Boise Cascade Company (BCC) Q2 2022 Earnings Report, Transcript and Summary

Good morning. My name is Jonathan, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Second Quarter 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Before we begin, I remind you that this call may contain forward-looking statements about the Company's future business prospects and anticipated financial performance. These statements are not guarantees of future performance, and the Company undertakes no duty to update them. Although, these statements reflect management's expectations today, they are subject to a number of business risks and uncertainties. Actual results may differ materially from those expressed or implied in this call. For a discussion of the factors that may cause the actual results to differ from the results anticipated, please refer to Boise Cascade's recent filings with the SEC. It is now my pleasure to introduce you to Kelly Hibbs, Senior Vice President, CFO and Treasurer of Boise Cascade. Mr. Hibbs, you may begin your call.

Thank you, Jonathan, and good morning everyone. I would like to welcome you to Boise Cascade's second quarter 2022 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Mike Brown, Head of our Wood Products Operations; and Jeff Strom, Head of our Building Materials Distribution Operations. Turning to Slide 2. I would point out the information regarding our forward-looking statements. The appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. In addition, our second quarter press release and fully revamped investor presentation are available at the investor relations section of our website. I will now turn the call over to Nate.

Thanks, Kelly. Good morning, everyone. Thank you for joining us for our earnings call today. I'm on Slide 3. As recently announced, we completed the acquisition of the Coastal Plywood Company and I'm pleased to welcome our new associates to the Boise Cascade team. We will provide additional details on this transaction following the discussion of our financial results. Our consolidated second quarter sales of $2.3 billion were down 7% from second quarter of 2021. Our net income was $218.1 million or $5.49 per share, compared to net income of $302.6 million or $7.63 per share in the year ago quarter. Both of our businesses continue to operate well during the second quarter. In second quarter 2022 total U.S. housing starts increased 3% compared to the same period last year. Multi-family starts drove the increase as single family housing starts decreased 3% compared to the prior year quarter. Wood Products reported segment EBITDA of $167.8 million in the second quarter, compared to $227.9 million in the year ago quarter. Wood Products results were impacted by lower plywood sales prices, as well as higher per unit costs due to lower plywood and EWP sales volumes. However, improved EWP sales realizations helped mitigate these negative effects when compared to the prior year quarter. Building Materials distribution reported segment EBITDA of $161 million on sales at $2.1 billion for the second quarter, compared to $212.3 million of segment EBITDA on sales of $2.2 billion in the comparative prior year quarter. BMD results were negatively impacted by declining commodity wood products pricing during the quarter. However, margin improvements for both our EWP and general line products help offset commodity price declines. Kelly will now walk through the financial results and the Coastal Plywood acquisition in more detail, after which I'll come back to provide our outlet before we take your questions.

Thank you, Nate. Wood product sales on the second quarter, including sales to our distribution segment were $536 million, compared to $594.6 million in second quarter 2021. As Nate mentioned, Wood Products reported a segment EBITDA of a $167.8 million down from EBITDA of $227.9 million reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower plywood sales prices, as well as higher per unit labor, wood fiber, and other manufacturing costs due in part to lower plywood and EWP sales volumes. These decreases were offset partially by higher EWP sales prices. BMD sales in the quarter were $2.1 billion down 2% from second quarter 2021. BMD reported segment EBITDA of $161 million in the second quarter compared to segment EBITDA of $212.3 million in the prior year quarter. The decrease in segment EBITDA was primarily driven by lower sales volumes and a gross margin decrease of $44.5 million resulting from commodity price declines offset partially by margin improvements for both EWP and general line products. Turning to Slide 5, our second quarter sales volumes for I-joists and LVL were down 8% and 3% respectively, compared to the second quarter 2021. EWP volumes were impacted by veneer availability, labor shortages and transportation constraints during the period. In addition, inbound transportation issues for Webstock negatively impacted I-joists production early in the second quarter. Pricing in second quarter for I-joists and LVL were up 10% and 8% respectively compared with first quarter 2022. Looking forward we expect low double-digit sequential price increases in third quarter 2022 reflecting further benefit from pricing actions taken early this year. Turning to Slide 6, our second quarter plywood sales volumes in wood products was $281 million feet compared to $338 million feet in second quarter 2021. Plywood sales volumes decreased primarily as a result of downtime related to the replacement of an existing dryer at our Chester South Carolina plywood facility, as well as staffing shortages at our Western Oregon plywood facility. The 569 per 1000 average plywood net sales price in second quarter was down 35% from second quarter 2021 and down 17% sequentially. Thus far in the third quarter plywood price realizations are approximately 17% below our second quarter average. Moving to slide 7, BMD second quarter sales were $2.1 billion down 2% from second quarter 2021 driven by a sales volume decrease of 4% offset partially by a sales price increase of 2%. By product line commodity sales decreased 27%, general line product sales increased 24% and sales of EWP increased 59%. Gross margin dollars decreased by $44.5 million in second quarter compared to the same quarter last year, resulting from decline in commodity prices offset partially by margin improvements for both EWP and general line products. The gross margin percentage for BMD was 13.9% down 170 basis points from the 15.6% reported in second quarter 2021. BMDs EBITDA margin was 7.6% for the quarter down from the 9.8% reported in the year ago quarter. BMDs sales pace thus far in third quarter remains strong and supply chain and product availability constraints have eased. In addition, the BMD team continues to manage their inventories well, as evidenced by the very good gross margin results in the second quarter in the face of falling commodity products pricing. Moving to Slide 8 and 9. These slides show the decline in composite lumber and panel pricing during second quarter 2022 has downside price risk created hesitancy across the marketplace. Pricing has shown signs of stabilization in recent weeks, but we expect future commodity product pricing will continue to be volatile in response to economic uncertainties. I'm now on Slide 10. We finished second quarter with $1 billion of cash. Our total available liquidity at June 30 was approximately $1.4 billion, which reflects our cash and availability under our committed bank line. We had $445 million of outstanding debt at June 30, 2022. Excluding acquisitions we expect capital expenditures in 2022 to total approximately $100 million to $120 million, included in our capital spending range is funding to complete BMD organic expansions in Ohio, Kentucky, and Minnesota, replacement of a dryer at our Chester South Carolina veneer and plywood plant and initial veneer equipment related spending at the Chapman Alabama facility. We reduced our 2022 capital spending range as availability of Engineering and Construction resources, and timing and availability of equipment purchases continued to delay execution of our capital project initiatives. Consistent with last quarter our effective tax rate is expected to be between 25% and 27% in 2022. As I will discuss in more detail shortly on July 25, we use $517 million of cash on hand to fund our acquisition of Coastal Plywood. After the acquisition our balance sheet remains strong and flexible with cash and liquidity in excess of $500 million and $850 million respectively. In addition, our board recently approved a $0.12 per share quarterly dividend and authorized the repurchase of an additional 1.5 million shares under our common stock repurchase program. This brings our total authorization to approximately two million shares. We're not obligated to purchase any shares and there's no set date that the program will expire. The share repurchase increase is a housekeeping measure that affords us more flexibility to opportunistically repurchase shares in the future as we deem appropriate. Turning to Slide 11, we're pleased to have completed the acquisition of Coastal Plywood on July 25, for a purchase price of $517 million including estimated working capital at closing of $27 million, we funded the transaction with cash on hand. The acquisition includes two plywood manufacturing facilities located in Chapman, Alabama, and Havana, Florida. These facilities have a combined plywood capacity of approximately 530 million feet. For tax purposes, the acquisition is structured as an asset sale and is expected to provide an estimated net present value tax benefit from step-up between $65 million and $75 million. Turning to Slide 12, the addition to these facilities will improve our ability to support housing construction in the Southern and Eastern U.S. The Chapman facility will provide incremental stress rated veneer to eliminate utilization constraints in our Southeast EWP facilities, and also provide an avenue to further grow our EWP production capacity. The Havana facility will improve our mix of specialty plywood products and is well positioned geographically to support plywood demand in the Southeastern U.S. Turning to Slide 13, we expect the acquisition to be EPS accretive in 2022. Coal supply wood had a three year average EBITDA excluding 2021's extraordinary financial results of approximately $50 million. Once fully integrated into our system, we anticipate this acquisition to provide a mid-cycle EBITDA benefit of approximately $80 million. To achieve these results, we plan to make capital investments of approximately $50 million into our Southeast operations over the next three years. Approximately half of that spending will be for improvements at our existing mills in Florien and Oakdale in support of veneer for EWP, while the other half will be for veneer equipment at the Chapman facility and investments to expand EWP capacity at our Alexandria and Thoresby facilities. We anticipate that by the end of 2023, the addition of these facilities into our integrated system will increase our LVL billet capacity and plywoods capacity by 5% and 34% respectively from 2021 levels. By the end of 2025, we expect our LVL billet capacity to have increased by 12% from 2021 levels. In addition to the benefits already discussed, this acquisition also provides a platform for further growth in our BMD segment, additional penetration of EWP products into multifamily and light commercial applications and further product development in mass timber applications. I'll turn it back over to Nate to discuss our business outlook.

Thanks, Kelly. I'm on Slide number 14. Demand for the products we manufacture as well as the products we purchased and distributed is correlated with new residential construction, repair and remodeling activity and light commercial construction. Current estimates for 2022 U.S. housing starts are around 1.6 million units are essentially flat compared to 2021. We believe current U.S. demographics and limited new and existing home inventory support this level housing starts. However, recent monetary policy shifts to increase interest rates to combat inflation has significantly increased mortgage rates and created a great deal of uncertainty in the economy. Therefore, we expect the pace of new residential construction in the second half of 2022 to slow due to home affordability constraints and a weakening economy. Looking beyond 2022, many economists expect 2023 housing starts to decline at or near low double-digits. In addition, the age of U.S. housing start and elevated levels of homeownership equity provide a favorable backdrop for repair and remodeling spending. While potentially tempered by an economic downturn, we anticipate these drivers to continue to be supportive homeowners further investment in the residences. In Wood products, we will be focused on successfully integrating the Coastal Plywood operations into our system to provide incremental stress rated veneer for EWP operations in addition to providing growth opportunities in our BMD segment, for the end user applications for EWP beyond new single family construction. We will also focus on the successful ramp-up of the recently completed Chester dryer project during the third quarter. BMD continues with its steady execution of organic growth and is progressing well with the build out of our expansion projects in Marion, Ohio, Walton, Kentucky and Lake Minnesota. The BMD team also continues to work on a solid pipeline of additional organic growth opportunities in existing and new markets that we expect to share in the upcoming quarters. Pricing for EWP and general line product categories has remained strong. However, these product lines may be subject to price erosion as economic activity slows. We have proven our effectiveness in managing market uncertainties and volatile commodity product pricing. And I'm confident in our ability to do so across all product lines in the future. Further times of uncertainty provide BMD with the opportunity to again demonstrate our value proposition to our supplier and customer partners. Our company remains incredibly well positioned and we will continue to make sure we use our operating and financial strength to the benefit of our customers, suppliers, communities and shareholders. The strength and flexibility of our balance sheet provides us the ability to effectively adjust the economic landscape ahead while executing on our organic growth plans. Lastly, I want to again welcome the Coastal associates to the Boise Cascade family and want to express my gratitude to all of our associates whose focus and teamwork are critical and continue to support our customers. Thank you for joining us today for your continued support and interest in Boise Cascade. We welcome any questions at this time. Jonathan, would you please open the phone lines?

[Operator Instructions] And our first question comes from the line of Susan Maklari from Goldman Sachs. Your question please.

Thank you. Good morning, everyone.

Good morning, Susan.

Good morning. My first question is, you talked a lot about the or somewhat about the strength of EWP pricing. As we look out, and we think about a macro environment with housing slowing, and the macro perhaps moving lower, how are you thinking about the sustainability of that pricing, the puts and takes there that are sort of maybe pushing it further up versus taking it a bit lower?

Good morning, Susan. This is Mike. Yes, very good question. I think my thoughts are in line with probably the other comments, you've heard of recent days, about EWP pricing will almost certainly come under pressure in the forthcoming quarters, at least in our case, for the next quarter, we think that the pricing will remain fairly robust, because the way in which we've put in place our program, but I think later in the year and into early next year, depending on a course of what happens on the macro environment, we may see some additional pressures resulting in a bit of price movement to the downside.

Okay, that's helpful. My second question is focusing a bit on BMD in the margins there. As you think about just a more stable pricing environment, how are you thinking about the trajectory for those margins in the back half of this year? And then perhaps even going into early 2023?

Yes, good morning, Susan. This is Kelly. So you heard me comment on the second quarter gross margins and BMD and how they were held up very well in the face of some really challenging commodity pricing environment during the majority of the second quarter. So if we think going forward, I would tell you in the third quarter in July, so far margins have held up very well and are strong relative to our historical performance. The bigger question becomes a little bit to Mike's point out into the future as we start to see some deflationary impacts in EWP in general line, even in spite of lower, if commodity prices stabilized, there's a good chance that we start to see some gross margin erosion in BMD. And so I think there's a lot of -- there's a lot of factors in play right now that have driven our gross margins up to really significant levels. We think over time, they will normalize back to more historical numbers. But I do think, we do expect there'll be a little bit above what those historical norms as we continue to execute our strategy to grow general line to grow EWP.

Hi, Susan, it is Nate. Maybe just another -- just quick add to that is when you think about, I think, as we go through the balance of this year, and probably into early next year, I think the kind of the risk reward from our customers is making sure their inventory levels are set correctly, maybe less around price realizations, and maybe more on inventory working capital levels. And so I think there's a tendency, and maybe the pivot for customers will move more to our audit warehouse services, maybe as compared to direct. And I think we're starting to see early signs of that where customers that may have been buying real cars or trucks are buying maybe more trucks, units and even job packs. So in terms of the mix and shift, we expect that to continue as we go through the course of this year, probably early in '23 again as customers are managing their working capital position and again, we're really well set up to do that and execute upon that in BMD.

Okay, that's very helpful color. I'm just going to squeeze one more in if I can, which is can you talk a bit to your playbook and how you're thinking about the cost structure and perhaps protecting the business if we do go into a weaker macro backdrop over the upcoming quarters?

Yes, Susan it's Nate. A great question. I think what, as we look at the future, I think, from a housing perspective, the certainly the medium to longer term, we remain very optimistic and confident about housing in general. In our investments, and our plans is associated with how do we continue to support and grow this company is consistent with that. To your point, if, as things get potentially difficult, I think we have a plan in place that we are confident in terms of making the adjustments, so we'll absolutely kind of stay in the moment, if you will on making sure we understand where the markets at and make the necessary changes as appropriate. I feel good about our ability to execute upon that if we have to, again, we don't see it today, just given our experience, and what we're able to get accomplished during the difficult period of COVID. And making sure that we were in a position to make the necessary adjustments to support all of our stakeholders in those kinds of very difficult and uncertain environments. So, again, I think we're -- we have a plan in place. But ultimately, I think our focus is still largely centered on how do we continue to grow and support this company with the various investments that we've discussed today.

And then one other comment, maybe I would add, Sus would be, as you will know, as we, when we start to get deceleration, in particular, in the distribution business, our business tends to throw off a lot of cash as working capital comes down. So we feel really good about our balance sheet, as we move forward here and our ability to continue to keep our foot on the gas, but be prudent and be well aware of what the macro indicators tell us.

Okay, that's very helpful color. Thank you. And good luck.

Thank you.

Thank you. One moment for our next question. And our next question comes from the line of [indiscernible] from BMO. Your question, please.

Thank you, and good morning, Nate, Kelly. My first question. I mean, you guys touch a lot of different products in your distribution business. I'm curious, as you think -- see things right now, where are you seeing some of the most supply demand tension and where things have started to ease a little bit?

Well, Keaton, this is Jeff, I will tell you right now it really is a mixed bag. We have some products that were -- that we distribute that they really still are tensioned up, and they're tough to get. And when they become available, people are taking everything, they can get their hands on it. There are other products, I'll tell you, they're starting to ease up whether allocation has been increased, or in some cases allocation has gone away. So in the best way to say it's a mixed bag on everything.

And Jeff is that more kind of dependent on the end market? So let's say no new resi versus R&R, or that is not the case?

No, it's not. A lot of it has to do with what the raw materials that are going into things like still can be tight in order to get. So each product line is a little bit different.

Got it. Okay. And then just staying with the distribution business, as we think about, sort of more normalized environment. From a pricing standpoint, recognizing that, I mean 2023 demand could be slower. What is the right way to think about from normalized margins and distribution, whether on a cost basis or on EBITDA basis, especially with the growth that we've seen on the EWP side over the years?

Yes, no good question Keaton and I would tell you, there's so many variables in play in the last several years. That's, and even as we sit here today, so many variables in plays, it's really hard to give you a definitive answer there. But as I alluded to earlier, our plan is to, we like commodities and we're good at commodities and we're going to stay in that business. But we are looking to grow those pieces of the pie around EWP and general line. And so if you look back several years, we were probably around 12% to 12.5% on average in gross margins. We're looking to certainly push that up, to be 13% plus, but it's a little too early to make that call just given all the various levers that are bumping us around in the last couple of years.

Got it. And then one last question from my side, the labor issues that you guys have been facing. Has that started to ease or are you still seeing that?

Okay, I'll have a go at this one from a manufacturing perspective, at labor issues. So I think it'd be fair to say that, depending on the geography, it's still challenging to very challenging. And as I think Kelly mentioned in the script, we've had some quite significant labor shortages in the last quarter, particularly in the Pacific Northwest, but not only. And I would suspect that on the manufacturing side, that's probably going to be the case at least for the near future, if not a bit longer, we'll have to see what happens.

Kim, its Jeff, on the BMD side, I'll tell you labor is still tough. Since the inflation that has started in crept up, we have seen an increase in applications and people looking for work. There are some specific jobs like truck drivers that I can tell you that are really, really difficult to still find.

Got it. That's helpful color. I'll jump back in the queue. Good luck in the back half.

Thank you.

Thank you. One moment for our next question. And our next question comes the line of Kurt Yinger from D.A. Davidson. Your question, please.

Great, thanks. And good morning, everyone. Just wanted to start off on the coastal deal and appreciate the details in the slide deck. But I was hoping you could talk a bit about kind of the run rate DNA for the business, as well as I guess how Coastal's could have averaged plywood realization stack up relative to yours historically with I think, maybe a higher proportion of specialty mix.

Yes, good question, Kurt. On the first one around DNA. As you can imagine, we're still working through the valuation. And we'll get that certainly booked and recorded in footnoted in a great amount of detail in our third quarter 10-Q. I would tell you at this point, it's probably somewhere in the range of $12 million to $15 million annually is what I would expect for DNA. And then in terms of your question around the plywood realizations, yes, Havana has a richer mix than we do, a good amount of sanded, for example. And so their historical pricing, if you kind of get back to quote, what is it maybe a more normalized level, I'd probably say across their system somewhere in the range of somewhere around 350,000 probably.

Got it. And I guess is that kind of consistent with the $50 million of kind of EBITDA what 2018 through 2020?

Correct. You got it.

Okay. That's, that's helpful. And then, I guess, from a revenue perspective, as well. I believe they have, a small amount of lumber production capabilities. I mean, in terms of sizing, is that kind of consistent with the 80 million board feet or so that that you guys have?

I'm not sure I quite get the question, Kurt. If you're asking, is their production sort of similar to our Colorado, previous lumber production at our historical facility? So that's the question.

No, I thought I forget which of the facilities it is, but I believe there was some lumber production, in addition to the plywood, and I was just trying to get a sense of how meaningful that was.

Okay, yes. So it's up the Chapman location in Alabama, there's what I call a very, very, very modest saw milling operation there. And so it has a stated capacity of around 70 million to 80 million board feet, that doesn't often actually produce that much. And so relative to the rest of the deal, or the rest of the operations, it's a very small component. And so I wouldn't put too much focus on the lumber operations as a significant impact to the bottom line one way or the other.

Okay. All right, that's helpful. And then in terms of the incremental LVL capacity figures that you provided. Is it fair to think that I guess the additional capacity by the end of 2023 is kind of directly related to coastal and then I guess the additional 2 million by the end of 2025 is really a function of coastal as well as the other investments you're making? Or I guess, I'm just trying to get a better sense of, absent the other organic growth investments that you're making, what type of runway it is just the existing coastal operations provide?

Yes, so you captured it correctly there, Kurt, but I'll just restate it. So the first phase, if you will, by year-end 2023, that 1.4 million additional cubes that we spoke to, that is strictly a function of stripping veneer, if you will from Chapman and moving it into our existing EWP converting capacity. So we were able to capture that. The next increment, the additional couple million cubes will get that will be phased in as we also increase our capacity of EWP production in Thoresby and Alex.

Got it, okay, that's helpful. Thanks, Kelly. And then, I guess my last one, as we look ahead, right, you talked about weakening single family starts activity, typically, we think of that as a headwind to EWP volumes. But with the Coastal deal, you'll free up some capacity, and perhaps be able to take advantage of some of the opportunities that you previously just weren't able to. So I guess, as you look ahead to EWP volumes over the next couple of quarters and into 2023, any thoughts around the ability to kind of sustain current volumes, or perhaps even grow a little bit in spite of the underlying market trends?

Yes, sure, Kurt it is Mike. Yes, that's our plan. The last bit is to keep our foot on the accelerator. As I think Nate made some comments about some of the headwinds of housing, single family starts to decline, there's an opportunity probably for multifamily, which will take more advantage of, if we have that situation occur. And so our idea, I think quite clearly is that we're going to maximize the opportunity presented to us by now having essentially 100% self sufficiency in veneer in the Southeastern United States. And so it's not obviously a one quarter or even a one year strategy. It's a long-term strategy. And we're going to put our foot down.

Hey, Kurt it is Nate. Maybe just to add to Mike's comments. When you think about maybe the marketplace specifically EWP over the last couple of years, it's been really tension up in terms of supply and demand. And in some cases, customers, the lumber yards or builders have had to go to other products, including dimensional lumber as an example. So as we think about the opportunity to have additional production as the kind of beyond what Mike described, I think it's an opportunity to reclaim some maybe lost share to other materials that at the end of the day, I think our customers would rather would prefer to use EWP. So we think that remains an important opportunity. And I think as we get to the balance of the second half of this year, and through the second half of this year into next, that'll be part of our growth story for EWP as well.

Got it. Okay, well appreciate the color, Nate and Mike and I'll turn it over.

Thanks, Kurt.

Thanks, Kurt.

Thank you. [Operator Instructions] And our next question comes from the line of Reuben Garner from Benchmark. Your question please.

Thanks, guys, and congrats on the strong results and getting the deal done in the quarter. Let's see. So I wanted to get back to an earlier question that was asked on the Distribution segment margin. So I recognize that things have been unusually tight over the last couple of years, a few I guess a multi-part question but first does -- can you talk about what the mix of volume is today versus what it was maybe three, four or five years ago in terms of commodity versus the general line and EWP, I know we can estimate with pricing but it might just be easier you might have it on hand, trying to get a sense for, you're pretty consistently running 3% to 3.5% EBITDA margins back in '17, '18, '19 and where can that be even if maybe single family starts were to go back to what we saw on those years?

So yes, we do present in the statistical tables there Reuben kind of the percentage for BMD between commodity general line and EWP. And so no, we still get bounced around a fair bit by just the absolute levels of commodity prices which can move that percentage. I will tell you again, that's still an important piece of our business. And so we are looking to grow and we have grown the EWP piece as well as the general line piece and specific to general line, that's where you have a lot of products, a lot of vendors that they don't stand still, they're adding products and services, skews all the time. And that fits right into our strategy, and who we want to be and where we want to grow. And including staying in commodity, but kind of balancing our exposure to that. And so I think I don't have the numbers at hand in terms of share volumes. But I'm pretty confident that the general line and EWP components on a volume basis have grown compared to those historical periods that you were referencing.

Hi, Reuben, it is Nate. Maybe the other thing, just add to Kelly's comments is, when you think about general line and we've been really intentional about as Kelly described growing that part of the business, but specifically around our door network segment, in terms of our investment and growth there. So we think that that that's an important, really important part of serving our customers. But we think that it also represents an opportunity for margin stability and growth, maybe beyond traditionally what we've experienced. So I think maybe the other thing for me to add this that I can really touch on growth on the Door segment as well.

Okay, and then kind of a follow-on the pricing side. So I understand the potential risks to the EWP pricing if things were to slow, but I think you mentioned general line as well. And maybe I'm just thinking of certain categories like composite decking, I don't think has historically been very volatile, or at least, I don't recall it going backwards a whole lot in previous soft period do, is there any specific product categories within general line that you think could be under pricing pressure, if we see it prolonged slowdown here?

Reuben, this is Jeff. I think as you move forward, the laws of supply and demand there could be a little bit of erosion here and there. But things are still good, and you look at the cost pressures that are going into the raw material to make things that they're still going to be elevated. Could some things move backwards? Certainly they could. But overall it's still pretty strong.

Okay, great. Thanks, guys. I think most of my other questions have been answered. So appreciate it. Good luck going forward.

Thanks, Reuben.

Thank you. And our next question comes from the line of George Staphos from Bank of America. Your question please.

Hey guys, good morning. Thanks for your help. I hope you can hear me, okay. I wanted to come back to the question on EWP, that Kurt had tabled. And specifically Mike, I know in the past, we've talked about EWP effect that obviously builders want to use it probably want to use it even more than labor constraints. The fact that it doesn't necessarily play in the same lanes as dimensional. Why though, if we are going into a downturn, and given what's been near-term, a price divergence, right, EWP continues to move higher, dimensional has been moving lower, that you actually think you'll be able to regain some of the share that you lost. Again, recognizing some of the things that are playing to EWP, that you've mentioned in past calls, any update or different thoughts there than what we've seen in the past?

Yes, George this is Mike. Thanks for the question. Yes, so I think as Nate mentioned earlier, our inability over the last couple of years, let's say, as an industry and EWP industry to be able to supply all the products that that was being demanded. I think that speaks to the value proposition that EWP actually creates for a builder. It's not just the individual price per unit. There's an installed costs and the availability and also a transportation component that allows EWP as a group of products to compete very, very competitively against those other items that you mentioned. And that's been the case, historically, through all markets, the good, the bad, and the indifferent. So as we as we move forward, if the pricing pressure mounts, we also have that as an additional lever, but that certainly wouldn't be our first one. We have availability, and we have a top notch product or group of products. And now we'll be able to concentrate on looking for additional opportunities to sell more rather than that falling through on our allocation philosophy that we've had for the last couple of years.

And from what you're saying, like just to restate it, even though builders have been using lumber maybe more frequently than they would have expected or like to have that increased usage. It doesn't mean increased favor on a going forward basis, the selling points of value added EWP to them, you think from what you're hearing from them is still everything it's been. Would that be fair?

I think that's one way of summarizing it, George. I mean, there's no new news here. Obviously, we have -- and to your point, we have elevated pricing of AWP. But again, I'll refer back to the fact that historically speaking, builders have moved towards more EWP rather than less over a long, long period of time. The amount of EWP, historically been increasing for many, many, many years.

That's fair enough.

Yes, just add to that, just I think it's our, no one's more disappointed than us not being able to serve the builders the way they wanted to be served in terms of the volumes. And so I think their need, their desire to pivot to two dimensional lumber was more because they had to not because they wanted to. And so I think that is still part of their, their thinking, as well as quite as floor trusses, I think this has been the other item as well. So, again, it's something we feel represents an opportunity, and in terms of kind of reestablishing our self with some of those customers that, frankly, had to go a different direction, because they wanted to.

Understood. My last two and I'll turnover, although they are multi-part. The first one again, on wood, could you give us a bit more granularity on what was driving the increase per unit cost in wood? You mentioned labor availability, lower production, which hurt unit cost, perhaps was there anything else to observe? A bit more granularity on what was driving the increase per unit cost in wood? You mentioned labor availability, lower production, which hurt unit cost, perhaps was there anything else to observe? Can you give us a bit more granularity again, on how the $50 million is going to be spread across coastal and gratulations on that and the legacy operations. And then on BMD, obviously, you're going to manage inventories tight. But is there anything else that you might do differently in this potential down cycle? We'll see how it plays out to continue to preserve the margins and do what's been a phenomenal job with that business, Jeff, into potential downturn relative paths one? Thanks, guys. And I'll turn it over there.

Okay, I'll have a shot at the wood products related questions, George. So what's been driving costs up pretty much everything. So not the least of which is if you've put aside the moment the cost of labor, and turnover and labor, because that's always very expensive. We've had, relatively speaking quite significant increases in low costs, particularly in the Pacific Northwest, but not only. So that's a very general statement, but the coastal component of our operations in [indiscernible] have seen very, very significant increases in log costs over the last 12 months or so. Not quite as significant in the south, but we do have some locations with low costs in the south have crept up over the last 12 months, nothing like the Pacific Northwest or the coastal Pacific Northwest operation. And then everything that we use that is derived from some sort of petrochemical related activity. So I think like resins, and our rap and our strapping, those sorts of things have seen major increases and continue to see increases because of the way those are calculated. It's sort of using a trailing average to look at the cost of their inputs. So in fact, I saw an increase just recently for some of our resins. So those sorts of things have certainly gone up as well. And then Kelly touched on it was more related to CapEx, but it's also we have maintenance costs. So as we go out to buy materials to maintain our facilities, and as you can imagine whether it happens to be something made of steel as an example, those are seeing also significant increases over the last 12 months. And I don't see really any of those things taking a backward step anytime soon. So we will probably continue to see elevated cost relative to historical numbers for some period of time. Your question around CapEx, I think Kelly's going to give you a bit more color on that one.

Yes, I'll take that one. So yes, we alluded to roughly 50 million in the southeast area over kind of a three year period. So when we referenced Florien and Oakdale so as you would expect that that's all about veneer, and veneer supplies. So think about Blaze, stackers improvements to drive around feet, those sorts of things, and a fair bit of infrastructure work at Oakdale. The next increment around in the plan is Chapman Alec stores be in it. And a Chapman we have a little bit of money we'll probably get spent this year, but not a significant amount of that that's around equipment that helps us scan and grade veneer to make sure that it's high quality veneer that we can shift over to Alex Thorsby. So we'll get that done probably this year. And then there's incrementally a POV line that we plan on putting in at Chapman here over time. And then there's that that Alex and Thorsby. There's improvements around eyelines finger joiners, and presses. And so there's a whole host of projects that make that up. But I think that's that's the key ones. And then I guess the third part of the question, I don't remember exactly what it was. But I hope just as Jeff shoot.

You're exactly right. We will work incredibly hard to manage our inventories. And we'll be working nonstop on that in a big way. Yes, how do we manage and maintain our margins, and that's a couple of things I'll tell you, we have the best out of that we've ever had that we could look at and see exactly what's going on. And that's going to help us manage inventory and keep the margins up. As Nate mentioned earlier, it's turning into a really, really strong distribution market for us. That's warehouse business. And that's very good for us. I will tell you, we will continue to grow our general line and focus on that, we will continue to grow our millwork business and ore business, which will help us and then when things loosen up with EWP, we can't wait to get on the offensive on that front too which will help us with the margins. So those are ways that we're going to do it. And the big thing I'll tell you, the thing we'll do as we enter margin will continue to buy it in sales pace, which we always do.

Appreciate it, Jeff. Last one quickie log costs, [indiscernible] to be down in the West in third quarter or no?

I would like to believe that but I don't. I think I've given, I was listening or reading some transcripts from some other producers. And I think based on what I read and what I'm hearing, and I saw some numbers yesterday of what we pay for logs in our Western Oregon operations around Memphis. They don't seem to be dropping at the moment. So I think unfortunately, my wish is not going to come through till which I think will have pretty elevated costs, at least for another quarter or more. Generally speaking, I think just to finish off, just because lumber prices have declined in recent past, it takes usually quite some time for there to be an impact on log costs. And I would say just as a reminder, and we do this and turn to most people in the Pacific Northwest, we go out and buy some of our logs wellness bands, because we need to have, if you will an standing inventory of logs, because we can't rely on day in and day out purchase purchases to log the mills. So we have to obviously that up as well.

Thanks, guys. I've worn out my welcome. I'll turn it over. Thanks for everything in the quarter.

Thanks.

Thank you. And our next question comes from the line of Michael Roxland from Truist. Your question please.

Good morning, guys. Thanks for taking my questions.

Good morning, Michael.

Good morning. So I guess lot of my questions have been asked, but I want to get a sense as to what you're seeing in your order books at present, any shortening, any less committed orders and more spot purchases. And obviously, in the homebuilder -- seen a pretty big pick up in homebuilder cancellation rates. And as a result, you're seeing more spec homes in order to move products. So maybe you're okay, the next quarter as you've indicated this with EWP. But any sense right now maybe in terms of the order books, extending or shortening for that matter. Just any color you have there?

Yes, Mike it's Nate. Yes, good question. I think kind of the here and now everything remains steady and strong, I think across the range of products and services, so we haven't really experienced anything kind of unique at this point that really from a geography or even from a product segment perspective. I think the one thing I mentioned earlier in the discussion is we are seeing maybe customers pivot more to auto warehouse services, in terms of units and job packs as they look at how do they manage their working capital position as they go through the course of this year and early next year, to me that represents more normalcy as opposed to something unique. We're in the second half of the year people are managing their working capital, and really being thoughtful as they finish the year and head into the upcoming year. So I would say the order files, everything remains steady and consistent at this point, but it's something we are watching carefully. And as Jeff mentioned just a moment ago, the data and the information that we have today is significant in terms of our ability to see and discover quickly and then make adjustments as appropriate.

Got it. That sounds good. And just one quick follow-up. In response to the earlier question, initially, you have a long-term plan to address housing, I'm just wondering if there's anything you can proactively do, whether it be through distribution, even we're planning to get ahead of a downturn in housing. And I know, it's a question mark as to whether housing is actually going to significantly soften. But so the builders are expecting, expecting to cancellation rates are taking off. And obviously, all depends on mortgage rates. But is there anything you can do as we sit here today, to reorient the business in case things could get worse from here?

Yes, good question. I think maybe just, I think overall, we have good balance in our business. And specifically, if you think about our distribution business, you have single family, multifamily is an important part of that. But we also touch and support other markets as well. Repair and remodel is important. And we think sometimes housing can be a little bit separate in terms of new construction versus repair and remodel. And again, we think the tailwind there is a little bit different than perhaps new construction. And then also the end of the industrial, some of the activities that we're involved there within BMD is again part of our plan and part of our story. So, certainly we have a lot of focus, and rightly so on housing, but I feel good about the balance sheet we have in place. And these are opportunities, to your point, Mike on if the new residential specifically single family is going to be maybe under pressure, how do we make sure we elevate and play offense in the areas where we can and that's really what our team is focused on today.

Thank you. Good luck in the second half.

Thanks, Mike.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nate Jorgensen for any further remarks.

Great, thank you, Jonathan. We really appreciate everyone continued interest and support of Boise Cascade. Thank you for your continued interest and support of Boise Cascade. Please be safe and be well and we'll talk to you next quarter. Thank you.

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