through the second quarter, given uncertainty in the panel markets. Moving to Slide 7 and 8. BMD's first quarter sales were $1.5 billion, up 9% from first quarter of 2023, driven by sales volume increases of 12%, offset partially by sales price decreases of 3%. By product line, commodity sales increased 1%, general line product sales increased 16%, and sales of EWP increased 12%. Gross margin dollars increased $22.9 million 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 the first quarter of 2023, and down 10 basis points sequentially. BMD's EBITDA margin was 5.6% for the quarter, flat with the year-ago quarter and up 20 basis points sequentially. BMD sales pace thus far in second quarter 2024 has moderated slightly from the strong levels experienced in March, but is still approximately 5% above first quarter daily sales averages. Although commodity markets have created hesitancy in the marketplace currently, we anticipate our daily sales pace will strengthen as we move through the quarter, given a healthy single-family environment and seasonally better weather. Second 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. The late first quarter increase in composite panel prices was driven by OSB due to strength in single-family starts and supply limitations. As we enter the second quarter, 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. We had capital expenditures of $34 million in the first quarter, with $19 million of spending in Wood Products and $15 million of spending in BMD.

Our capital spending range for 2024 remains at $250 million-$270 million, with the pace of spending to accelerate as we move through the year. Speaking to shareholder returns, we paid $11 million in regular dividends to shareholders and completed the repurchase of approximately 206,000 of our common shares for $27 million in the first quarter. We have approximately 1.7 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 June 3, payable June 17. 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&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 two. I will turn it back over to Nate to discuss our business outlook.

Nate Jorgensen (CEO)

Thanks, Kelly. I'm on slide number 12. Current 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. Home affordability remains a challenge for many consumers due to the cost of housing, combined with elevated mortgage rates. However, with low unemployment and an 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 are expected to continue due to the increased capital costs 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 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. Ultimately, macro, 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. We would welcome any questions at this time. Corey, would you please open the phone, phone lines?

Operator (participant)

Thank you. At this time, we will now conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first call comes from Susan Maklari of Goldman Sachs. Susan, your line is open.

Charles Perron-Piché (VP)

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

Kelly Hibbs (CFO and Treasurer)

Hey, good morning, Charles.

Nate Jorgensen (CEO)

Hi, Charles.

Charles Perron-Piché (VP)

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 I-joist specifically, you've seen obviously OSB prices rising significantly through the first quarter, 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?

Kelly Hibbs (CFO and Treasurer)

Yeah, sure, Charles. So yeah, we feel really good about our I-joist position in the marketplace in general. And then specific to your question around cost, yeah, 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 lagged on the way up, and we also lagged on the way down. And you know feel good about our ability to kind of continue to manage our cost base across EWP in general.

Charles Perron-Piché (VP)

Okay. Yeah, that, that, 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, this price weakness? And what is your ability, to a certain extent, to predict that, that margin for the segment, let's say, in the above the historical average of 3-4, that you've mentioned in the past?

Kelly Hibbs (CFO and Treasurer)

Yeah, so let me kick it off here, and then we'll see if Jeff or Nate wanna provide some input here. So you know, we're certainly at a bit of a discovery period here. OSB has fallen, you know, 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. 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, you know, we're gonna be in the marketplace every day.

We have really good visibility of what's on the ground, what our cost position is. And, you know, we are, we're gonna, we're not gonna fall in love with our inventory. We're gonna move it, we're gonna turn it, and we'll keep continuing to work down our position. But again, we're gonna be there for our customers. Anything you'd add, Jeff?

Jeff Strom (COO)

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

Charles Perron-Piché (VP)

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. You know, when you think about capital allocation going forward, is this something that we should expect more going forward, or should we think about the dividends still remaining your favorite way of distributing capital to shareholders?

Kelly Hibbs (CFO and Treasurer)

Yeah, no, I guess I would, I'd say it this way, Charles. So we're, you know, committed to our approach. We're very committed to our expanded capital program. You know, I, I'd reiterate that we do expect to, you know, provide additional shareholder returns, assuming there's no meaningful M&A that surfaces. And then our, our playbook includes both share repurchases and special dividends. But it wouldn't be appropriate in this forum to really communicate more than that in terms of timing and sizing and, and how that plays out exactly. But our expectation is we will, we will be returning additional capital to shareholders, absent M&A, in the balance of the year.

Charles Perron-Piché (VP)

Okay. Thank you for the time, guys.

Kelly Hibbs (CFO and Treasurer)

Thanks, Charles.

Operator (participant)

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.

Michael Roxland (Managing Director)

So 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 worked really hard to lighten your positions. Can you comment, to the extent you can comment, like, where do backlogs stand or order book stand on OSB, lumber, plywood, relative to normal?

Jeff Strom (COO)

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

Michael Roxland (Managing Director)

Gotcha. But in terms of your own inventory levels and how much you have in stock relative to, let's say, where a normal level, a 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, again, the fact that you had some foresight that the turn was coming?

Jeff Strom (COO)

No, we're, you know, we're actually in really good shape. There's been no real reason to take any kind of position on the lumber studs. And so we say we're gonna have it in stock and be ready, and we do. So I think we're in a really good position there. On plywood, I think we're, you know, we have plenty. We're in a good spot there. In OSB, which definitely had a big run and was tough to get, and you could tell it was slowing down a little bit. You know, 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.

Nate Jorgensen (CEO)

Hey, Mike, it's Nate. Maybe just to add to Jeff's comments is, in these kind of environments where, you know, commodities have come off, and obviously OSB is the most recent example, you know, there's obviously hesitancy in the marketplace, and, and I think our customers and, and suppliers as well, look to us as a bit of a safe harbor. And so they're gonna go short. They're gonna, you know, they're gonna be buying more heavily out of warehouse. Maybe instead of rail cars and trucks, it's, 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, you know, that, that important service and value when our customers, are in need of it, and, and today represents that, that opportunity.

Michael Roxland (Managing Director)

Got it. Thank you. That's great color. Then just one quick follow-up on BMD. You know, you guys have done a terrific job shifting your mix to general line and EWP while minimizing commodity. Given the volatility in commodities we're currently seeing and we have seen in the past, I mean, is there a certain percent of commodity that you're ultimately targeting? Is it gonna be 30% of BMD's, maybe 25%? And over what time frame are you looking to achieve that?

Kelly Hibbs (CFO and Treasurer)

Yeah, good, good question, Mike. So yeah, I mean, currently in the first quarter, 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.... You know, I think at the end of the day, I think we would still probably, you know, be in the mid- to low 30s when we fully execute our strategy. But we're not but we, 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.

Nate Jorgensen (CEO)

And Mike, I'm just gonna add to that, that we absolutely like the commodity business. Now, the last few weeks of print hasn't been fun, but if that share is gonna 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 gonna stay right in there with it.

Kelly Hibbs (CFO and Treasurer)

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

Michael Roxland (Managing Director)

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

Kelly Hibbs (CFO and Treasurer)

Yeah, so our volumes were heavy to single, Mike. I guess I didn't quite follow the balance of that question. Can you hit me again, please?

Michael Roxland (Managing Director)

Sure, sure. No, no problem. I mean, so you said your EWP volumes exceeded the amount of the single-family start increases. So what-- I guess, what I'm getting at is, given the fact that you have 80%-85% of your EWP goes towards single-family, what other categories did you see growth in that absorbed some of your EWP volume?

Kelly Hibbs (CFO and Treasurer)

Yeah, 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.

Michael Roxland (Managing Director)

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

Nate Jorgensen (CEO)

Thank you.

Kelly Hibbs (CFO and Treasurer)

Thanks, Mike.

Operator (participant)

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

Lucas Hudson (Equity Research Associate)

Hey, guys. This is actually Lucas Hudson on for George Staphos. He's currently traveling right now. So first and foremost, thanks for the details. My first question is: What is your outlook for repair and remodel? And is there more momentum in do-it-yourself projects or pro contractor, and what are the implications for BMD and Wood?

Nate Jorgensen (CEO)

Hey, Lucas, it's Nate. Maybe just, I think the theme as we kind of described in our opening remarks is that, you know, repair and remodel has come off a bit, but is still historically, you know, kind of above, you know, where trends typically are. I would say that the pro side of repair and remodel still feels good and pretty steady, maybe relative to the weekend, the over-the-shoulder crowd. So I think the overall, you know, 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, you know, a good foundation there for them to work on.

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

Lucas Hudson (Equity Research Associate)

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

Kelly Hibbs (CFO and Treasurer)

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, then it finished, finished very strong in March.

Lucas Hudson (Equity Research Associate)

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

Kelly Hibbs (CFO and Treasurer)

Thanks, Lucas.

Operator (participant)

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.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Yeah, 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, you know, feeling good about the momentum in EWP. It continues to be solid. You know, it might be a little bit weaker than what we would have anticipated, but still is solid as we head into May here.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Yeah, I would have factored those into my, into my math I gave you, Ketan. But yeah, we have, there's 64, 64 work days in both first and second quarter.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Yeah, 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 and 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.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Yeah, so April margins were healthy. They were good. You know, 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. But fundamentally, it doesn't change. While we might get some pressure here in the second quarter because of the commodity market, we still feel good about kind of the underlying earnings capability of BMD moving forward to be, you know, consistent with what we've been putting up of late.

Nate Jorgensen (CEO)

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, you know, in terms of both on price and demand, again, the dependence on out-of-warehouse services only increases. So as you think about, you know, 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, you know, to do what we need to do in BMD, again, kind of no matter what the, you know, the demand environment is as we go through the quarter.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

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

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

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

Nate Jorgensen (CEO)

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

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Thanks, Keaton.

Operator (participant)

Thank you very much. One moment for our next question. Our next question comes from Kurt Yinger of D.A. Davidson. Kurt, your line is open.

Kurt Yinger (SVP)

Great. Thanks, and good morning, everyone.

Kelly Hibbs (CFO and Treasurer)

Morning, Kurt.

Kurt Yinger (SVP)

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, 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?

Nate Jorgensen (CEO)

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

And so when you look at an I-joist system versus either dimensional lumber or plated floor trusses, typically the speed on the construction site is superior and allows, again, the builder to drive down cycle time. So, which is an important part of how they think about value today, and going forward. So I think I-joist 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.

Kurt Yinger (SVP)

Got it. Thanks for that, Nate. And as we think about, you know, builders trying to address affordability challenges, perhaps building smaller homes, taking complexity out, is there any sort of current or medium-term impact 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, but beyond that, is there anything that kind of jumps to mind in terms of how that impacts your wood products business?

Nate Jorgensen (CEO)

Yeah, good question. I think the, yeah, I think it's to your point on if, if the footprint is smaller, you know, that can—that'll obviously have a, you know, influence in terms of the amount of, EWP, or, or structural materials in general that can be sold. So I, I think that, you know, that, that, that's in place. And again, the builders are looking to take cost out. I think there are times, Kurt, that, you know, when the builders have, you know, for them, if they want to look at how, how do they lower, costs, sometimes going vertical, is the, 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 EWP, obviously, given that second floor construction. So, yeah, I think, you know, EWP is going to be an important part of it. But as we look at the trade-offs, in terms of lower square footage, you know, that that'll show up in our EWP as well as the other products and services we distribute as well.

Kurt Yinger (SVP)

Got it. Okay, that, that's super interesting. Thanks for that. And then just switching gears to BMD. Kelly, I, 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, you know, 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?

Kelly Hibbs (CFO and Treasurer)

Yeah, it's not anything to do with transfer pricing or 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, you know, we see some of that in Wood Products, and then obviously, you see that in distribution as well.

Kurt Yinger (SVP)

Got it. Okay. Makes sense. And then just lastly, I mean, Jeff, we've kind of seen five consecutive quarters now where BMD gross margins are right in that 15% zip code. Outside of, you know, what we've seen in OSB and maybe a little bit of EWP, is there anything else that you're kind of keeping an eye on that maybe gives you concern that that 15% could have some downward pressure to it, or are you feeling pretty comfortable with those levels given kind of the current state of the market?

Jeff Strom (COO)

Yeah. Sure. There, 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, you know, if you, 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, our focus and growth on that is, is what's been holding it steady. But, you know, there, 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.

Kurt Yinger (SVP)

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

Kelly Hibbs (CFO and Treasurer)

Thanks, Kurt.

Operator (participant)

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

Reuben Garner (Managing Director)

Thank you. Good morning, everyone.

Jeff Strom (COO)

Good morning.

Reuben Garner (Managing Director)

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 inventory when there's uncertainty like this and commodity downside. Is that something that has already played out and is done in the first quarter? 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?

Jeff Strom (COO)

Well, Reuben, I don't know if it's a destock as much as what, if you can get it and eliminate risk, why wouldn't you just 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, you know, people don't want to step in and buy direct. They want to get what they need to cover it quick. And so our warehouse business, we're seeing it right now, is picking back up.

Reuben Garner (Managing Director)

Okay. And then, 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 first quarter. Is it different this time? Are there trends that are hanging in some of those areas that are different than the commodity side and aren't maybe as rate sensitive as you thought? Can you just kind of update us on your thoughts there?

Jeff Strom (COO)

Yeah. On in the general line, the one big difference I'd say that we saw this year compared to last was in the winter buy, in the price increases that were announced on some products. Before, people were last year, for example, people were hesitant to step in. They just didn't know. And this year, there was confidence of what was going to happen this year in the market. 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, in some of the winter buys, we're starting to see people step back in and buy some more. So the general line has really been pretty stable.

Reuben Garner (Managing Director)

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?

Jeff Strom (COO)

Yeah. I think right now, I mentioned it earlier, you know, 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 are probably the two biggest areas that we're seeing it right now.

Reuben Garner (Managing Director)

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

Jeff Strom (COO)

Thanks.

Operator (participant)

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

Ketan Mamtora (Director)

Thank you. Just one quick one. Were there any sort of geographic variations, what you saw in Q1 or in April in terms of, you know, regions, east versus west? Anything to call out there?

Nate Jorgensen (CEO)

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

Ketan Mamtora (Director)

Got it. Okay. And then just one last one on capital allocation. I'm just curious, sort of, you know, obviously, the balance sheet is very strong. But as you sit here today, you know, there's still uncertainty around, you know, kind of housing, you know, repair and remodeling. So how do you sort of approach it, so far as, you know, share repurchases is concerned versus kind of, you know, maintaining even more dry powder? Can you talk about sort of puts and takes there?

Kelly Hibbs (CFO and Treasurer)

Yeah, sure. I mean, we have the balance sheet to execute on our expanded capital program, so anticipate we're gonna charge forward there. Now, to your point, is there uncertainty in the marketplace in general? Yes, but, you know, 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. You know, we've got... Fortunately, we've got plenty of optionality, and we'll be thoughtful and prudent. And again, we'll just kind of stay abreast of the market, stay abreast of M&A, and, you know, we will, we'll look to shareholder returns if we think that's the right thing to do as the year develops.

Ketan Mamtora (Director)

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

Kelly Hibbs (CFO and Treasurer)

Thanks, Keaton.

Operator (participant)

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

Susan Maklari (Senior Equity Research Analyst)

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

Nate Jorgensen (CEO)

Hi, Sue.

Susan Maklari (Senior Equity Research Analyst)

Good morning. I just wanted to quickly ask about the M&A pipeline, and I guess both just in terms of, you know, 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, you know, the initiatives you've got and the potential for further acquisitions.

Kelly Hibbs (CFO and Treasurer)

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

Nate Jorgensen (CEO)

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

Susan Maklari (Senior Equity Research Analyst)

Okay. All right. That's helpful. And then just one more from me. You know, 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. 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?

Kelly Hibbs (CFO and Treasurer)

Yeah, you, you're right, Sue, and you probably know better than us around the national builders. They continue to be pretty optimistic. They continue to deploy their balance sheet as necessary to get folks into homes. So they seem to be still, you know, I don't know, on average, kind of mid to high single digits, if you will, in terms of their growth expectations. But then you balance that a little bit with the overall narrative that, you know, in some cases, it feels a little softer in terms of broadly across the marketplace.

So there's kind of, you know, we're kind of in an interesting period here, where there's kind of multiple data points and data sets and commentary, and so it's a little interesting to kind of sort out how the market shapes for us here in the next quarter or two.

Nate Jorgensen (CEO)

Yeah, thanks, Sue.

Susan Maklari (Senior Equity Research Analyst)

Yeah.

Nate Jorgensen (CEO)

It's Nate. The other thing I would comment on, I think you know the large production builders, national builders, public builders, I think they're really well positioned, as Kelly described, just 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 you know their position as compared to others in the marketplace. So I think they're you know they're obviously an important part of the marketplace today, and we think that that'll continue to grow over time, just given you know their strength and both from a financial perspective, as well as their great understanding of the marketplace and what their customers need and expect.

Susan Maklari (Senior Equity Research Analyst)

Yeah. Okay, all right. Yes, no, thank you both for the color, and good luck with everything.

Nate Jorgensen (CEO)

Thanks, Sue.

Susan Maklari (Senior Equity Research Analyst)

Yep.

Operator (participant)

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.

Nate Jorgensen (CEO)

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 (participant)

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