Boise Cascade Company Reports Fourth Quarter and Full Year 2020 Results
Boise Cascade Company (“Boise Cascade,” the “Company,” “we,” or “our”) reported fourth quarter net income of $26.0 million, or $0.66 per share, on sales of $1.5 billion. For the full year 2020, Boise Cascade reported net income of $175.0 million, or $4.44 per share, on sales of $5.5 billion. Fourth quarter and full year earnings per share were negatively impacted by $1.10 per share and $1.69 per share, respectively, related to the events further described below.
Fourth quarter 2020 results included the following non-cash items that negatively effected reported earnings (after-tax amounts assume a 25% tax rate):
– $6.2 million of pre-tax pension settlement charges, or $0.12 per share after-tax, related to the elimination of our qualified defined benefit pension plan (Plan Termination).
– $38.8 million of income tax expense, or $0.98 per share, related to the release of stranded tax effects upon Plan Termination.
Full year 2020 results include the above items, as well as the following:
– $15.0 million and $1.7 million, respectively, of pre-tax accelerated depreciation and other curtailment related costs, or $0.32 per share after-tax, due to the permanent curtailment of I-joist production at our Roxboro, North Carolina, facility.
– $14.0 million pre-tax loss on extinguishment of debt, or $0.27 per share after-tax, as the Company refinanced its senior notes at a lower interest rate with an extended maturity.
For further information, see “Balance Sheet and Liquidity” and “Wood Products” below.
“In the face of many challenges presented by extraordinary market conditions and the pandemic, I am proud that we delivered the best safety performance in our Company’s history in 2020. Our associates showed great resilience, and we fully leveraged our proven values to provide direction and clarity to our team during these unprecedented times,” commented Nate Jorgensen, CEO. “We reinvested in our businesses through door shop expansions in Texas, facility expansions in a few key distribution markets, and the log utilization center project at our Florien mill. We also provided dividends to our shareholders and supported our team and communities in response to natural disasters in Louisiana and Oregon. I am optimistic and confident about 2021 and the future of Boise Cascade.”
Fourth Quarter and Year End 2020 Highlights
As both a manufacturer and a distributor, our 2020 financial results were favorably impacted by higher commodity wood products pricing compared to pricing in 2019. During 2020, our business experienced rapidly evolving market conditions and economic uncertainties surrounding the impact of COVID-19, and various restrictions that limited residential construction activity. In response to COVID-19 uncertainties, early in the second quarter, our Wood Products segment and many other producers in our industry reduced production levels. 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 throughout the remainder of 2020. 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. In the fourth quarter, composite lumber and panel prices fell sharply during October and November 2020 before a strong pricing rebound in December 2020. Our BMD warehouse sales were strong throughout the third and fourth quarters as our retail lumberyard customers relied 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 fourth quarter 2020, total U.S. housing starts increased 12% compared to the same period in 2019. Single-family housing starts, the primary driver of our sales volumes, also increased 30%. For the full year 2020, total and single-family housing starts increased 7% and 12%, respectively, compared with the same period in 2019.
Wood Products’ sales, including sales to Building Materials Distribution (BMD), increased $62.4 million, or 21%, to $358.7 million for the three months ended December 31, 2020, from $296.3 million for the three months ended December 31, 2019. The increase in sales was driven primarily by higher plywood and lumber prices, as well as higher sales volumes for I-joists. Demand for plywood in fourth quarter 2020 far outpaced industry production levels, driving the continued favorable pricing. These increases were offset partially by decreased net sales prices for LVL and I-joists (collectively referred to as EWP), as well as lower sales volumes for plywood and LVL. Wood Products’ segment income increased $32.8 million to $40.8 million for the three months ended December 31, 2020, from $8.1 million for the three months ended December 31, 2019. The increase in segment income was due primarily to higher plywood and lumber sales prices, as well as higher I-joists sales volumes. These improvements were offset partially by higher wood fiber costs, as well as lower net sales prices of EWP.
For the year ended December 31, 2020, sales, including sales to BMD, increased $48.7 million, or 4%, to $1,323.9 million from $1,275.2 million in 2019. The increase in sales was driven primarily by higher plywood prices, as well as higher sales volumes for I-joists. These increases were offset partially by lower sales volumes of plywood and LVL, and lower net sales prices for EWP. The lower volume for plywood sales reflects our continued work to optimize veneer into EWP production, as well as periodic short-term disruptions related to COVID-19. Wood Products’ segment income increased $73.5 million to $127.7 million for the year ended December 31, 2020, from $54.2 million for the year ended December 31, 2019. The increase in segment income was due primarily to higher plywood sales prices, as well as higher I-joist sales volumes and lower manufacturing costs. These improvements were offset partially by accelerated depreciation of $15.0 million and other closure-related costs of $1.7 million at our Roxboro, North Carolina facility, as well as lower EWP prices and higher wood fiber costs. In addition, selling and distribution expenses increased $1.9 million.
Building Materials Distribution
BMD’s sales increased $343.1 million, or 35%, to $1,330.1 million for the three months ended December 31, 2020, from $987.0 million for the three months ended December 31, 2019. Compared with the same quarter in the prior year, the overall increase in sales was driven by sales price and sales volume increases of 26% and 9%, respectively. By product line, commodity sales increased 62%, general line product sales increased 16%, and sales of EWP (substantially all of which is sourced through our Wood Products segment) increased 15%. BMD segment income increased $40.8 million to $67.1 million for the three months ended December 31, 2020, from $26.3 million in the comparative prior year quarter. The improvement in segment income was driven by a gross margin increase of $45.4 million, resulting primarily from improved gross margins on commodity products, as well as higher sales of general line products and EWP compared with fourth quarter 2019. The increase in gross margin during fourth quarter 2020 was offset partially by increased selling and distribution expenses of $4.1 million.
For the year ended December 31, 2020, sales increased $814.3 million, or 20%, to $4,952.0 million from $4,137.7 million in 2019. The increase in sales was driven by a sales price and sales volume increases of 13% and 7%, respectively. By product line, commodity sales increased 34%, general line product sales increased 11%, and sales of EWP increased 6%. BMD segment income increased $131.3 million to $247.5 million for the year ended December 31, 2020, from $116.2 million for the year ended December 31, 2019. The increase in segment income was driven by a gross margin increase of $173.0 million, resulting primarily from improved gross margins on commodity products, as well as higher sales of general line products compared with 2019. The margin improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $35.7 million and $4.2 million, respectively.
Unallocated Corporate Costs
Unallocated corporate expenses increased $6.2 million to $40.2 million for the year ended December 31, 2020, from $34.0 million for the year ended December 31, 2019. 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 $3.5 million of estimated business interruption losses at Wood Products facilities in 2020. The losses resulted from downtime at our Louisiana manufacturing facilities due to hurricanes and from a fire-related production disruption at our Chester, South Carolina, plywood plant.
Balance Sheet and Liquidity
Boise Cascade ended fourth quarter 2020 with $405.4 million of cash and cash equivalents and $345.2 million of undrawn committed bank line availability, for total available liquidity of $750.6 million. The Company had $443.8 million of outstanding debt at December 31, 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 2020.
In December 2020, we eliminated our qualified defined benefit pension plan (Pension Plan). The process of eliminating the Pension Plan included lump-sum payments made to eligible plan participants at their election and the purchase of a buy-out group annuity contract (Buy-Out) from The Prudential Insurance Company of America (Prudential), which was funded with plan assets. When the Buy-Out became effective on December 31, 2020, we irrevocably transferred to Prudential the future benefit obligations and annuity administration for all remaining plan participants (or their beneficiaries) in the Pension Plan. These transactions fully eliminated the liabilities of our Pension Plan, resulting in a non-cash settlement charge of $6.2 million in fourth quarter 2020.
Prior to the Plan Termination, “Accumulated other comprehensive loss” on our Consolidated Balance Sheet included the stranded tax effects of our conversion from a limited liability company to a corporation in 2013 and the adoption of the Tax Cuts and Jobs Act (the “Tax Act”) in 2017. Upon Plan Termination, these stranded tax effects of $38.8 million were required to be released into income tax expense under GAAP. For additional information on the Plan Termination, see our Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission.
We expect capital expenditures in 2021 to total approximately $80 million to $90 million. This level of capital expenditures could increase or decrease as a result of a number of factors, including acquisitions, efforts to accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, and timing of equipment purchases.
On February 5, 2021, our board of directors declared a dividend of $0.10 per share of our common stock, payable on March 15, 2021, to stockholders of record on February 22, 2021.
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 2021, Wood Products continues to experience periodic short-term disruptions at many locations due to COVID-19 as we continue to make efforts to restore production rates to pre-COVID-19 levels in response to strong end-product demand, particularly for our EWP. In addition, we have experienced COVID-19 related short-term disruptions at our BMD locations and our activity levels across our distribution network 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 due to 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 in 2021. Furthermore, with homeowners spending more time at home, repair and remodel spending may remain elevated as homeowners invest in existing homes. As of February 2021, the Blue Chip Economic Indicators consensus forecast for 2021 single- and multi-family housing starts in the U.S. was 1.51 million units, compared with actual housing starts of 1.38 million in 2020 and 1.29 million in 2019, as reported by the U.S. Census Bureau. Although we believe that current U.S. demographics support the higher level of forecasted housing starts, and many national home builders are reporting strong near-term backlogs, the impacts of COVID-19 on residential construction and residential repair-and-remodeling activity are uncertain.
Strong demand when coupled with capacity constraints in late fourth quarter 2020 and early first quarter 2021 created supply/demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. As a wholesale distributor of a broad mix of commodity products and a manufacturer of certain commodity products, our sales and profitability are influenced by changes in commodity product prices.
For the full fourth 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