Boise Cascade Co

NYSE:BCC

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. My name is Latonya, and I will be your conference facilitator today. At this time, I would like to welcome everyone Boise Cascade's First 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 conference.

[Kelly Hibbs]

Thank you, Latonya, and good morning everyone. I would like to welcome you to Boise Cascade's first 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.

I will now turn the call over to Nate.

[Nate Jorgensen, Chief Executive Officer]

Thanks, Kelly. Good morning everyone. Thank you for joining for our earnings call today. I want to start on Slide 3. 2022 is off to a tremendous start after both of our businesses delivering outstanding operating and financial results. Our consolidated first quarter sales a 2.3 billion were up 28% from the first quarter of 2021. Our net income was $302.6 million or $7.61 per share compared to net income of $149.2 million or $3.76 per share in the year ago quarter. In, first quarter 2022 total U.S. housing starts increased 10% compared to the same period last year.

Single Family Housing starts the primary driver our sales volumes increased 4%. Wood Products reported segments EBITDA of 203.8 million in the first quarter compared to 110.4 million in the year ago quarter. Wood Products benefited from improved the EWP sales realization and plywood sales prices compared to last year's first quarter. Wood Products continue to focus on manufacturing production levels in response to continued strong and product demand for our EWP during the quarter.

Building Materials Distribution recorded segment EBITDA to 232.5 million on sales a 2.1 billion for the first quarter compared to 126 million of segment EBITDA sales of 1.6 billion in the comparative prior year quarter. While BMDs results were favorably impacted by escalating commodity product prices during the quarter, majority of the quarter, increasing margins across EWP general line products continued to be a consistent and key driver of BMDs outstanding results.

Kelly will walk through the financial results in more detail and I'll come back and provide our outlook before we take your questions. Kelly?

[Kelly Hibbs]

Thank you, Nate. I'm on Slide 4. Wood product sales in the first quarter including sales to our distribution segment are 558.9 million compared to 432.3 million in first quarter 2021. As Nate mentioned with Wood Products reported segment EBITDA of 203.8 million, up from EBITDA of 110.4 million reported in the year ago quarter. The increase in segment EBITDA was due primarily to higher EWP and plywood sales prices offset partially by higher wood fiber costs and other manufacturing costs.

BMD sales in the quarter were 2.1 billion, up 29% from first quarter 2021. BMD reported segment EBITDA of 232.5 million in the first quarter, compared to segment EBITDA of 126 million in the prior year quarter. The improvement in segment EBITDA was driven by a gross margin increased of 133.6 million resulting from improved gross margins across substantially all product lines. The margin improvement was offset partially by increased selling and distribution expenses of 25.5 million.

Turning to Slide 5, our first quarter sales volumes for LVL were up 6%. While sales volume through I-joists were down 9% compared with first quarter 2021. Transportation constraints continued to hinder our ability to consistently move finished goods inventory into the marketplace. Inbound transportation issues for Webstock also negatively impacted I-joists production during the first quarter.

Demand for EWP continued to be strong and our order files remain extended. Pricing in first quarter for I-joists and LVL were up 3% and 2% respectively, compared with fourth quarter 2021, as previously announced price increases continued to take effect. We expect high single digit sequential price increases in second quarter 2022 reflecting pricing actions taken in early 2022.

Turning to Slide 6, our first quarter plywood sales volume in Wood Products was 317 million feet compared to 303 million feet in first quarter 2021 or veneer and plywood mills operated well during the quarter allowing us to benefit from strong plywood pricing. The $689 per 1,000 average plywood net sales prices in first quarter was up 24% from first quarter 2021 and up 72% sequentially.

As we moved into second quarter, plywood pricing declined. Our price realizations through April are approximately 12% below our first quarter average. In addition, we expect second quarter plywood volumes of approximately 300 million square feet as our project at Chester, South Carolina to replace a veneer dryer has commenced and will negatively impact near-term production volumes.

Moving to Slide 7. BMD's first quarter sales were 2.1 billion up 29% from first quarter 2021 driven by sales price increases as sales volumes were flat. By product line commodity sales increased 22%, general line product sales increased 30% and EWP increased 54%.

Gross margin dollars generated improved by 133.6 million in first quarter compared with the same quarter last year, resulting from improved gross margins across substantially all product lines. The gross margin percentage for BMD was 18% up 290 basis points from the 15.1% reported in first quarter 2021.

BMD's EBITDA margin was 11% for the quarter up from the 7.7% reported in the year ago quarter. BMD sales pace thus far in second quarter 2022 remains strong across product lines and we continue to benefit from the stability and strength of EWP and general line products. The BMD team has also done a great job of mitigating our exposure to the commodity price declines we experienced in April.

I'm now on Slide 8. This slide shows the rise in lumber pricing during first quarter 2022 followed by sharp declines beginning in the second quarter as downside price risk created hesitancy across the marketplace. Pricing has shown signs of stabilization in recent weeks as we move into spring building season.

Turning to Slide 9, we, one can see similar pricing patterns for the random lengths composite panel index. We expect future commodity product pricing will continue to be volatile, with ongoing challenges with transportation and labor having a meaningful influence on supply side uncertainties.

On Slide 10, we have set out the key elements of our working capital. Net working capital excluding cash income tax items and accrued interest increased 214.3 million during the first quarter, representing a seasonal use of cash. The increase in accounts receivable was driven by strong sales in March 2022. Inventories increased in both segments particularly BMD due primarily to increased inventory valuations.

The increase in accounts payable and accrued liabilities was driven by increased inventories and hire occurred rebates offset partially by employee incentive compensation payouts made during the quarter. The statistical information filed as exhibit 99.2 to our 8-K has the receivables inventory and accounts payable data broken down by segment for those interested in the detail.

Turning to Slide 11. We finished first quarter with 923 million of cash. Our total available liquidity at March 31st was approximately 1.3 billion, which reflects our cash and availability under our committed bank line. We had 445 million of outstanding debt at March 31, 2022. We expect capital expenditures in 2022 to total approximately 110 million to 130 million.

Included in our capital spending range is funding to complete organic expansions in Ohio, Kentucky and Minnesota and a new dryer at our Chester South Carolina veneer and plywood plant. Availability of engineering and construction resources and timing and availability of equipment purchases is expected to have an influence on 2022 spending.

Our effective tax rate is expected to be between 25% and 27%. We also estimate remitting between $165 million and $185 million of income tax payments during second quarter of 2022 for estimated payments on 2022 income.

Yesterday, our Board approved a $0.12 per share quarterly dividend and a $2.50 per share supplemental dividend payable on June 15th to stockholders of record on June 1st. After payment of the dividends, and previously mentioned tax payments, our balance sheet remains well-positioned to support internal growth initiatives as well as opportunistic acquisitions, as we move through 2022. Nate will speak more to our avenues for growth shortly.

As we have demonstrated in the past, if our cash exceeds the opportunities ahead of us, we will utilize mechanisms to return cash to our shareholders. Our overarching objective remains to successfully grow our business, while generating appropriate returns on shareholder capital.

I will turn it back over to Nate, to discuss our business outlook.

[Nate Jorgensen, Chief Executive Officer]

Thanks, Kelly. I'm on Slide number 12. The demand environment for new residential construction continues to be favorable, supported by demographics in the U.S. and continuation of work-from-home practices by many in the economy. We expect demand to remain strong in 2022 with April Blue Chip Consensus for U.S. housing starts at 1.65 million.

In addition, limited new and existing home inventory availability and the age of U.S. housing stock will continue to provide a favorable backdrop for residential construction and repair and remodel spending.

Although, we believe that current U.S. demographics support the forecasted level of housing starts, and many national home builders are reporting strong near-term backlogs, labor shortages and supply-induced constraints on residential construction activity may continue to extend build times and limit activity.

In addition, the pace of residential construction and repair and remodeling and activity may be affected by the economic impact and the cost of building materials and construction, housing affordability, wage growth, prospective home buyers access to financing and consumer confidence, as well as other factors.

In Wood Products, we continue to enjoy strong demand and pricing momentum for EWP. Capital projects will continue to focus on veneer production to support our EWP growth, which includes completion of our Chester dryer project in early third quarter.

BMD continues with its steady execution of organic growth and is progressing well with its build out of our expansion projects in Marion, Ohio; Walton, Kentucky; and Lakeville, Minnesota. The BMD team also continues to work a solid pipeline of additional organic growth opportunities in existing and new markets, that we expect to share in upcoming quarters.

These projects will add capacity to our system in support of our customers and suppliers. BMD continues to execute at a high level as we navigate a fluid market conditions. We expect continued firm pricing, our EWP and general product line categories and remain confident we will effectively manage impacts and capture opportunities associated with fluctuating commodity prices.

The extraordinary results of last year's second quarter will make our upcoming comparative results challenging, but we fully expect to deliver another solid quarter, when we speak again in the summer.

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. Our balance sheet provides us great flexibility to continue our pursuit of further organic or M&A growth opportunities.

Lastly, I want to express my gratitude to our associates, whose can-do attitude and customer focused mindset continues to make our tremendous results possible. Thank you for joining us today and your continued support and interest in Boise Cascade. We would welcome any questions at this time.

Latonya, would you please open the phone lines?

[Operator]

[Operator Instructions] Our first question comes from Mark Wilde of Bank of Montreal. Your line is open.

[Mark Wilde, Bank of Montreal]

No good deed goes unpunished and looking at your stock this morning, it seems to be the case. But that's just looking at the quarter. I wondered that Nate, if you could just help us unpack that decline and in EWP shipments. It sounds like some of it just was kind of constraints from Webstock. But anything else would be helpful. It was surprising to me, given the fact that the industry is on allocation and demand is very strong?

[Nate Jorgensen, Chief Executive Officer]

Yes, Mark, let me just kind of tee it up for Mike Brown. But to your point, the demand signal remains steady, strong and consistent. And to your point, the supply side including logistics was really the challenge that Mike and team work through. But Mike, you want to additional comments on that?

[Mike Brown, Head, Wood Products Operations]

Yes, I think as nearly Kelly pointed out in the prepared remarks and nice comments. We certainly would have liked to have made more and obviously sold more, if we'd been able to get all the raw materials that we were looking for. The Webstock that we use comes from Canada. And as I'm sure you're aware, there have been significant logistical issues north of the border. So really was a question about availability of Webstock. And we certainly hope in the not too far distant future that that situation will be resolved.

[Mark Wilde, Bank of Montreal]

It might just to kind of follow on that. It seems like more than almost any company I cover. You guys have really wrestled with kind of COVID related labor issues over the last six or seven quarters? Can you just give us some sense of how that's doing at this point? Because it wasn't something you called out in your release? So I don't know if that's a marker that it's actually proving?

[Mike Brown, Head, Wood Products Operations]

So, it's an interesting quarter. So January actually was a terrible month for us in terms of COVID related activity, if you want to call it that. But since then, things have got markedly better. So I certainly wouldn't say that COVID is no longer here. But when we look at our operations, and look at the weekly updates from each of the regional managers. The number of absentees that we have now, due to COVID is I'd say at its lowest in probably the last two years still some, but almost zero. So maybe it was the process that we put in place almost two years ago. But certainly, we've seen a marked improvement in terms of the COVID side of things. So, that's really why we didn't call it out.

[Mark Wilde, Bank of Montreal]

And then Nate, I wondered if you or Kelly could give us a little more kind of granularity, where the CapEx dollars are going in both segments this year. I think that the number that you're pointing to is probably the biggest CapEx year that you've had since you became a public company?

[Nate Jorgensen, Chief Executive Officer]

Yes, you're right Mark, and that's fair. And I would tell you the, we have a pretty big range there you'll notice the 110 to 130 and 130 is probably aspirational given the supply chain challenges we've talked about. Breaking in between the two segments a little bit for you Wood Products, we're targeting about 60 million for this year and to give you a few highlights on that and Mike can correct me if I'm wrong here.

But we've got the Chester dryer we talked about, that's probably 6 million or so that we're going to get spent this year to get that up and functional, probably early third quarter. We've also got a fair bit of work going in the Southeast as normal to make sure we secure and support efficient veneer supply in our system. So projects at Florien that around some late work, Oakdale some dryer controls and infrastructure, and then Alexandria a few things to continue to improve our highlights there.

And so, that's probably the highlights that hit 40 on Wood Products. And then BMD you know, we hit on the, in our comments, we hit on the three organic expansions we're working, so the, our role in Kentucky, and then our greenfield in Marion and then our brownfield in Kentucky that really as part of the broader Cincinnati, Ohio market. So, all those three are active, and probably combined, we're probably looking at around 20 million or so this year related to those projects that will get spent.

And then, we've got a good amount of rolling stock that we're hoping to get purchased this year as well, some of that's probably not going to come in as quickly as we would like. But if you think about 38 locations across our system, and hyster and trucks and trailers, that's a pretty sizable number for us that we're probably hoping to get spent 25 million or so this year. And then lastly, we can't forget inflation and the impact that has on our capital spending across our system. So, that's how I summarize it for you, Mark.

[Mark Wilde, Bank of Montreal]

Okay, just one more on the capital side for either you or Nate. You have been, you've added I think a few of these door and window shops and you've talked about sort of other kind of unique site specific places where you're expanding your product line. And I'm just curious, are you comfortable enough with like particularly the door and window shops that you want to start to roll that strategy out a little more aggressively?

[Nate Jorgensen, Chief Executive Officer]

Yes, Mark, it's Nate. I'll let me take that one. I think, we -- in terms of the door, the millwork side of things, we like that business. Obviously, we've grown that business and specifically in Texas with our two new locations there, and we continue to look for other opportunities to grow that platform. So my view is that that'll be an important part of our growth story and BMD moving forward. And I think we've got the right level of support both from our customers and suppliers to continue to advance that conversation across other markets. So, yes, that is the main part of our growth story and plan as we had over the next couple of years.

[Mark Wilde, Bank of Montreal]

And then the last one for me. If mortgage rates going up start to slow kind of housing activity, where would you expect to be able to see this or detect it first, Nate?

[Nate Jorgensen, Chief Executive Officer]

Yes, I think there's probably a couple of spots, obviously, we have the privilege to have very close relationships with, not only our direct customers but also the parts of the builder community, and really understand what that demand signal looks like also in the repair and remodel.

But I think you know, for me Mark, the things that will be centered on is cost of money and what's happening there. We'll be looking closely at inventory levels, in terms of unsold inventory, both in terms of new and existing homes. Those will be important demand signals that we'll continue to monitor.

And I think it's my expectation is, we feel good about, what's in front of us here short-term. But longer-term, I think we are going to stay centered and focused on what the demand environment looks like. Long-term, we feel good about this industry and the fundamentals, but also recognize the cost of money and some maybe recessionary pressures might be out there that we'll have to make sure we are monitoring and adjust as appropriate.

[Operator]

And our next question comes from [Mayo Cory] of Goldman Sachs. Your line is open.

[Nate Jorgensen, Chief Executive Officer]

Good morning.

[Susan Maklari, Goldman Sachs]

Good morning, I don't know. Maybe is, did she mean Susan Maklari?

[Nate Jorgensen, Chief Executive Officer]

Good morning, Su, that is the name we expected. Go ahead.

[Susan Maklari, Goldman Sachs]

Here we go. I'm sorry. I misheard her. I'm sorry about that. Well, good morning, everyone and congrats on a good quarter. I think my first question is sort of thinking about this bigger picture. Last summer it was the DIY market that kind of caused prices to come down. And when we look out this year, it feels as if the supply demand environment is obviously to some extent, a bit more disciplined, perhaps obviously things on the ground are exceptionally tight, it seems on the EWP side and even just sort of a cross building materials. And so, as we get in this summer, how are you thinking about the overall sort of landscape and the ability to continue to see some of those volumes rise and maybe even on a relative basis supporting pricing as we move to the back half of the year?

[Nate Jorgensen, Chief Executive Officer]

Yes, Susan. It's Nate. Good morning. I'll start and then ask the team to maybe fill any blanks. I think as we look at the overall demand environment and to your point, as I think the marketplace reflects on what took place in the third quarter of last year, but whether the discipline is the right description, but I think there's more, people are very focused on risk versus reward.

And I think the market in terms of demand signal feels again, good, steady, consistent, and we are expecting that as we now kind of climb to the spring housing season. But I think also people are somewhat measured in making sure that, the risk reward equation makes sense. And so, I think that'll be, I think a key theme as we go through the course of 2022.

And frankly that matches up really well with, who we are and what we do. Obviously, I think there'll be perhaps a bit more even dependence on wholesale, two step distribution on a range of products and services, as again people try to manage those risk and I know our Jeff and our BMD team is really well-positioned to support customers as they, they kind of navigate some potential changes in the marketplace.

So again, overall, we feel good about where things are at. And again, we see and feel the market, again managing that risk reward as we go into the latter part of second quarter and third quarter.

[Susan Maklari, Goldman Sachs]

Yes. Okay. That's helpful color. And I guess, when we do think further out, if we do get a bigger than expected slowdown in housing, and things do sort of turn as we get into next year. How do you think about the stickiness of some of the pricing that has been put through? I guess, especially on the EWP side, but even just, as you think about your distribution arm, the pricing that those manufacturers are passing through, how do you just in general think about the sustainability of some of the inflation that is moving through the channel today?

[Nate Jorgensen, Chief Executive Officer]

Yes, I'll start. And then Mike and Jeff and Kelly can jump in here as well. I think in terms of obviously pricing in some products and service comes down to supply and demand balance. And as I think we look at several the categories that we are in today, things remain very tensioned in terms of supply and demand and essentially under allocation.

So, there would be -- need to be probably a reasonable adjustment on demand or increase in supply for that equation to change. I think there is still a marketplace on those products and services, great desire to purchase product. And so we don't see any kind of hesitancy, at least short-term on any of those items.

I think, as we, if we see some sort of kind of disruption on the demand side, I love how our organization and businesses positioned to compete in that environment. We have, I think, the talent, the resources and the capability to grow and gain share as appropriate. Should those market conditions allow us to take advantage of maybe a little bit lower demand environment overall and more steady supply as a result.

So, again, it's something that we're watching carefully. But things have settled down in terms of the demand side of things. Again, we see an opportunity to pivot in terms of how do we perhaps again, play offense and continue to work to grow our position.

[Susan Maklari, Goldman Sachs]

Okay, that's great color Nate. And then let's squeeze one more in, which is last night you announced the supplemental dividend along with your quarterly dividend. Can you just talk a little bit about capital allocation? And when you do think about the outlook for the business, is there any interest at all and doing some buybacks? Or how should we think about shareholder returns or just capital allocation in general?

[Kelly Hibbs]

This is Kelly. So our script is very much the same in terms of how we think about it, first and foremost, investing in ourselves. And you've heard about our expanded capital program that we have. And then we've signaled that there's a number of other organic opportunities and BMD that are in the pipeline that we hope to speak more to in the future as those come to fruition.

And then we want to keep that modest, quarterly dividend is sustainable through any business cycle. After that we'll look to grow whether that's M&A or is that further organic projects like we've spoken to, and then we'll bounce all that up against what's our balance sheet look like and our cash position and how do we return it.

And you've heard us speak many times obviously the two levers there are share repurchases and supplemental dividends. And then we get into your questions specific to share repurchases. We view that more as an opportunistic buy for us. We want to buy those at a meaningful discount. And so at this point, we, the cadence of the conversation continues with the board and we've elected to do a supplemental dividend this time around.

[Susan Maklari, Goldman Sachs]

And I assume the supplement sort of reflects your competence, obviously, in the outlook. I mean we're still only in the first half of the year, but it's good to see it coming through.

[Kelly Hibbs]

Sure. And then when we are confident for 2022, we feel really good about our balance sheet and really good about some of the things in the pipeline for BMD for sure.

[Operator]

And our next question comes from Kurt Yinger of D. A. Davidson. Your line is open.

[Kurt Yinger, D. A. Davidson]

I wanting to start out on EWP and hoping you could talk a little bit about how many quarters you think it will be until the Q1 price increases are kind of fully implemented. And then second, can you talk a little bit about where order files currently stand and just the level of visibility on the volume side there?

[Nate Jorgensen, Chief Executive Officer]

So order, I'll take the second part first. Order files and I think you're talking specific EWP, they're still extended. We can sell what we can make assuming we can get wheels underneath it. So, the demand side is strong. On pricing, I've referenced 10% sequentially second quarter compared to first. I would say and that's with the early 2022 price increase that we announced.

The few, if you will, in terms of the different mechanisms that kind of differ that pricing realization, that window was a little bit shorter this time than it has been in previous increase announcements. And so, we expect high single digits, each of the next two sequential quarters. And then after that, we think, barring any future increases, we've pretty well got everything realized at that point.

[Kurt Yinger, D. A. Davidson]

And then, I guess on the BMD side. I was hoping you could talk a little bit at a high level, any kind of notable changes in demand patterns across the different kinds of customer cohorts? And then, over the last month and a half or so home center demand is kind of been cited as the big driving force in terms of the short lived correction in commodity prices. Has that turned around more recently? And is that a product specific kind of phenomena or consistent with what you saw and maybe other general line categories as well?

[Jeff Strom, Head, Building Materials Distribution]

Kurt, this is Jeff. I tell you on the demand side for all products. It's strong across everything. It absolutely is. It hasn't abated at all. And then when you talk about the home center, when we think, we kind of break what goes through there a little bit the professional remodeler business that demand has been very strong has remained that way, but as prices ticked up the do it yourselfers that seem to be where it slowed down a little bit. And then the price is corrected, and you ask them to pick back up I'd say from where we're seeing it, absolutely have those things corrected.

[Kurt Yinger, D. A. Davidson]

Got it. And just that kind of price sensitivity is I guess, mostly isolated to commodities that you're not seeing that same type of pullback and other categories that pricing is still up pretty significantly year-over-year?

[Jeff Strom, Head, Building Materials Distribution]

Yes, no, it's definitely been on the commodity side and it was just very similar to last year when the commodities got off to the levels they did hit the wall and do the same thing this year for the do it yourselfers particularly.

[Kurt Yinger, D. A. Davidson]

And then it sounds like the rebuild that the Scotch mill is kind of complete after the fire last year. Is that something that could provide you guys some relief in terms of third-party veneer supply or not really?

[Mike Brown, Head, Wood Products Operations]

Good morning, Kurt, it's Mike. Yes, we have a long standing relationship with the folks at Scotch and you are correct, the information I have is that the green end project is pretty much up and finished. They're running more or less agile, very close to the production levels that they had before the fire. We were actually able to assist Scotch during the rebuild phase by supplying them with some of our green veneer.

So we won't see a tremendous increase in the supply of veneer from the Scotch plywood company. Even though the grand ends up and running, it's more of a more swapping the veneer that they will peel themselves for the veneer that we were sending them from one of our facilities but it will certainly help a little bit but it's not a major or significant increase in availability of veneer to us.

[Kurt Yinger, D. A. Davidson]

And then, just my last one on capital allocation and maybe M&A specifically. Could you just talk about kind of the strategic priorities and maybe focus areas with M&A and just whether you think there is a possibility of putting some cash to work with deals this year.

[Nate Jorgensen, Chief Executive Officer]

Yes, Kurt. It's Nate, let me, I'll take that one. I think, as we look at our Wood Products opportunities and specifically our EWP franchise, I think we are still centered on, how do we grow our veneer capabilities? And obviously that's been important part, has been an important part of who we are and we will continue to be going forward.

So we want to continue to look at how do we strengthen our capabilities there and continue to build upon again the platform that we currently have in place. So that remains an important opportunity. I would say, maybe behind that within Wood Products, we continue to look at maybe the opportunity around mass timber, what does that opportunity look like that's probably more of a long-term opportunity for us in the industry. But that is something that we continue to work and better understand in terms of what our fit and where our position might be in that opportunity moving forward.

For BMD, we really have it probably broken down into three pieces. One is around how do we grow and support our existing footprint. And we have been doing that and several examples over the last couple of years in terms of expanding our capabilities and capacity in support of our growing business, as well as our growing product mix, and vendors that we are supporting. Probably the second element in BMD is, there are markets today that we serve, but we serve from a distance and an opportunity to get a little bit closer to market to increase our presence and our service is something that is going to be continued to be important for us as we move forward.

And then finally, just maybe circle back on the question I think Mark had on just on our door shop and our mill work franchise, that remains an important part of how we think about capital and growth for BMD as we move forward. So, those would be probably the three components within BMD. And again, as we described earlier, we are well-positioned to financially work those opportunities. And I think we have, again, really good clarity and focus on what are the key growth levers that we need to be working across that both in Wood Products and BMD.

[Operator]

And our next question comes from Reuben Garner of Benchmark. Your line is open.

[Reuben Garner, Benchmark]

Thanks everybody. Excuse me. A couple questions on BMD, if I could. I guess first, can you talk about, I think you mentioned in your prepared remarks, how the business held up pretty well here recently with the correction. Can you put any numbers on that? Any way you could kind of give us an idea where the gross margins been quarter-to-date in the second quarter kind of accounting for that commodity correction?

[Nate Jorgensen, Chief Executive Officer]

Yes. Sure. Good question Reuben. Good morning. So let me maybe start with a little bit of reminder of Q1. It's kind of a quarter of a trifecta, if you will, when you think about our gross margins. We had escalating commodity prices for the majority of the quarter, and we continue to see really, really good margins and margin growth across our EWP in general product line. So we had the trifecta that really got us to the 18% gross margin.

So then your question about, okay, tell us, how you are doing so far in the second quarter. Our sales pace is really consistent with first quarter, it's stayed very strong. And the margin goodness we get for media became general line remains and is probably getting a little bit of escalation there. And then we've done a really good job in April as kind of managing and mitigating the negative impacts of commodities. And we've essentially worked through that high cost inventory.

And has it caused some margin squeeze in April? Yes, absolutely. But it's nothing like we saw, if you remember, year ago, third quarter, the duration of that decline, as well as this, of the steepness of that decline is nothing like we've experienced here in the second quarter. And we've found a flat spot here in the last several weeks in commodities. So, I would tell you, I won't give you a specific number, but I would tell you our gross margins through April are much, much closer to year ago, second quarter than they are to year and those third quarter.

[Reuben Garner, Benchmark]

Within BMD or staying with BMD, the general line sales were very strong again. Can you talk to us about how much of that 30 points of growth is driven by price versus volume? And then any specific product categories to call out that's allowing you guys to grow, allowing you guys to continue to grow that fast on top of what are increasingly difficult comps?

[Jeff Strom, Head, Building Materials Distribution]

On the growth, if you think about the lack of supply and how difficult it is, the growth has been 100% driven on price, there's no volume growth there. If we can get it, we know we can grow it. And then there isn't a product line on the general line that we're selling that is not in that situation right. Now, let's still tension up. It's kind of across the board on everything.

[Reuben Garner, Benchmark]

And then last one, I think, if I could sneak one more in the engineered wood business within BMD continues to grow faster or looks to me to be continuing to grow faster than your EWP business from a manufacturing standpoint. How much more runway do you have there to sell more internally or through your own distribution?

[Nate Jorgensen, Chief Executive Officer]

This may I'll take that one. I think in terms of the overall EWP category, obviously, it remains under allocation. And so again, as we've described earlier, we expect that scenario to continue. I think when you look at the internal consumption by BMD as compared to a product that is sold to independent third party distribution.

A bit of change in terms of our external third-party distribution footprint in terms of the relationship, so that when you look at comps that I suspect is part of the equation. What we tried to be is very consistent, fair and predictable in terms of all of our relationships, internal and external, when it comes to EWP and allocation.

So that would be again, probably a bit of a channel change last year that's contributing to that difference, as opposed to take into kind of a material different view of how we think about internal versus external distribution.

[Reuben Garner, Benchmark]

And sorry, I said last one, but I want to speak one more small one and if I could. So if I have the numbers, correct here. That was the first quarter for a while of volume growth for plywood and I know that's been a focus using the veneer for more valuable sources or more valuable means internally anything unique about the first quarter there? Was that just a one off? Can you, I guess any color you can provide will be helpful?

[Mike Brown, Head, Wood Products Operations]

Reuben, it's Mike. Yes. So, I think the number was rounded up with 317 million feet of plywood. If you look back at 2021, we had one quarter that was significantly more than that was 337. And several other quarters that were right around 305, 310. So, as a general rule of thumb, we sort of tend to run around the 310 million feet of plywood each quarter, sometimes a bit more, sometimes a bit less, depends how we run, you can imagine.

But if there's no sort of structural change the way we're doing business, we weren't deliberately trying to put any additional fiber into plywood as compared to EWP because we just don't run our business that way. So it was just one of those sort of series of events that led to us making a bit more firewood as compared to, for example, the prior quarter, which was I think, 305 I remember correctly, so nothing structurally different, I promise you.

[Operator]

And our next question comes from George Staphos with Bank of America. Your line is open.

[George Staphos, Bank of America]

Nice quarter. I guess you can take the rest of the year off if you'd like, but probably won't happen. I wanted to hit a little bit on EWP and ply. If possible, you talked about Florien, you talked about Alex, you obviously have the Chester project. In broad strokes if you want to be granular, what will that do both to your veneer and EWP production in terms of growth? What does that add to on an annualized basis looking at the '23 and beyond? And should we expect kind of relatedly imply, are you running close to 300 through 3Q since the project at Chester won't be done until early three key or will you see you know better production there?

[Mike Brown, Head, Wood Products Operations]

Okay, I'll start and of course others will chip in as appropriate, George. So let me start with Chester. Okay, so the project at Chester is a very small dryer. We have three dryers there is the smallest of the dryers. And effectively, it will be out of service for like one quarter. So because of the size of that, the total gross impact on veneer production, he has this sort of going to be fun, that dryer is sort of like 10 million feet that will lose not very much in the scheme of things right.

But don't forget that as Kelly pointed out, our total production will be down a bit this quarter because if we did something else at Chester, we actually took the whole meal down for three weeks because we had a boiler project. So during the month of April, effectively the mill will only run for like one week. Okay, so that will have a more significant impact and I think Kelly's comment was more along the lines.

We should expect that our plywood volume in Q2 will be more like 300 that compared to 317 that we saw in Q1. And so, that's taking all that stuff into account. As it relates to, will this make a significant impact on our ability to produce more EWP? The reality unfortunately in some respects is, no. This more dryer in particular, we run mostly not always but we mostly run veneer through that we call strip veneer, which actually goes into plywood, not into EWP. So, it doesn't give us a huge lift, even though it'll be a new dryer.

There is not a significant lift in total stress rated veneer production from this project. You asked about chlorine, which has been an ongoing set of projects now for a number of years. That's mostly, I would say, complete. And we have some upside there if you will potentially in the future, because we have another small dryer that we are thinking about replacing, should we ever be able to find the past to do it because they now about two years away if we ordered them.

So again, nothing that I see as sort of a significant step-up in EWP production from internally-generated veneer, the challenge is you have heard me say, several quarters at least is that, we do buy some veneer on the outside and that has been particularly challenging in the Pacific Northwest of recent times, where I would add that, log prices are very high. And so, external suppliers of veneer have been challenged.

And as a result, some availability has declined. And to a little bit, we buy -- a bit of veneer in the south as well, and as I mentioned earlier, with the Scotch green end project being completed, maybe there will be a little bit of additional third-party veneer available. But in the scheme of things, this is sort of like a very small potential increase, nothing really of any significance.

[George Staphos, Bank of America]

So, Mike, I mean, as you look out over the next couple of years, and I mean, should we assume your ability to produce is basically going to be just around the lines of creep productivity 2%, 3%, if that's the right number, I don't know what the right number would be. But that would basically be the limit in terms of what we could see you produce and hit the market with?

[Mike Brown, Head, Wood Products Operations]

So, I guess I'd answer that question like this, George. We believe, if we could get all the people we need for all the days of the year, and we could get all the veneer that we need to fill our current installed capacity, we might be able to produce about 6% more in total. That's the sort of the number that we have used regularly now for some period of time.

So, the challenges are, can we get all the people all the days and to the point I just made previously around, can we possibly find some external veneer that would allow us to crank up production, to sort of meet our nameplate capacity? And that's obviously what we are trying to do.

I will comment on your sort of question around productivity. So if you go back more than a decade, sort of about the time of the great recession, if you look at the productivity of our machine centers, we have really squeezed most of the blood out of that stone. Our machine centers have really, really, really improved tremendously because of the work of our folks.

So, we might be able to get a little bit more because we are working on turning some things and changing out some parts, but it's, to your point, it's very low percentage points point here, or point there. It's not like it -- we won't get 6% just additional by productivity increases.

[George Staphos, Bank of America]

Understood, I appreciate that and the rundown there, Mike. Can you talk a little bit about where you see inventories in the chain right now? There is a sort of standard narrative most of the year that inventories were lean, maybe inventories were a little bit high in Canada, but that tension was allowing the markets to do what they have been doing. Are you seeing any build and inventory or are you seeing this continued destocking where buyers ultimately expect prices to head lower, which would make sense? And so therefore, they're not really stocking up inventory too low, and therefore you wind up with this continued tension and pricing in a good way. From your vantage point, how would you frame it given that very broad question?

[Jeff Strom, Head, Building Materials Distribution]

George, this is Jeff. I'd just say, overall in general, I believe that the inventories in general lean. And if you think about the general line EWP and even the mill work, they've all been strictly allocated tough to get the transportation issue. So that piece of it is definitely lean. On the commodity side, with the risk reward and where the numbers were, and people were definitely waiting for a correction.

I will tell you that still seem to be lean out there right now, as people are looking to buy back in. Again, we've seen that from demand that comes out of our warehouse. So there's still if you look at where the numbers stopped, this time and redirected, if it's still significant number. So there is no risk out there and we look where we're at right now, price wise.

[George Staphos, Bank of America]

To last ones on capital allocation and I'll turn it over. So back to the question of the supplemental and again, congratulations in the way you're allocating capital. And I know it's tough to predict, we're not really asking you to do that. But what factors would you need to see come into play for you to consider another supplemental this year, because at these rates, even with the regular dividend, even with the CapEx of 110 to 130, you're going to have excess cash. So recognize are other things other growth projects, potential M&A? What would need to happen time wise and consideration wise, such that you would consider another supplemental?

And then my other question, I'll turn it over, as you think about, mass timber and CLT, would you consider, could you update us on your thoughts about whether you'd be willing to partner with anybody in that area? And is there any way to somehow get some benefit from the whole credit concept, which seems to be also driving people's interest in mass timber, recognizing that once it's cut down and put into a study that credits no longer there? It was in the harvesting or the deferral, but how do you partner with people around getting more of an ESG credit for what you do? And in turn, how you might be able to use that in terms of applying capital to that business?

[Jeff Strom, Head, Building Materials Distribution]

So I'll take the first part of your question around capital allocation, and you hit on a lot of the things we talked about and think about in terms of when might, we consider another supplemental dividend. I would tell you, we certainly want to have more line of sight in terms of 2022 just in terms of operational performance. And then, again, as we've alluded to there's a number of things in the pipeline on BMD a lot of organic projects in particular that we're working on and looking at. And then the inbound activity is still pretty active also.

So, we want to stay patience and flexible and kind of see how those events roll out over the year. And if we end up getting towards the third, end of the third beginning of the fourth quarter, and some of the organic or M&A things don't come to fruition, and we feel like we have more cash than appropriate and then we'll have that conversation again with the board around supplemental dividend or stock repurchase. I guess I'll turn it to Nate or Mike to address the CLT and mass timber.

[Mike Brown, Head, Wood Products Operations]

Yes, first thing George on the partnering question. We're actually doing that already. So, it's sort of behind the scenes we're obviously not out there in the CLT market. People like to talk about CLT as much as anything else. But we have a group of folks with a gentleman by the name of Dennis Bott that has been working in this space now for going on three years. We don't produce a lot of material that we are able to own material that we can put into these sorts of projects at the moment because of our allocated situation on our traditionally EWP.

But we are involved in a small way already partnering with third parties to put together the supply of raw materials on a number of different projects. So as a general statement, we are doing it and we will continue to do it. And if there is an opportunity that presents itself that larger in scale, then we will certainly look at that very, very, very closely.

The second question, part of your question, I believe was around the carbon credit item and how that fits into ESG in general.

[George Staphos, Bank of America]

Yes and how are you? I was spitballing, to be quite honest with you a little bit here, but how you could somehow use that to stimulate demand and to some degree, benefit from that value somehow, in terms of ultimately the capital that you would apply as you partner in the business and hopefully down the road grow it?

[Mike Brown, Head, Wood Products Operations]

Okay. So this is a bit like you, this will may not be the totally fully thought through answer to your question, but my view a personal view on the carbon credit side of things as it relates to mass timber, it could become a thing over time. But it's sort of an add-on as opposed to a core component of why you would do mass timber.

So again, if we can find a way to either use some of our traditional products or develop new products that we can put into mass timber and partner with other folks, there may be an additional upside premium that comes, that falls to those that produce because of the carbon credit related issue.

I think we're in pretty early days of trying to find what that all looks like. So I'm not sure I'm quite gained to tell you how much that might be and when it is and what it might look like. So I'm going to hedge my bets and say we'll be taking a closer look over time, but from my opinion, that's somewhat in the future and not the core part of how to justify mass timber buildings.

[Nate Jorgensen, Chief Executive Officer]

I just had a quick thought on that as Mike described as, as you think about wood competing against steel and concrete. The story is exceptional, and as Mike described, not just on the carbon side, but on other elements in terms of construction and flexibility and design. So we see that storyboard continued to build across the industry, as Mike described, it's probably measured in multiple years, just given where things are at. But ultimately, we feel good about, one's ability to compete and win against some of the alternatives of steel and concrete.

[Operator]

And our next question comes from Mark Wilde of Bank of Montreal. Your line is open.

[Mark Wilde, Bank of Montreal]

Yes, I just back over on building materials distribution. I'm just curious, how was the availability of other products, doors, windows roofing or other things where we've been hearing about shortages? Is that improving at all at this point?

[Jeff Strom, Head, Building Materials Distribution]

Mark, it's Jeff. The door side is on strict allocation on the exterior doors, and has been in fact, if anything, the allocation got tighter, and now they're working hard just to try to get back to the allocated levels. So, that's kind of the same and on the roofing side of the little bit that we're in. It's been incredibly difficult as well. There has been no change in that whatsoever.

[Nate Jorgensen, Chief Executive Officer]

Mark, it's Nate. Maybe just another quick comment on I think to other products and services in some cases that we don't represent or distribute, I think are having an impact on the overall capability and capacity of our industry. And so, sometimes it's regionally specific, but I think, today in certain markets, its garage doors.

And again, we don't do anything with garage doors, but it is limiting perhaps what the overall capacity for the housing industry is. And I think we again are kind of in some cases running from bottleneck-to-bottleneck on both supply and services. So, that's an element that has been with us for a period of time and we would expect that storyboard likely to remain as we go through the course of this year.

[Mark Wilde, Bank of Montreal]

Okay. Well, along those lines, Nate, I wondered if you could just give us an update on sort of both log pricing in the south and west. And then any availability issues with other inputs, particularly things like resin or specialty resins?

[Mike Brown, Head, Wood Products Operations]

Yes. So, I'll start with the second one first resins. Thankfully, we have just tremendous partners in that particular space. So, while there were some challenges going back to ice storms and alike some time ago, I'm very happy to say that, our partners in supplying us with resin. They didn't miss a beat. Yes, we had to shovel a few things around here and there and everywhere, but we didn't lose production cause of a lack of resin supply.

So, this is an opportunity to thank my resin partners because they did a great job. As it relates to log pricing, log pricing has gone up, there is no doubt about that. In the South, there has been some, I would call it a relatively small incremental increase Q1 to Q1 sort of, I'd say, sort of mid to low single digit sort of numbers.

Some of that has to do with weather as always. It's been some challenging weather situations. I guess we'll see how that pans out over the, the next little while, but it is a very general comment, a little bit of increase in the south, but nothing like the order of magnitudes of sort of increases we have seen in the Pacific Northwest. So generally speaking, the increases in the west have been significantly higher. I'd say, sort of compared to Q1 of the prior year, not quite 10%, but in that order of magnitude, the challenge that we have seen has continued into Q2.

So, last set of data that I looked at, sort of indicated that, the prices that we are having to pay not all day every day, but for certain sales or the purchase of certain sales of timber, at kind of all time record highs and that's a bit of a challenge for us, a bit of a challenge for the whole industry, to be honest.

And there is a variety of reasons behind that, but I think as we move forward, they will start to tail-off a little bit, but I don't see them sort of dropping immediately back to sort of like the historical levels. So expect, sort of sustained higher load costs for a period of time.

[Mark Wilde, Bank of Montreal]

Okay. Now the last one I had was just kind of going back to something George was asking about, in terms of partnering up in the mass timber area. I'm just struck by the fact that, we are starting to see some fairly innovative European companies invest in the Wood Products business over here. And it seems to me, the Wood Products companies in Europe have been generally, at the front edge of some of these new engineered products. And I just wondered, whether you would seem to be a pretty valuable entree into the market, channel to the market for companies like Binderholz and others as they start to build out here. Any thoughts on that?

[Nate Jorgensen, Chief Executive Officer]

Yes, Mark. It's Nate. I think when you look at the mass timber opportunity here in North America, and then to your point what's happening in other parts of the globe. Europe is well ahead of us. And they've been building with mass timber for, in some cases, decades. So, I think in terms of maybe what our level of optimism and competence about that being a relevant and capable solution moving forward. We do look and have spent time on this better understanding what the European market has done.

So not surprisingly there perhaps are Europeans that are looking to expand their capabilities to other parts of the world. But I think part of that momentum has certainly been centered on again, in some cases, decades of experience in Europe, where they have proven mass timber, CLT can be a very competitive solution relative to steel and concrete. So, that's not a surprise and it's something that can we continue to learn from not just what's happening in North America, but happening across the globe.

[Operator]

I'm showing no further questions. I would now like to turn the conference back to Nate for closing remarks.

[Nate Jorgensen, Chief Executive Officer]

Okay, great. Thanks Latonya. Just, again, we appreciate everyone joining us today for this morning's call and update and we appreciate your continued interest in support of Boise Cascade.

With that said, please stay safe and be well. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.