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    Boise Cascade Co (BCC)

    Q2 2024 Earnings Summary

    Reported on Feb 25, 2025 (After Market Close)
    Pre-Earnings Price$129.65Last close (Aug 6, 2024)
    Post-Earnings Price$129.65Open (Aug 7, 2024)
    Price Change
    $0.00(0.00%)
    • Increase in higher-margin general line product sales: In the second quarter, general line products represented 42% of Boise Cascade's BMD sales mix, the highest in the company's history. The company expects to maintain a similar mix in the third quarter, which could support profitability due to the higher gross margins associated with these products.
    • Acceleration in warehouse sales supporting margins: Boise Cascade has experienced an increase in warehouse sales, with these now representing approximately 70% of the sales mix, up from historical levels of 65%. The company notes that this acceleration is due to customers' reliance on their inventory amidst volatile market conditions, which could positively impact margins.
    • Strong customer dependence on Boise Cascade's distribution capabilities: Customers are heavily relying on Boise Cascade's ability to maintain high inventory levels and provide reliable supply, especially in uncertain market conditions. This dependence plays into a distribution-friendly market and could support steady demand and margins going forward.
    • Continued pricing pressure and expected sequential declines in volumes for Engineered Wood Products (EWP): The company anticipates ongoing pricing pressure for EWP into the third quarter, modeling a sequential decline in pricing in the low to mid-single digits. EWP order intake has slowed due to recent declines in builder sentiment, weakening single-family starts, and affordability constraints for homebuyers, leading to expected mid- to high single-digit sequential volume declines in EWP. ,
    • Decreasing home sizes reducing demand for wood products: The average home size is down approximately 5% year-over-year as builders respond to affordability concerns by constructing smaller homes with fewer amenities. This trend results in less consumption of wood products per home, potentially impacting sales volumes.
    • Weakening demand environment and cautious customer purchasing behavior: The demand environment is described as modestly disappointing, with the commodity side being a bit slower. Customers are buying exactly what they need, indicating a cautious approach and lack of significant restocking, which could limit future sales growth.
    1. Capital Allocation Strategy
      Q: Thoughts on share buybacks and special dividend?
      A: Management highlighted they have completed $100 million in share buybacks year-to-date and announced a recent special dividend. They plan to continue opportunistic buybacks and have capacity for more M&A if opportunities arise. They also closed a small acquisition in Boise, Idaho, to expand into the local market.

    2. BMD Margins Outlook
      Q: Can BMD margins hold steady in Q3 versus Q2?
      A: Management expects gross margins to be similar in the third quarter as in the second, assuming no major surprises in commodity pricing. However, if sales pace is off by 5%, EBITDA margins might decrease slightly to the mid-5% range from the high-5% range. They emphasized their role as a "safe harbor" for customers, maintaining inventory to support them regardless of market conditions.

    3. EWP Pricing and Competition
      Q: What's the outlook for EWP pricing and competitive landscape?
      A: Management noted ongoing pricing pressure in Engineered Wood Products (EWP), anticipating a sequential decline of low to mid-single digits in Q3. Competition mainly comes from similar EWP producers rather than substitutes. They feel well-positioned to support builders with cycle time efficiencies, which is crucial amid elevated mortgage rates and affordability concerns.

    4. General Line Performance
      Q: What's driving outperformance in the general line segment?
      A: The general line segment continues to be a focus, increasing its portion of the sales mix to 42%, the highest on record. Growth is driven by strong supplier and dealer alignment, expansion of footprint, and suppliers adding more SKUs. They expect to maintain a similar mix in the third quarter.

    5. Inventory and Working Capital
      Q: Any concerns about elevated inventory and working capital levels?
      A: The increase in net working capital is intentional due to growth initiatives like the addition of BROSCO and new door shops. Management feels well-positioned with inventory levels and expects working capital to decrease seasonally in the fourth quarter. There's not a lot of downside risk in commodities, and they are seeing some life in lumber.

    6. Warehouse Sales Increase
      Q: Have warehouse sales accelerated due to market volatility?
      A: Yes, warehouse sales have picked up, now representing about 70% of the sales mix, up from the historical 65%. Customers prefer to rely on BCC's inventory amid uncertainty and lack of reward for taking positions in commodities.

    7. Demand Environment and Destocking Risk
      Q: Is there risk of destocking in the back half due to softer demand?
      A: While commodity sales are slower, general line sales remain steady. Customers are buying exactly what they need with no major destocking anticipated. This environment is favorable for distribution, and BCC is seeing evidence of it being a distribution-friendly market.