Boise Cascade Company Reports Third Quarter 2020 Results
Boise Cascade Company (“Boise Cascade,” the “Company,” “we,” or “our”) reported net income of $103.2 million, or $2.61 per share, on sales of $1.6 billion for the third quarter ended September 30, 2020, compared with net income of $27.2 million, or $0.69 per share, on sales of $1.3 billion for the third quarter ended September 30, 2019. Third quarter 2020 results include a $10.5 million after-tax loss on extinguishment of debt, or $0.27 per share, as the Company refinanced its senior notes at a lower interest rate with an extended maturity. Third quarter 2019 results include $1.0 million of after-tax losses, or $0.03 per share, from a non-cash pension settlement charge.
“Extraordinary market conditions, along with great execution by both of our businesses, helped us deliver outstanding results in the third quarter. Financial results aside, I am proud that associates across our organization continue to effectively adapt to challenges brought about by the pandemic without losing focus on our core value of safety. It has also been inspiring to witness our teams in Louisiana and Oregon caring for each other and their communities in response to the gulf coast hurricanes and the catastrophic fires in the Pacific Northwest,” commented Nate Jorgensen, CEO. “We look to the future with optimism, as our balance sheet provides us the flexibility to pursue organic and acquisition growth opportunities in support of our customers and suppliers. Together with our Board of Directors, we took action to return a portion of our higher than targeted cash balance to our shareholders through our recently announced supplemental dividend.”
Third Quarter 2020 Highlights
In response to rapidly evolving market conditions and economic uncertainties surrounding the impact of COVID-19, and various restrictions that limited residential construction activity, our Wood Products segment and many other producers in our industry reduced production levels early in the second quarter. In addition, many companies involved in the manufacture and distribution of building materials dramatically reduced inventory levels in late first quarter and early second quarter in response to falling commodity wood products prices and future demand uncertainty. As restrictions were loosened or rescinded, construction activity resumed mid-second quarter and continued at a robust pace through the third quarter. Across commodity product lines, product demand in the third quarter exceeded supply, and producers struggled to restore capacity because of COVID-19 related disruptions and natural disasters, causing significant increases in commodity products prices. Our BMD warehouse sales were strong throughout the third quarter as our retail lumberyard customers are relying on our broad base of inventory and high service levels to minimize their working capital investment given COVID-19 related uncertainties and historically high commodity product prices. In addition, we have had strong demand from our home center customers in response to elevated repair and remodel and “do-it-yourself” activity as people are spending more time at home during the pandemic.
In the third quarter 2020, total U.S. housing starts increased 11% compared to the same period last year. Single-family housing starts, the primary driver of our sales volumes, also increased 17%. On a year-to-date basis through September 2020, total and single-family housing starts increased 5% and 6%, respectively, compared with the same period in 2019.
Wood Products’ sales, including sales to Building Materials Distribution (“BMD”), increased $38.6 million, or 12%, to $363.7 million for the three months ended September 30, 2020, from $325.1 million for the three months ended September 30, 2019. The increase in sales was driven primarily by higher plywood prices and higher sales volumes for I-joists. Demand for plywood in third quarter 2020 far outpaced industry production levels, driving the sharp increase in pricing. These increases were offset partially by lower sales volumes for plywood and LVL, as well as decreased net sales prices for LVL and I-joists (collectively referred to as “EWP”).
Wood Products’ segment income increased $50.4 million to $66.0 million for the three months ended September 30, 2020, from $15.6 million for the three months ended September 30, 2019. The increase in segment income was due primarily to higher plywood sales prices, offset partially by higher wood fiber costs, as well as lower net sales prices of EWP. In addition, selling and distribution expenses and general and administrative expenses increased $2.0 million and $1.7 million, respectively.
Building Materials Distribution
BMD’s sales increased $292.1 million, or 25%, to $1,437.7 million for the three months ended September 30, 2020, from $1,145.6 million for the three months ended September 30, 2019. Compared with the same quarter in the prior year, the overall increase in sales was driven by sales price increases of 25%, with relatively flat sales volumes. By product line, commodity sales increased 54%, general line product sales increased 6%, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 6%.
BMD segment income increased $69.2 million to $107.9 million for the three months ended September 30, 2020, from $38.7 million in the comparative prior year quarter. The increase in segment income was driven by a gross margin increase of $86.7 million, resulting primarily from improved gross margins on commodity products compared with third quarter 2019. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $14.3 million and $2.5 million, respectively.
Unallocated Corporate Costs
Unallocated corporate expenses increased $6.0 million to $15.4 million from $9.4 million for the three months ended September 30, 2020, compared with the same period in the prior year. The increase was due primarily to higher incentive compensation and business interruption losses. As part of our self-insured risk retention program, corporate absorbed approximately $3.2 million of estimated business interruption losses at Wood Products facilities in third quarter 2020. The losses resulted from downtime at our Louisiana manufacturing facilities due to Hurricane Laura and from a fire-related production disruption at our Chester, South Carolina, plywood plant.
Balance Sheet and Liquidity
Boise Cascade ended third quarter 2020 with $503.9 million of cash and cash equivalents and $345.4 million of undrawn committed bank line availability, for total available liquidity of $849.3 million. The Company had $443.6 million of outstanding debt at September 30, 2020.
On July 27, 2020, we issued $400 million of 4.875% senior notes due July 1, 2030 (2030 Notes). With proceeds from the 2030 Notes issuance, we retired $350 million of 5.625% senior notes due 2024 (2024 Notes) and paid-off our American AgCredit term loan of $45.0 million. In connection with these transactions, we recognized a pre-tax loss on extinguishment of debt of $14.0 million during third quarter 2020.
In response to the uncertainty of the impacts of COVID-19, we reduced our planned capital spending for 2020 from our previously expected range of $85-to-$95 million to $60-to-$75 million. We expect our capital spending, excluding acquisitions, to be approximately $80-to-$90 million in 2021.
We have announced our intention to terminate our qualified defined benefit pension plan (“Pension Plan”). We expect to fully eliminate the liabilities of our Pension Plan in fourth quarter 2020, upon which we will record the related non-cash accounting adjustments as required by the application of pension settlement accounting rules. We do not expect any further cash contributions to terminate the Pension Plan. For additional information on the termination of our Pension Plan, see our Form 10-Q for the quarterly period ended September 30, 2020, filed with the Securities and Exchange Commission.
On September 28, 2020, our board of directors declared a supplemental dividend of $1.60 per share on our common stock, payable on November 2, 2020, to stockholders of record on October 15, 2020. At September 30, 2020, we accrued $62.7 million in “Dividends payable” on our Consolidated Balance Sheets, representing our supplemental dividend declaration. On October 29, 2020, our board of directors declared a quarterly dividend of $0.10 per share on our common stock, payable on December 15, 2020, to stockholders of record on December 1, 2020.
Future dividend declarations, including amount per share, record date and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, contractual restrictions, and other factors that our board of directors may deem relevant.
As we begin the fourth quarter, Wood Products continues to make efforts to restore production rates to pre-COVID-19 levels in response to strong end-product demand, particularly for our EWP. However, we continue to experience periodic short-term disruptions at many locations due to COVID-19. In addition, we expect activity levels across our distribution network to continue to vary widely as COVID-19 impacts geographies across the U.S. to differing degrees, and federal, state, or local restrictions are implemented or rescinded. To date, we have not experienced significant supply chain disruptions that would limit our ability to meet customer delivery commitments or source the necessary raw materials and finished goods needed by our operations. We continue to conduct business with modifications to mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. In addition, we continue to actively monitor evolving developments and may take actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, communities, and stockholders.
While there continues to be a heightened level of economic uncertainty given the pandemic, low mortgage rates, continuation of work-from-home practices by many in the economy, and demographics in the U.S. have created a favorable demand environment for new residential construction, which we expect to continue into next year. Furthermore, with homeowners spending more time at home, repair and remodel spending may continue to strengthen as homeowners invest in existing homes. As of October 2020, the Blue Chip Economic Indicators consensus forecast for 2020 and 2021 single- and multi-family housing starts in the U.S. were 1.32 million and 1.38 million units, respectively, compared with actual housing starts of 1.29 million in 2019, as reported by the U.S. Census Bureau. Although we believe that current U.S. demographics support a higher level of housing starts, and many national home builders are reporting strong near-term backlogs, the impacts of COVID-19 on residential construction are uncertain. A re-acceleration of COVID-19 cases could prompt state or local officials to reinstitute restrictions that could limit or constrain building activity. In addition, the economic consequences of COVID-19 may adversely affect the pace of household formation rates and residential repair-and-remodeling activity due to high unemployment rates, lower wages, reduced consumer confidence, prospective home buyers’ lack of ability to view homes in person, homebuyers’ access to and cost of financing, and housing affordability, as well as other factors.
Strong demand when coupled with capacity constraints in third quarter 2020 created supply/demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. However, October 2020 composite lumber and panel prices have declined by approximately 35% and 10% from the peaks reached in September 2020 and are at risk for further price erosion that will be dependent on the impact of COVID-19 on residential construction, capacity restoration and industry operating rates, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns. As a wholesale distributor of a broad mix of commodity products and a manufacturer of certain commodity products, we have sales and profitability exposure to declines in commodity product prices. As previously announced, we will also continue to evaluate plywood market conditions, log supply availability, operating costs, environmental permits, and other factors influencing our Elgin plywood operations as we approach 2021.
For the full third quarter results, click here.
About Boise Cascade
Boise Cascade Company is one of the largest producers of engineered wood products and plywood in North America and a leading U.S. wholesale distributor of building products. For more information, please visit the Company’s website at www.bc.com.
Wayne Rancourt – Investor Relations – (208) 384-6073
Source: Boise Cascade Company