Boise Cascade Company (BCC) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Michelle, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Third Quarter 2013 Conference Call. [Operator Instructions] Before we begin, I'll 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 materially from those expressed or implied in this call. For a discussion of the factors that may cause actual results to differ from the result anticipated, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce you to Wayne Rancourt, Senior Vice President, CFO and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Michelle. Good morning, everyone. I'd like to welcome you to our Third Quarter 2013 Earnings Call and Business Update. Joining me on today's call are Tom Carlile, our CEO; Stan Bell and Nick Stokes, the leaders of our Buildings Materials Distribution operations; as well as Tom Lovlien and Tom Corrick, the leaders of our Wood Products operations. Turning to Slide 2, I'd point out the information regarding our forward-looking statements. There's an appendix that includes reconciliations from our GAAP net income to EBITDA for those that are interested. And with that, I will turn the call over to Tom Carlile.

Good morning. Thank you for joining us for our earnings call today. I'm on Slide 3. Housing starts continue to strengthen in the third quarter compared with the levels seen the same period of 2012. Using the available July and August 2013 data, U.S. housing starts were up 18%, with single-family starts up approximately 15%. We are seeing impact of more residential construction activity and demand for our products in most areas of the country. While consensus expectations for our full year 2013 housing starts had continued to drift lower over the last several months, overall housing demand continues to trend positively and long-term forecast still point to an underlying housing demand of 1.4 million to 1.5 million starts per year. Our 15% sales growth in the third quarter resulted from a solid performance in both of our businesses. In our Wood Products manufacturing segment, improved engineered wood product sales, volume and prices were the primary drivers of the sales increase. We also experienced better lumber pricing. In our Building Materials Distribution segment, our sales benefited from 16% higher volumes and 2% higher prices compared with the third quarter 2012. We reported net income of $15.9 million in third quarter 2013 compared with net income of $23.5 million in the same period last year. The decrease in net income was primarily a function of our conversion to a C corporation in 2013 and a recording of a $9.6 million tax provision during the third quarter of 2013. In the quarter, we completed the repurchase of 3.9 million shares of our stock at $25.88 per share for a total cash price of $100 million. The purchase was completed concurrently with our major shareholders selling 10 million shares in a secondary offering. As a result of these 2 transactions, almost 60% of our shares are now held by the public, and our float is much improved. In August, we took advantage of a favorable debt market and issued an additional $50 million of senior notes at a 5.6% yield and upsized our committed bank line to $350 million. These transactions leave us with -- leave us very well-positioned with a balance sheet cash and additional borrowing capacity to grow organically and to continue to pursue accretive acquisitions. In September, we completed the previously announced acquisition of 2 plywood plants in North and South Carolina for $102 million in cash. We are pleased to have employees and facilities as part of our Wood Products operations. The facilities have a good track record, and the transition to our ownership is going smoothly. With that overview of the quarter, I'll ask Wayne to provide more detailed financial results.

Thank you, Tom. Turning to Slide 4. Wood Product sales were $283 million in the third quarter, up 9% compared to the year-ago quarter. The sales increase was attributable primarily to increased engineered wood products volumes and prices. Wood Products third quarter EBITDA was $24.6 million, down 14% from the year-ago quarter. Decline was driven principally by lower plywood prices and higher wood costs, offset in part by improvements in engineered wood products and lumber. BMD sales increased 19% to $722 million in the third quarter with a 16% higher volumes and 2% higher prices than in third quarter 2012. BMD's third quarter EBITDA of $20.1 million was 60% higher than the $12.6 million reported in third quarter of 2012. The distribution business' ability to achieve positive revenue and earnings leverage from higher housing activity levels was demonstrated more clearly with commodity wood products pricing stabilizing in the third quarter. Turning to Slide 5. In Wood Products, our third quarter plywood sales volumes were essentially flat with the prior-year quarter. Our $303 average net sales price for plywood was down 5% from third quarter 2012 and down 8% from second quarter 2013. The product mix within our lumber facilities, with the focus towards ponderosa pine, was beneficial to our results, with our overall lumber price realizations up 20% compared to the prior-year quarter. Turning to Slide 6. Our third quarter sales volume for LVL and I-joists were up 16% and 21%, respectively, compared with the year-ago quarter. Improving new single-family home construction activity was the primary driver of our stronger sales volumes. Our LVL sales realizations improved 7% from the year-ago quarter and 1% sequentially from second quarter of 2013. Our I-joists realizations increased 11% from third quarter 2012 and 3% sequentially. We believe that pricing dynamics for engineered wood products will continue to improve as industry capacity utilization rates move higher with increased housing starts. Moving to Slide 7. BMD third quarter sales were $722 million, up $116 million or 19% compared to the year-ago quarter. Volume gains rather than higher product pricing drove the vast majority of the sales increase. Our distribution team took good advantage of the stronger housing start environment in the third quarter. You're going to see on the right-hand chart, with a strong growth in new residential construction and the success of the joint sales and marketing efforts with the Wood Products team, engineered wood products represented a modestly larger share of BMD's overall sales mix in the quarter. On Slide 8, we've set out the key elements limits of our working capital. Company working capital declined about $31 million during the third quarter or about $38 million if you exclude the working capital we recorded from our acquisition of the Wood Resources facilities. BMD's inventory investment declined about $21 million in the quarter, driven by increased sales volumes in all products and higher sales rates of seasonal products compared with the second quarter. Wood Products inventories increased in the quarter as they have started building log inventories as we had into the fourth quarter. The increase in our improved liabilities is composed primarily of consumer rebates, incentive compensations and interest payable. As a reminder, the statistical information filed as Exhibit 99.2 on our 8-K as the receivables inventory and accounts payable data are broken down by each segment for those that are interested in more detail. I'm now moving to Slide 9. As Tom mentioned, we repurchased $100 million of our stock in July. Consequently, we took advantage of the favorable conditions in the high-yield markets in August and completed a $50 million add-on to our senior notes at a yield of approximately 5.6% and increased the size of our bank facility. We funded $102 million acquisition from Wood Resources as expected, with $77 million of cash from our balance sheet, and we made a $25 million draw on our bank line. Our gross debt is now roughly in line with our target of 2.5x to 3x EBITDA. We continue to maintain a favorable cash and liquidity position with plenty of drive power available for organic growth and further acquisition. And with that, I'll hand it back over to Tom to wrap up.

Thank you, Wayne. I'm on Slide 10. The consensus estimate for 2013 total U.S. start -- housing starts has drifted lower the last several months and now stands at 930,000. While not as robust as many had hoped earlier in the year, it still marks a strong improvement over 2012, 780,000 starts. We believe demographics in the U.S. support a return to residential construction of 1.4 million to 1.5 million total starts per year in the years ahead. We will continue to manage our business to be supportive of our customers and capture the opportunities the market presents. Commodity product pricing has -- or was volatile in the first half of the year and then stabilized in the third quarter. However, the future pricing could be volatile as industry operating rates are impacted by seasonal demand, production level and inventory in the various distribution channels. With that in mind, we will be closely focused on market conditions, and we will be appropriately nimble in production and inventory levels. We are under way on a dryer replacement project at our Oakdale, Louisiana plywood operation. This is part of our ongoing strategic plan to increase our low-cost internal veneer production to support future sales growth in our engineered wood products business. Thank you, again, for joining us on the call this morning and your support as investors. We would hope -- we would welcome any of your questions at this time. Operator, would you please open the phone lines?

[Operator Instructions] Your first question comes from Phil Gresh, JP Morgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: First question, Wayne. In terms of the distribution business, was there any kind of mark-to-market impact of the inventories in the quarter that impacted the results? If so, could you quantify that for us?

No. I mean, we took a lower cost to market adjustment back at the end of June. It drove the inventories down to market, particularly, in the commodities on lumber and OSB and plywood. But we didn't have any of that in the third quarter. Lumber should came up pretty steadily through the third quarter, and panels were relatively stable. They cycled in a pretty tight range in the third quarter. So no LCM issues in the third quarter. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And then on EWP, at this point, would you say that you're getting positive EBIT contribution from that business in the third quarter?

Phil, this is Tom. As we've discussed, we operate our EWP assets, which include plywood, veneer and EWP facilities together, and we focus on taking the veneer to the highest value. We don't break out profitability of our EWP business like I know you can see in some others. I won't give you guidance that we were very pleased to have our EWP business in the third quarter given the really price of plywood and EWP.

I mean, a couple of things going for us on EWP in the quarter. Volumes were up. Prices, if you look at the year-over-year comps, were up nicely. And the third thing is OSB costs were down. So if you think about the input costs on the web for [indiscernible] that was favorable. So third quarter, as Tom said, we're quite happy with the EWP business. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Sure. Okay. And then last question is just in terms of the International Residential building code, there appears to be some changes out there that could impact demand for I-joist. So I just want to see or hear what you guys were thinking on that front in terms of what impact it might have on demand in the regions where that code is in place? And what workarounds you might try to come up with?

Phil, that one is too complicated. I'm going to pass it off to Tom Corrick.

Phil, the primary region where this is an issue right now is Ohio and Pennsylvania. And it's -- I would say there's been a lot more conversation about it than impact. I'm not aware of any major account we've lost as a result of the code change. We do have a solution, and I could spend about 30 minutes describing the solution to you. If you want to see more about it, you can look at our website and look under Web Armor, and you can see what we're doing. But we do have a solution that is being implemented by builders in the market, so...

Your next question comes from Chip Dillon of Vertical Research Partners.

First question is on the 2 mills you -- and I know what's just been recent weeks since you've actually closed on those 2 mill acquisitions. My understanding is the capacity, I think, is around 470 million square feet. Now I was just wondering, how are those mills running versus your legacy assets? And are you finding greater or synergies or at least what you thought you would find as you assimilate those properties?

Yes. They're running similar to what we're seeing in other mills there, running currently at about 90% to 95% of capacity. And in terms of synergies, you can see in the 8-K we filed that there was an administrative charges they were getting from the parent company, Wood Resources. We would hope to be able to integrate them into our system and reduce sales costs. But in terms of synergies at this point, I'd probably tell you $1 million or less, and obviously, we'd hope to do better than that as we get into the integration of operating footprint. But fairly modest synergies in the grand scheme of things, but quite pleased with the transition so far, and certainly, the opportunities upon us.

Got you. And then in a more general sense, what are you seeing on the wood cost side, especially, say, versus July? I know that some in -- and I don't think you guys, I don't think, buy a lot of hardwood. But I've heard a pressure is in the hardwood realm, at least, along the Atlantic Coast. But could you just give us some views of what you're seeing both in sawlogs and in pulpwood?

[indiscernible] is down. We'll have Tom Lovlien help you with that one.

Chip, I'm not going to speak on the pulpwood side other than what we do by hardwood for our Moncure Plywood plant is Tupelo. We run that plant at around 50% to 70% hardwood. We have seen increases in hardwood pricing, driven primarily by pulpwood demand. And that what we believe, recognizing we're relatively new to the ownership. What we believe has caused that as the amount of rainfall that North Carolina, South Carolina had relative to the last 5 to 6 years. We hope to see that mitigate over the next several months. But what I understand, talking to our new employees, it's really been driven by weather conditions.

Got you. Okay, that's helpful. And then as the last question, obviously, these 2 facilities came up and were opportunistic for you. And just looking at your credit line, et cetera, are we more likely to see more transactions like the plywood plants that is in Wood Products? Or are the opportunities actually more likely to be in the distribution side of the business?

Chip, we're pretty disciplined at looking at opportunities, and we want to make sure they're accretive. If we have more opportunities like the 2 plywood plants, we'd be very interested in. We're looking on both sides of the business, and it's a value decision versus a preference to one side of the business or the other.

Okay. And then just lastly, real fast. A great quarter obviously in the distribution segment. I'm sure part of that might have been -- and I think you referenced sales leverage. We were, I guess wondering if there was also a little bit of an inventory gain, as the prices were bought in a rose throughout the course of the quarter. As -- and let's assume that they stay kind of flat like they've been in recent weeks, and who knows where they go. But if you saw flat pricing, I would imagine I would difficult to quite replicate the same EBITDA and EBIT levels you did in the third? Or could you get there? I just want some idea of the sensitivity as we try to forecast the future.

Yes. I would probably tell you the first thing to pay attention to is the top line revenue and the expense leverage. That's probably a bigger impact in the third quarter than tailwinds we probably would have picked up from the lumber price increases going from June 30 through third quarter. That's really the top line revenue, and the leverage we're seeing on occupancy expense and on the portion of our payroll costs is fixed. That's a very big driver. So that's probably -- I think, by going into fourth quarter, that's the thing you really pay attention to, the revenue leverage, fourth quarter this year over fourth quarter last year.

Michelle, do we have any other questions? Hello, Michelle? Hello? We lost our line. [Technical Difficulty]

Okay. We have a next question from the line of Alex Ovshey. Mr. Ovshey from Goldman Sachs.

A couple of questions for you. You mentioned the lower OSB prices benefiting the EWP business in the quarter?

Yes.

Did you see the full benefit in the third quarter? Or is that -- some of that benefit going to flow through the fourth quarter?

Some of it will flow through on fourth quarter.

Okay. Is there any more granularity when you can put around that? I mean, is that half of the benefits that we saw in the third quarter and the rest of it in the fourth? Or how do we think about that?

Most of it would've come through in the third, while we expect some of it to still come through in the fourth. We use a trailing average, and so if you think about it as prices were falling, we probably didn't see the full impact in July or August, but by September, we would've seen most of the impact. So if you think about it sequentially where prices were relatively stable through the third quarter, we still got a little bit of benefit sequentially. But most of it would've been in the third quarter, and certainly, by September.

Okay. Got it. And then, we had a number of price increases across the EWP products during the course of the year. Can just you remind us how those pricing initiatives ended up being implemented relative to your expectations, or whether or not there's any other incremental pricing initiatives you now have in either I-joist or the other EWP product you have?

Alex, Tom Corrick can give you some background on that.

We had 2 price increases this year. The first one was in late winter, early spring and actually went through, I think, very well. The second one was at the beginning of summer. Really, that price increase was announced into heavily falling commodity prices. And I will say it was a fairly challenging implementation. We've got roughly half of that announced increase after we got through all the various challenges we had getting that increase implemented. Nothing on the horizon right now. But in terms of price increases, but to note, that still feels very positive out there.

Okay. That's helpful, tom. I appreciate it. And then last question for me. We typically see fairly material seasonality in the pricing side in the calendar fourth quarter across the Wood Products commodities. Do you have any thoughts about how to think about seasonality of pricing this year relative to history?

Yes. I would tell you that probably watch the weather activity and what impact that has on building demand because I'd still think we're in a mode where industry capacity utilization is probably going to be a bigger driver, and that capacity utilization obviously will be dependent on what we see in weather, particularly, as we get into mid-November and beyond. But at this point, pricing first part of the quarter has been okay. And we'll just have to see what we get in the last 6 weeks of the quarter as we get into what can be winter months in the Northeast and upper Midwest.

The next question is from the line of Steven Chercover of D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: First of all, during the recent government shutdown, I think harvesting was curtailed on some of the national forest. So I'm wondering if that's going to have any impact on your operations?

Yes. Tom Lovlien can help you with that one, Steve.

Hi, Steven. Yes, it did impact us. They were down almost 2 weeks. And of course, that would've impacted the federal sales that we would be working on, but primarily, an impact in Northeast Oregon and Southern Oregon. And Northeast Oregon, we were able to move our loggers into other areas, so there's potentially no impact in that part of the West. However, in Southern Oregon, different story. We are impacted. Our budget in inventory is going into the fourth quarter. To the end of the fourth quarter, we'll be somewhat below what we would have expected. And so we're just now working through that, trying to better understand the lab flows as we give more clarity on that in the next couple of 3 weeks. Steven Chercover - D.A. Davidson & Co., Research Division: And presumably, since you still have access to a lot of the fiber that you owned once upon a time, I was wondering, are you maybe better off and some of your competitors are more hit?

That's hard to judge that, and it would be -- each competitor has their own particular situation, in which I'm not quite frankly familiar with. And -- but in our case, I think we will get through this just fine, and we have recognizing the 4 services much more -- much less of a significance than any of it was 10, 15, 20 years ago. So -- and we'll work through this for sure. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. And then I'd like to comment about being nimble with respect to matching supply and demand. Do think that you got better visibility on what's in the pipeline by virtue of having distribution?

Steve, I think it helps. But it's still difficult now, and -- but a combination of what we see in the manufacturing side of our business and distribution, we do think it gives us better visibility. We'd like to have more to be honest. But we do lever that opportunity. Steven Chercover - D.A. Davidson & Co., Research Division: So what other tools can you use? I mean, do you have channel checks within the big boxes? Or I mean, it's tough to see what's on the real side or something?

It is. It's very tough to see, and it's talking through your customers.

The next question is from the line of George Staphos of Bank of America Merrill Lynch.

I have a few questions, and I'll turn it over at the risk of never being to get back in the queue. The first question I had, could you just rundown on where current utilization rates are by business in Wood Products? And what -- if you can't say forecast this year, what's the trailing 12-month operating rate for each of the product lines?

Yes, if you -- the important ones are plywood and engineered wood. We're operating in the high-90% range in our plywood business. And we're quite operating rate is improving in engineered wood business. We were in the mid-60s in the third quarter net. That's moved up from 50% a year ago range. In our plywood business, we're close to optimum capacity, 90%, 95%.

Okay. One question I had on distribution, I think it's payback in one of the earlier question, how much revenue runway do you have before we'd have to start worrying about your SG&A to sales ratios, the leverage you were talking about actually starting to tick back up?

Well, that attempts to be a discussion that I have often with the distribution guys. There -- we have the physical footprint to significantly increase our top line on sales. And the leverage is -- to a degree, there's volume. You have to have handlers and truck drivers. That's a volume thing. The rest of it is -- there's good leverage as we move up and I hope -- but we had very good leverage in the third quarter. I doubt if we can continue that particular leverage as a percent all the way through, but it's much better than the total.

Now for this foreseeable future, Tom, you could still leverage, perhaps, not the same year-on-year or sequential improvement you saw in 3Q? Would that be a fair assessment?

Yes. That's fair.

Okay. My last question, and I'll turn it over and get back in queue. Can you comment at all in terms of trends in the distribution business has been seeing in general line products? Have you seen a lot of demand for things like roofing material or insulation? What are pricing trends there? If you comment at all to that effect.

I'll have Stan help you there.

I don't think we're seeing a lot of big movement in those product lines. There's some announced price increases on the wallboard that will come in late this year, first part of next year. Seems to be relatively stable demand and pricing on the insulation and roofing side of our business, overall. Again, being a wholesaler, the margin differential between the buy and the sale is what we focus on so higher prices aren't necessarily bad until they choke off the base demand out there. But we're not seeing a lot of movement that we don't understand and can't deal out there on pricing of anything.

And the next question is from the line of Mark Wilde of Deutsche Bank.

I want to start, Wayne, and just with -- and Tom, just with a -- kind of a question on sort of the fourth quarter. I remember last year when we were out in Oregon, you've mentioned that you normally took a lot of those facilities down for maintenance over the holidays. But because pricing and demand were so good last year, you were going to forego that? How much of an impact will that have when we just think about sort of year-to-year comparisons this year?

Well, Mark, we do try to schedule our capital projects in the fourth quarter and possibly the first quarter because of seasonality. And as we -- as I mentioned earlier, we are putting a new dryer in Oakdale. And that takes some volume off. We try to work around that and we have a project in Eastern Oregon as well that will have some impact. Tom Lovlien, is there anything else you wanna add to that?

Well, that too, Tom. And we have a week and a half shutdown scheduled at the end of the year at our Kettle Falls plywood plant green and rebuild. And that mill will go down around the 24th and come back about the first week of January. And so as Tom Carlile just said, we'll try to do as much of these capital projects during the fourth quarter as we can, given the seasonality effect of the market.

And just given what we'd heard last year, so there will be more of an effect this year then there was last year? Is that correct?

Mark, there will likely be. But as we say, we think we're pretty nimble of adjusting our production to the demand. So we had some flexibility on both going up or down.

Okay. The second question I had, which is just to go back to that wood fiber costs that you flagged out in the release. Can you give us a sense on where that was? We've talked a little bit about kind of southern hardwood costs already, but how much of that for you overall was kind of west coast versus south?

Mark, our costs are up year-over-year. I don't recall the quarter information. But in the West Coast and Inland, we're up over 10%. And in the South, less than half of that.

Okay. All right. That's very helpful. And then, Tom, I also noticed during this quarter, that engineered wood sales just as a percent of sales and distribution were up. And in fact, I noticed that EWP sales and distribution look like they were up fair amount more than about 30% more than EWP sales out of your manufacturing business? And I wondered if I can just get some color on both of those trends?

Yes. I'm looking at the 2 guys that are responsible to that. Stan or Tom will have take it.

I'll take it. Basically, I think that if you wanted to think about it, we probably had -- I know we had more sales out of manufacturing in the second quarter and inventory build in the distribution system in the quarter. And then, in the third quarter, we're sure in both August and September, we had pretty significant -- if you compared what we shipped to what they sold, it was pretty favorable trend on BMD's part. So I would say, there was probably some inventory removed from the system.

And other part Mark, and I know we've talked about in the past, is the growth -- because of the joint sales and marketing effort, the growth of our BMD in the last couple of years has been faster than our growth through the independents. We're still got a number of independents where we got very relationships and seek business development there. But the folks in the BMD side are probably responsible for the majority of the engineered wood sales throughout.

Okay. That's helpful. And then just, Wayne, on those margins and distribution. Because they really -- they were, I think, much better than all of us had assumed, even given the sales pickup. Any thoughts on just where you think you can move the margins to in distribution as we move to maybe a $1.4 million, $1.5 million-type starch [ph] level at some point?

Yes. I still think that we, at mid-cycle, get back to about a 3% EBITDA margin. And we'd saw a very good expense leverage third quarter and think it gives us some indication of where we can [indiscernible] and most of that's going to be leverage on occupancy and payroll. Frankly, as the mix of business continues to move more towards the new vest because that's clearly, at least point, much faster than repair and remodeling. I would actually expect our gross profit percentage to tick down as we see more duress and people going to take larger volumes. But on a net margin, net of operating cost, we're still shooting for about a 3% mid-cycle.

Okay. All right. That's helpful. Then the last question I had was just I noticed that CapEx was actually up in both businesses. And you talked about some of the projects in building a Wood Products manufacturing. What's -- where are you putting the incremental capital and distribution?

In distribution, most of it, probably, focused on rolling stocks as business picks up. And quite frankly, we held capital down. We need to keep our trucks and lifts operation. We're doing that.

And Mark -- and that was fairly modest transaction. But we did buy a piece of property in Minneapolis out of a foreclosure. It was an opportunistic purchase located next to our existing facility. So we have a small parcel that we're leasing today that we will terminate that lease here over the next 12 months. And that property we're able to buy, we contributed to our pension plan in the third quarter and did a sale-leaseback. So for GAAP accounting purposes, it will show up as a use of capital, and it will stay on the balance sheet. But it was a very efficient after-tax transaction to pick up that property and that's in scale of full tax deduction on the $4 million. But that will elevate at least in the third quarter numbers, the capital for BMD.

[Operator Instructions] The next question is from the line of George Staphos of Bank of America Merrill Lynch.

I thought I heard or seen that you had Elgin down for a couple of weeks this past month. Is that part of this project that you'd mentioned earlier, I think, in answering Mark's question?

No. It was down 1 week, and we did some work on our log utilization center small capital project, and then it was around will boiler shutdown for boiler maintenance. So that's what we did, George.

Okay. Fair enough. Just -- yes, we're in the cats and dogs so just some last questions. A corporate expense, I noticed, moved up some reasonable amount versus a year-ago period. What was driving that if you have mentioned it already, I had missed it. And I apologize.

We have professional fees related to the secondary offering in the share repurchase in the third quarter. But as you think about kind of our corporate, we use to run at about $15 million or $16 million a year. I would probably tell you that number is closer to-date probably to $18 million if you think about public company costs. So somewhere in that $4.5 million, a quarter is probably a reasonable number to think about.

Okay. Fair enough. And then lastly, free cash flow. Not that we've been expecting much movement in free cash flow given where you are in the cycle, but at this juncture, when do you think you become a more meaningful generator of free cash flow? Are we still looking at now the 15, 16 horizon. Have you altered your views there?

Well, as...

It's hard to say because of pricing and so on but...

Yes, it is. In the distribution business, as that grows, we anticipate funding the working capital and until we see more leveling off, which may not be next year in the distribution business, we hope it doesn't, we're going to have to fund the working capital. And it'll be -- we expect a couple of years out before you see meaningful cash flow and primarily driven once the top line starts to level out.

Assuming we continue to see good earnings leverage out of both business, as Tom said, I wouldn't expect a lot of free cash flow in '14, but certainly, hope that we start to see that in '15.

The next question is from the line of Mark Wilde with Deutsche Bank.

Just one follow-on, and that's just in regards to sort of breaking out some of the Wood Products manufacturing businesses. I think I heard you say earlier, you run the veneer-related businesses together. But given that you've got people like warehouse or LP who are competitors and EWP, I wonder if there's any chance we could see kind of a separate breakout for that going forward. I mean, it seems like you've done very well versus a lot of those competitors over the last decade. It would be nice to be able to kind of see some more granularity in that segment as we move forward.

Mark, I understand your question. I'm not sure it's the benefit of our company to break them out. And at this point, we have -- we don't have any intention to breakout the EWP. We run the businesses together, and so we look at it as a combined business. And I would say that in EWP -- or in a warehouse, they have their plywood business in EWP as well. Any other questions?

Thank you, Sir. You have no further questions in the queue. I'll just turn it back to Mr. Wayne Rancourt for closing remarks.

Thank you, Michelle. I appreciate everyone joining us this morning. We'll be available if you have further questions. Just give us a call or drop us an e-mail. I appreciate your time, and we look forward to talking with you next quarter.

Thank you, ladies and gentlemen for your participation in today's conference. This concludes the presentation. You may now disconnect. Enjoy your day.