Boise Cascade Co

NYSE:BCC

Earnings Call Transcript 2019-Q4

[Operator]

Good morning. My name is Michelle, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's Fourth Quarter 2019 Conference Call. [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 actual results to differ from results anticipated, please refer to Boise Cascade's recent filings with the SEC.

It is now my pleasure to introduce to you Wayne Rancourt, Executive Vice President, CFO and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

[Wayne Rancourt]

Thank you, Michelle. Good morning, everyone. I'd like to welcome you to our fourth quarter earnings call and business update. Joining me on today's call are Tom Corrick, our retiring CEO; Nate Jorgensen, our incoming CEO; Mike Brown, Head of our Wood Products Operations; and Nick Stokes, Head of our Building Materials Distribution Operations.

Turning to slide two, 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 Tom Corrick to offer his comments on last year's performance and his upcoming retirement next week.

[Thomas Corrick, EVP, Chief Financial Officer and Treasurer]

Thanks, Wayne. Given the pricing and demand environment we faced in 2019, I'm very pleased with our performance last year. Our ongoing strategic focus on growing distribution and EWP, as well as our activities in 2018 to reduce our exposure in manufacturing to commodity products have all played key roles in increasing the company's earnings stability.

The resiliency of the business we are building is most clearly demonstrated by the fact that in a very challenging market in 2019, the company was able to generate $94 million of free cash flow and returned $54 million to our shareholders, all while continuing to strengthen our balance sheet and fund our full capital program. Any review of 2019 would be incomplete without recognizing the great work our associates have done to make these results possible.

Thank you to the team for a job well done. After nearly 38 years with the company and exactly five years to the day, serving as the CEO, I will be retiring next month. Boise Cascade is a company that is built on relationships, associates, customers, suppliers, shareholders and communities.

The power of that model has become very clear to me over the past few months as I have traveled around the country to say thank you to everyone who has helped me along the way and helped Boise Cascade achieve leadership and distribution and EWP. I want to thank our audience today, and particularly, the analysts, who have so thoughtfully helped investors better understand the company, for their role in this journey. It has been a pleasure to participate in the many nondeal roadshows and investor conferences you have sponsored over the past five years that have allowed us to hear the voice of the investor directly.

Hopefully, our approach to the business since the IPO in 2013 would prove we have been listening. It has been an honor to be able to serve a great team here at Boise Cascade. I close by saying that I'm confident that I leave the company in great hands with a strong experienced leadership team that has a clear vision of where we need to take the company going forward.

I will now turn it over to Nate in more ways than one, Nate, it is all yours.

[Nate Jorgensen, Chief Operating Officer]

Thanks, Tom. I'm on slide number three. Our fourth quarter sales of $1.1 billion were up 3% from fourth quarter of 2018. Our net income was $14.6 million or $0.37 per share compared to the net loss of $72.2 million or $1.85 per share in the year ago quarter. Fourth quarter 2018 results included $55 million of pretax accelerated depreciation and $2.8 million of other closure-related costs or $1.11 per share after tax due to the permanent curtailment of LVL production at our Roxboro, North Carolina facility.

Fourth quarter 2018 also included $24 million of pretax charges or $0.46 per share after tax related to the sale of our hardwood plywood facility in Moncure, North Carolina, which was completed in early 2019. Our operating performance in both businesses was stronger than expected as favorable weather continued allowed homeowners to homebuilders, rather, to maintain solid activity levels driving product demand.

Our Wood Products manufacturing business reported segment income of $8.1 million in the fourth quarter compared to a segment loss of $86.6 million in the year ago quarter, which included the Roxboro and Moncure charges previously mentioned.

Our Building Materials Distribution business reported segment income of $26.3 million on the quarterly sales of $987 million for fourth quarter compared to $8.9 million of segment income on quarterly sales of $922 million in the comparative prior year quarter. Wayne will walk you through the financial results in more detail, and then I'll come back and provide our outlook before we take your questions. Wayne?

[Wayne Rancourt]

Thank you, Nate. Wood Products sales in the fourth quarter, including sales to our distribution segment, were $296 million, down 4% from the fourth quarter of 2018. As Nate mentioned, Wood Products reported segment income of $8.1 million in the fourth quarter compared to a segment loss of $86.6 million in the prior year quarter. Reported EBITDA for the business was $22.7 million, up from negative EBITDA of $15.3 million reported in the year ago quarter.

When excluding the impact of the Roxboro, Moncure related losses in fourth quarter 2018, Wood Products segment income increased approximately $13 million due to improved EWP volumes and prices, favorable input costs for OSB and logs and lower per unit conversion costs.

These improvements were offset partially by lower plywood prices. BMD sales in the quarter were $987 million, up 7% from fourth quarter 2018. Sales volumes were up 11%, while sales prices declined 4%. Excluding the impact of the acquisitions made during 2018 and 2019, the sales increase in the quarter for BMD would have been approximately 4%.

The business reported segment income of $26.3 million or EBITDA of $31.6 million in the fourth quarter. This compares to segment income of $8.9 million and EBITDA of $13.8 million in the prior year quarter. The increase in income was driven primarily by gross margin increase of $27.3 million, resulting from improved gross margins on commodity products and higher sales of general line products in EWP compared with fourth quarter 2018.

The increase in gross margin during the fourth quarter was offset partially by an $8.4 million increase in selling and distribution expenses. Gross margins on commodity products in the prior year quarter were negatively impacted by sharply falling prices.

The amounts for unallocated corporate costs and other items impacting our reported adjusted EBITDA can be found in the tables of our earnings release. The net of those items was negative $9.0 million in the fourth quarter compared with negative $7.5 million in fourth quarter 2018.

Turning to slide five. Our fourth quarter sales volumes for LVL and I-joist were up 21% and 20%, respectively, compared with fourth quarter 2018. As a reminder, EWP consumption is influenced not only by total housing starts but also by the mix of single-family and multifamily starts, median single-family home size as well as the home foundation type.

Our full year 2019 LVL volume increase on 1%, trended closely with single-family starts, while our I-joist volumes declined modestly at 4%. We believe the decline in our I-joist sales is due in part to decreases in median home size and an increasing proportion of slab on grade new home construction.

According to APA, industry I-joist production dropped approximately 10% in 2018. Pricing in the fourth quarter for I-joist was up 4% and LVL pricing was down 1% compared with fourth quarter 2018. Turning to slide six.

Our fourth quarter plywood sales volume in wood products was 315 million feet compared to 326 million feet in the fourth quarter of 2018. The lower volume for plywood sales reflects the sale of the Moncure plywood facility during first quarter 2019.

Also we continue to work to optimize veneer into EWP production and to limit production of plywood where it results in cash losses. The $251 average plywood net sales price in fourth quarter was down 18% from fourth quarter 2018. Plywood pricing, as we entered 2020, was modestly below our fourth quarter average pricing and more than 15% below first quarter 2019. In the last few weeks, plywood pricing has improved as seasonal buying has accelerated and some of the overhang from very weak OSB pricing has subsided.

Moving to slide seven. BMD's fourth quarter sales were $987 million, up 7% from fourth quarter 2018. By product area, BMD's commodity sales decreased 3%, general line product sales increased 14%, and EWP sales increased 19%. The gross margin percentage for BMD in the fourth quarter was 13%, up 210 basis points from the 10.9% reported in the fourth quarter 2018.

The gross margin increase resulted from more normalized gross margins on commodity products and higher sales of general line products in EWP compared to fourth quarter 2018. The prior year quarter was negatively impacted by sharply following commodity wood products prices.

As a reminder, general line products in EWP that we service through our branches tend to have higher gross margins but also higher associated sales and handling costs. BMD's EBIDTA margin was 3.2% for the quarter, up from 1.5% reported in the year ago quarter. On slide eight, we have set out the key elements of our working capital. Company net working capital, excluding cash, income tax items and accrued interest, decreased $16.4 million during the fourth quarter.

Accounts receivable and accounts payable decreased with the seasonal deceleration of sales and purchases. 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 that are interested in more detail. I'm now on slide nine. We finished fourth quarter with $285 million of cash.

Our total available liquidity at December 31 was approximately $622 million, which reflects our cash and the availability under our credit bank line. I'm pleased to note that we returned $54 million in regular and supplemental dividends to shareholders during 2019, including $43 million in the fourth quarter.

Our capital spending, excluding acquisitions, is expected to be between $85 million and $95 million this year, which includes spending to improve the efficiency of our veneer production at our Florien, Louisiana facility. We expect our effective book tax rate to be approximately 27% this year.

I will now turn the call back over to Nate to discuss the outlook.

[Nate Jorgensen, Chief Operating Officer]

Thanks, Wayne. I'm on slide number 10. Total housing starts in 2019 modestly improved 3% to 1.29 million with single-family starts up a meager 1%. The February consensus for 2020 U.S. housing starts is 1.34 million. We believe important economic drivers behind the demand for new construction, like job formation, remain in place.

However, affordability issues in many metropolitan areas, the availability of construction labor and the regulatory constraints continue to influence the pace of activity. We expect limited growth over the next 12 months from an overall increase in product demand, so we are sharply focused on growing our distribution revenues organically and through opportunistic acquisitions.

In Wood Products, our focus remains on driving operational improvements and getting additional veneer into higher value, more stably priced engineered Wood Products.

Yesterday, we announced the permanent closure of our Roxboro, North Carolina I-joist line. The decision to do so came after assessing the mill's cost structure, the likely regional demand for I-joist over the next several years and our available capacity for producing I-joist at Alexandria, Louisiana. I want to recognize and thank our employees at Roxboro for their hard work and commitment in improving the productivity of the I-joist line over the last several years.

I'm disappointed the housing start environment didn't evolve as we expected when we purchased the Roxboro facility in 2016. On a more positive note, we enter 2020 very well positioned financially. We have the flexibility to continue to invest in our core operations and our people, which I believe will be critical in further growing our company and providing great service and value to our customers in the years ahead. Finally, I'd like to take this opportunity to thank and congratulate Tom on his nearly 38 years of outstanding service and dedication to Boise Cascade and the forest products industry.

The impact Tom has created in the company is clear, and we simply would not be in a position today without his passion, commitment and drive for excellence. Further, his tireless industry work has led to changes in the U.S. building code that have provided access to wood frame and mass timber construction in the commercial market segment.

Tom started out with his comments on relationships, associates, customers, suppliers, shareholders and communities. The example he has set for me and others across Boise Cascade takes place daily and will continue to be a fundamental part of who we are as an organization and our business model moving forward. Tom, all the best to Laurie and you as you move into your well-deserved retirement.

At this time, we welcome any questions. Michelle, would you please open the phone lines?

[Operator]

[Operator Instructions] Our first question comes from Brian Maguire of Goldman Sachs. Your line is open.

[Derrick Laton, Goldman Sachs]

Hey, good morning, guys. It's Derrick Laton on for Brian.

[Wayne Rancourt]

Morning, Derek.

[Derrick Laton, Goldman Sachs]

Morning. Thanks for taking my questions. You've really seen over the last month or so, panel prices have pretty much gone vertical with OSB and plywood up a lot. Are you guys attributing a lot of the strong rise in pricing so far as may be just catching some of the buyers offsides on leaner inventories, and we're just seeing more of a rapid restocking phase? And what is your sense for where buyer inventories are, where we stand now? And then how comfortable are you with your own inventories on plywood at the moment?

[Wayne Rancourt]

Derrick, this is Wayne. I'm going to start on the fundamentals, and then I'll let Nick kind of give you his view on where supply chain inventories are. I think really what you're seeing on the OSB side and to a certain degree on the plywood side is the impact of the capacity withdrawals that the industry made in the second half of 2019.

And with spring buying activity accelerating, I think the capacity withdrawal impact is likely the primary driver of the improved pricing dynamics. And then to your point, I think the flexibility with the supply curtailed is not there to meet sudden surges in demand. And I think that's largely, probably, what's behind the price increase, and I'll let Nick maybe touch on that supply chain.

[Nick Stokes, Head, Building Materials Distribution Operations]

Derrick, this is Nick. I think Wayne speaks to it a bit. I think as we saw the fourth quarter of 2019 sort of finish up, I think people had an expectation through the supply chain. And as you know, there's no data on this. So it's based on conversations with our customers and our suppliers to some degree. So at the end of the year, I think people had the expectation that we'd have a more normalized seasonal winter kind of environment.

As you well know, the winter in many places has been a bit more moderate than history says and quite frankly, with housing and repair-and-remodel a bit more frisky on the demand side for the first six weeks of the year.

And so I think it's a little bit of what I would describe as normalized inventory, maybe on the light side a little bit and a little bit better activity that has prompted people to go cover some needs that they have and anticipate stuff that they've got coming up.

[Derrick Laton, Goldman Sachs]

Got it. That's helpful. And then similarly, what are you seeing in the EWP market right now? Are you seeing sort of a similar demand pull as what you've seen in panel so far this year? And do you think that's ultimately enough to absorb some of the new capacity that's entering the market in the south?

[Mike Brown, Head, Wood Products Operations]

Yes. Derrick, this is Mike Brown. Yes. So our demand at the moment for EWP is really quite strong for this time of the year. As Nick just mentioned, I think that can be at least partially attributed to the fact that we've had pretty good weather going into the year. The other side of that is, you asked about additional capacity coming in or coming online, really thus far, and I guess you're specifically referring to the Roseburg, EWP or LVL facility in the Carolinas.

While there's been a little bit of that material showing up in the marketplace, thus far, it really hasn't had that much of an impact, certainly not on our supply and demand situation. So it's more good weather and pretty good demand across the United States.

[Derrick Laton, Goldman Sachs]

Tom, congratulations and best of luck.

[Thomas Corrick, EVP, Chief Financial Officer and Treasurer]

Thank you.

[Operator]

Our next question comes from George Staphos of Bank of America. Your line is open.

[John Babcock, Bank of America]

Hi, This is actually John Babcock on the line for George. I should just tag along kind of that last question. I was wondering if, first of all, just given kind of fundamentals in the EWP market, have there been any price increases?

[Nate Jorgensen, Chief Operating Officer]

Yes. So this is Nate Jorgensen. In terms of EWP price increases, nothing that has been done across any significant markets or across any of the geographies in the U.S. or Canada. The last I guess formal increase that we had was in early 2018. So that's been probably the last significant event that's taken place on EWP pricing.

[John Babcock, Bank of America]

Okay. So nothing announced so far this year from any...

[Nate Jorgensen, Chief Operating Officer]

That's correct.

[John Babcock, Bank of America]

Okay. Got you. And then next, I kind of wanted to tag along. Just some of the kind of overall commentary on the residential construction market. I mean it seems like you guys are relatively cautious overall. And you mentioned some of the labor and other constraints and the impact that's having on housing starts. Is there anything else that you're seeing in the market that makes you want to take a somewhat more conservative view than perhaps consensus is expecting at this point?

[Wayne Rancourt]

No. I think part of it is that's been our style. We'd rather plan for a slow environment and if we get surprised on the upside, we're well positioned from a capacity standpoint to respond to that. But I think the internal cadence, we take a more conservative view and then build off of that. I do think in a number of markets, the stuff that's going on with off-site component construction and some of the things that are going on at the dealer to help address some of the labor availability, might create some upside capacity. But the regulatory environment in terms of getting lots entitled and building approved as well as the labor we think continues to act as a bit of a constraint as well as builders trying to protect their margins. So we continue to think that we're probably going to be 1.3 million to 1.350 million on the start number. And again, if it turns out to be meaningfully better than that, we've got the capacity and we're ready to respond.

[John Babcock, Bank of America]

Okay. That's helpful. And then just with regards to the Roxboro facility, what's first of all, I guess if you could kind of remind us how much was produced at that facility. And then also, what are your plans for the location from here?

[Mike Brown, Head, Wood Products Operations]

Yes. George this is Mike. We're really only running approximately one shift there, that was just the I-joist production. As you recall, the LVL production was curtailed previously. And on an annualized basis, you can use a number of somewhere between 12 million and 15 million veneer feet of production.

And so we'll be transferring that volume to our Alexandria, Louisiana facility, where we have a much better cost structure and ample capacity to service the market. The future for that particular site is we're essentially going to mark board at this point in time. We have no intention of either selling the equipment or doing anything else with the site.

[John Babcock, Bank of America]

Okay. And then just last question before I turn it over. I was wondering if you could just talk about your average plywood price realizations now versus kind of 4Q average and also where spotted?

[Wayne Rancourt]

So as we mentioned in the script, we have now moved above our fourth quarter average. But if you looked at where we were in early January, we were about 15% below prior year, and we were slightly under the $251 average that we had in 4Q. So again, if the price momentum continues that we're seeing through the balance of this month and in March, I think we're probably at or a little better than where we were in 4Q of 2019. But certainly, in early January, it was the worst prices that we've seen in many years.

[John Babcock, Bank of America]

Thank you.

[Operator]

[Operator Instructions] Our next question comes from Steve Chercover of Davidson. Your line is open.

[Steve Chercover, Davidson]

Thanks. I guess I'll start by saying congrats, Tom. Thanks for everything, including some laughs over the years.

[Thomas Corrick, EVP, Chief Financial Officer and Treasurer]

Happy to provide, Steve. I hope the laughs were intentional.

[Steve Chercover, Davidson]

Well, I think they're important. Like you said, it's relationships and having fun. Anyhow, I'll start a little abstract, and then I'll get real. So do you guys believe in deja vu? And if so, how does 2020 feel as compared to 2018?

[Wayne Rancourt]

This is Wayne and my smart-aleck comment as you remember, a part of the price run in early 2018 was related to transportation difficulties in Canada. So I think that the recent blockade activity in Canada. There was a certain deja vu quality to it. Again, we'll see how 2020 plays out. We are very pleased to see the recovery in commodity pricing, both on lumber and on panels, but we're still well behind where we would have been in 2018, and I'd be shocked that we reprint that environment again.

[Steve Chercover, Davidson]

Yes. Well, I guess my home is also native land, and that's part of the situation up there. Okay. Well, hopefully, we get the good part of 2018 without the hangover at the end. So on the panel side, absent what's going on north of the border. Brazil has also seems to be down? And why do you think the imports from Latin America are down and will they remain subdued?

[Wayne Rancourt]

Well, at the early part of the year, my understanding is that the tariffs go off in Europe. So a lot of the Brazilian production gets directed to Europe. And usually, the March, April time frame, we start to see those volumes swing back to a more normal situation. And last year, I think we were just under 40% of the total Brazilian exports came to the U.S., and we're not expecting that situation to change, particularly given currency exchange rates.

Again, I think our opinion is the 15% or so of North American plywood, it's getting serviced with imports as likely to be in that same range again this year based on what we see. I think the determining factor largely for plywood is probably going to be what happens on the OSB side.

And as long as OSB remains in reasonably tight supply and the pricing is favorable, that will help support the plywood environment. But if we go back to heavily oversupplied OSB market, that will weigh on plywood pricing. But again, right now, the balance looks favorable as we move into spring.

[Steve Chercover, Davidson]

Got it. And then we discussed Roxboro a little bit, including the volume, which was helpful. But presumably, it was not economic and was an EBITDA drag. So can you maybe quantify what it was losing? And then how the shut might be or the benefit of the shut might be somewhat offset by higher freight from Alexandria?

[Wayne Rancourt]

Yes. So we weren't losing large amounts of money at Roxboro. It was close to neutral. The issue for us is the way we balance our mills regionally. We see an opportunity to change the type of LVL that we produced at Thorsby, Alabama and we've got a much lower cost structure at Alexandria for producing the I-joist. So with the what we've seen is the modest declines in I-joist demand from the overall market, we concluded that it was better economically to rebalance the type of LVL we produced at Thorsby and produce less I-joist plants material.

And shift the I-joist production to Alexandria, which is a far lower cost I-joist line. And your point is well taken that Roxboro's major competitive advantage was being close to the market. But the cost savings at Alexandria will more than overcome the freight advantage that Roxboro had. And it's probably a couple of hundred thousand dollars a month plus in run rate savings that we'll get by making this change.

[Steve Chercover, Davidson]

Great. And then finally, maybe this is for Nick, but you tagged on three distribution locations in 2018 and one more last year. So what and where are the priorities on your wish list?

[Nick Stokes, Head, Building Materials Distribution Operations]

Well, as we've articulated in prior calls, Steve. There's a number of geographies that we still feel like we'd benefit from having a facility and essentially trade market share against freight costs to service those geographies. We're looking at those as we speak. And the other thing that we've articulated on prior calls is we'd like to have more of a presence in millwork and door shops around the country. And so we're working on that angle as well.

[Steve Chercover, Davidson]

Okay, well, thank you very much.

[Nick Stokes, Head, Building Materials Distribution Operations]

Thanks, Dave.

Operator

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

[Mark Wilde, Bank of Montreal]

Good morning, I'll just add my best wishes to Tom Corrick and congratulations to Nate on taking over.

[Nate Jorgensen, Chief Operating Officer]

Thanks, Mark.

[Thomas Corrick, EVP, Chief Financial Officer and Treasurer]

Thanks, Mark.

[Mark Wilde, Bank of Montreal]

I wonder just starting out, if we can talk about whether the EWP business is changing enough that you need to rethink your approach to that market? And I guess as sort of a tag on to that, I wonder with this growing amount of sort of componentry build being built off-site, whether that also kind of changes dynamics at all for your distribution business?

[Mike Brown, Head, Wood Products Operations]

Yes. Mark, I'll have a stab at just to begin with. So I think our go-to-market strategy has been very robust and served us well thus far. The changes in the EWP market, if you're talking about the amount of I-joist being consumed in a slightly smaller-sized single-family house being built.

At the end of the day, the products that we produce are still in high demand and we still have good margins on them. I would suggest that if you're thinking about the component side of things, that there are some advantages to the types of products that we produce because of their consistency.

So there's a movement towards more upside construction. I think there's actually some advantages to the type of material that we can supply that will allow us to also play somewhat in that space by essentially through the consistency of what's being needed from those folks. So at this point in time, I don't see a massive change in our go-to-market strategy through distribution and dealers to ultimately to the builder.

[Mark Wilde, Bank of Montreal]

And does the distribution business itself change at all if you have more kind of off-site componentry going in and less kind of traditional stick-built?

[Nick Stokes, Head, Building Materials Distribution Operations]

I think the way this is Nick, Mark. I think the way we think about it is, it probably is an evolving kind of dynamic. There may very well be different products that we deliver to those factory-built sites as opposed to delivering them to the lumberyard.

But clearly, the services the distribution provide in terms of logistics and supply chain are valuable, whether they are building that in a factory or they're building it at a job site. And so the degree of absorption, if you will, will vary and be spotty and sporadic. And but I don't think it's any kind of a threat at all, I think it just evolves and changes a bit.

[Wayne Rancourt]

Yes. In fact, I would note, Mark, there's a couple of the component people that have been bought recently by some of the larger retail yards that were significant customers for our individual wholesale branches, and I don't see that service level changing. The fact that we can provide just-in-time service material for some of those component facilities, it's pretty important because a lot of times, they don't have a very large real estate footprint.

So being able to get daily truck deliveries, and in some cases, multiple deliveries a day allows them to be effective in terms of their real estate footprint and their working capital management.

[Mark Wilde, Bank of Montreal]

Okay. The second question I have, just sort of big picture-wise, is you guys have done a lot of good things since coming public, but this kind of experience in the Carolinas with plywood and with the engineered wood has probably been the toughest thing that you've encountered. I just wonder what the lessons learned are from that.

[Wayne Rancourt]

Yes. This is Wayne. I'll take a shot at it. I think the lessons learned, and we know this or should have probably known this from our existing mills. When you buy old, tired assets, it takes a very long time to get them back into a well maintained and reliable condition. And the Roxboro facility, in particular, had some unique engineering challenges.

And I think in hindsight, obviously, we would have done that differently. But I think to the point that we made in our comments that probably the biggest thing that impacted Roxboro is we bought that at a time when we and many in the industry thought we were going back to 1.5 million housing starts, and that has not been the case.

So the incremental capacity out of Roxboro, a good portion of the reason it never found itself economic as we're about 200,000 starts short of where we thought we would be. And we have presumed that a lot of those starts would be in the South Southeast, which again, continues to be a good market, but it has not developed the way we thought it would when we bought that facility in 2016.

And so we're making what we think are economically rational decisions around our footprint and there we are. But I think if you look at like Chester, South Carolina, the plywood facility, we've put significant capital into that and we feel very good about the cost position of Chester.

And if you look at the financial performance as we got into the second half of last year, even with weak plywood pricing, Chester is running considerably better today than it was when we purchased it many years ago. And it's been a long-haul both in terms of capital improvements and, frankly, changing the culture and getting the workforce and that's productive and safe.

And I think if there's any lesson, Mark, it's that it takes years to accomplish that and then the flip side is once you get it right, you got to work every day to defend the position and the productivity and the safety.

[Mark Wilde, Bank of Montreal]

Okay, that's helpful. And the last one for me. I'm just curious, when you think about the kind of growing interest in kind of wood-based construction in a lot of commercial structures and potentially in some higher-rise buildings. Whether that has implications for you in terms of other engineered Wood Products that you might want to get into, and whether it also has implications for your distribution business?

[Mike Brown, Head, Wood Products Operations]

So I'll have a stab at the first part, Mark, about the use of our existing or new products. So yes, mass timber construction, I think, is certainly an opportunity for us. We are currently investigating how we would go to market in that particular space. Certainly, some of the products that we use today, like our LVL could be used, we have a small glulam facility as well, as you know, that plays in that space.

But we're also looking at how we can adapt our current manufacturing facilities to be able to produce larger-sized beams or columns based on veneer. Some of those veneers are the veneers that would normally go into plywood. So we have a variety of different approaches that we are evaluating that certainly are aimed at tapping into the mass timber construction space as it develops over the coming years. As it relates to distribution, I guess Nick would be a most appropriate person to answer that.

[Nick Stokes, Head, Building Materials Distribution Operations]

Mark, as you know, we'll sell anything to anybody that we can make a buck on, so if there's opportunity, we'll take advantage of it. But to speculate on the specifics, I just don't have that knowledge at this point in time.

[Nate Jorgensen, Chief Operating Officer]

Mark, the one thing this is Nate. The one thing I would add just on the logistics, the BMD today, they are very, very active participants in the commercial construction. If you think about multi-family and some of the activity that takes to play, especially on the I-5 corridor, it's a really important part of our distribution business on EWP and other products and services.

So in terms of our reach and touch while mass timber is certainly different, Nick and team are very, very active in that space today, and that's going to be an important part of our growth as we move forward as well.

[Mark Wilde, Bank of Montreal]

Okay, that's helpful, Nate. I'll turn it over.

[Operator]

There are no further questions. I'd like to turn the call back over to Nate Jorgensen for any closing remarks.

[Nate Jorgensen, Chief Operating Officer]

Okay. Thank you for everyone's time and support and interest of Boise Cascade, and we look forward to updating you on our first quarter results. With that, we'll conclude the call. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.+