BOISE, Idaho, BUSINESS WIRE–Boise Cascade Company has reported net income of $33.6 million, or $0.85 per share, on sales of $1.2 billion for the second quarter ended June 30, 2020.
“As we navigate this pandemic, the performance of our 5,700+ associates has been nothing short of outstanding. I am humbled by how our people have led with our shared values in response to the daily challenges in front of us while continuing to support our customers’ needs,” commented Nate Jorgensen, CEO. “Both of our businesses delivered strong financial results in the face of this unprecedented environment. Wood Products’ continued focus on manufacturing cost improvements was especially notable given production curtailments and modifications. BMD’s sales and income were robust, and our long-term strategy and commitment to consistently carry a broad base of in-stock products, supported by high service levels and a solid financial position, continue to deliver value to our vendor and customer partners in the supply chain, as well as our shareholders.”
In response to rapidly evolving market conditions and economic uncertainties surrounding the impact of COVID-19, our Wood Products segment implemented certain production changes early in the second quarter, including temporary curtailments and reduced operating schedules at essentially all of our manufacturing facilities, to respond to weaker anticipated demand for the products we manufacture. Activity through the building products supply chain was weak early in the second quarter in response to COVID-19 uncertainties, including shelter-in-place orders in effect in many states, guidelines limiting activity for non-essential businesses, and other rules that limited the number of trade workers that can be on a residential construction site at one time. As restrictions were loosened or rescinded, construction activity resumed mid-quarter and continued at a robust pace through the end of the quarter. Our BMD warehouse sales were particularly strong as our retail lumberyard customers are relying on our broad base of inventory and high service levels to minimize their working capital investment given COVID-19 related uncertainties and elevated commodity product prices. In addition, we have had strong demand from our home center customers in response to elevated repair and remodel and “do-it-yourself” activity as people are spending more time at home during the pandemic. For further discussion of the impacts and our continued response to COVID-19, see ‘Balance Sheet and Liquidity’ and ‘Outlook’ below.
In the second quarter 2020, total U.S. housing starts decreased 17% compared to the same period last year. Single-family housing starts, the primary driver of our sales volumes, also decreased 13%. On a year-to-date basis through June 2020, total and single-family housing starts were relatively flat compared with the same period in 2019.
Wood Products sales, including sales to Building Materials Distribution (BMD), decreased $52.8 million, or 16%, to $281.5 million for the three months ended June 30, 2020, from $334.3 million for the three months ended June 30, 2019. The decrease in sales was driven primarily by lower sales volumes for I-joists and LVL (I-joists and LVL are collectively referred to as EWP), as well as decreased sales volumes for plywood. In addition, lumber, LVL, and I-joists net sales prices also decreased. These decreases were offset partially by increases in sales prices for plywood.
Wood Products segment income decreased $1.8 million to $17.1 million for the three months ended June 30, 2020, from $18.9 million for the three months ended June 30, 2019. The decrease in segment income was due primarily to lower sales volumes and prices of EWP, as well as lower lumber sales prices. These decreases were offset partially by higher plywood sales prices and lower wood fiber costs.
Comparative average net selling prices and sales volume changes for EWP and plywood are as follows:
|2Q 2020 vs. 2Q 2019
|2Q 2020 vs. 1Q 2020
|Average Net Selling Prices
Building Materials Distribution
BMD’s sales increased $36.8 million, or 3%, to $1,134.3 million for the three months ended June 30, 2020, from $1,097.4 million for the three months ended June 30, 2019. Compared with the same quarter in the prior year, the overall increase in sales was driven by a sales price increase of 4%, offset partially by a sales volume decrease of 1%. By product line, commodity sales increased 9%, general line product sales increased 4%, and sales of EWP (substantially all of which is sourced through our Wood Products segment) decreased 10%.
BMD segment income increased $9.4 million to $43.2 million for the three months ended June 30, 2020, from $33.8 million in the comparative prior year quarter. The increase in segment income was driven primarily by a gross margin increase of $16.3 million, resulting from improved gross margins on commodity products compared with second quarter 2019. This improvement was offset partially by increased selling and distribution expenses and general and administrative expenses of $5.0 million and $1.2 million, respectively.
Balance Sheet and Liquidity
Boise Cascade ended second quarter 2020 with $361.4 million of cash and cash equivalents and $345.4 million of undrawn committed bank line availability, for total available liquidity of $706.8 million. The Company had $440.2 million of outstanding debt at June 30, 2020.
On July 27, 2020, we issued a $400 million aggregate amount of 4.875% senior notes due July 1, 2030 (2030 Notes), to fund the repurchase of any and all of our $350 million aggregate principal amount of 5.625% senior notes due 2024 (2024 Notes) in a cash tender offer, to redeem any 2024 Notes that remain outstanding after the consummation of the tender offer, to pay off our American AgCredit Term Loan of $45.0 million, and to pay fees and expenses related to the offering of the 2030 Notes and incurred in connection with the repurchase of the 2024 Notes. In connection with the repurchase and redemption of our 2024 Notes, we expect to recognize a pre-tax loss on extinguishment of debt of approximately $14.0 million during the third quarter of 2020.
We announced to plan participants that we will freeze accrual of all benefits on our qualified defined benefit pension plan (Pension Plan) effective August 31, 2020, as well as our intention to terminate the Pension Plan (Plan Termination). As part of the Plan Termination process, we expect to repurchase two BMD locations leased from the Pension Plan for approximately $12 million, and we do not expect the Plan Termination to result in a meaningful amount of additional cash contributions to the Pension Plan. We intend to enter into an agreement with an insurance company to transfer all remaining assets and liabilities in the Pension Plan as soon as practicable.
In response to the uncertainty of the impacts of COVID-19, we have reduced our planned capital spending for 2020 from our previously expected range of $85-to-$95 million to $50-to-$70 million. We have also reduced discretionary spending and have identified other cash-saving measures that may be implemented in the near term, the timing and extent of which will depend upon the depth and duration of COVID-19, and its impact on our operating results.
Although significant uncertainty remains regarding the impact of COVID-19 on our operating results and cash flows for the remainder of 2020 and into 2021, we believe that our cash flows from operations, combined with our current cash levels and available borrowing capacity, will be adequate to fund debt service requirements and provide cash, as required, to support our ongoing operations, capital expenditures, funding of acquisitions, lease obligations, working capital, pension contributions, and to pay cash dividends to holders of our common stock over the next 12 months. We expect to fund our seasonal and intra-month working capital requirements in the remainder of 2020 from cash on hand and, if necessary, borrowings under our revolving credit facility.
On July 30, 2020, our board of directors declared a dividend of $0.10 per share on our common stock, payable on September 15, 2020, to stockholders of record on September 1, 2020.
Future dividend declarations, including amount per share, record date, and payment date, will be made at the discretion of our board of directors and will depend upon, among other things, legal capital requirements and surplus, our future operations and earnings, general financial condition, contractual restrictions, and other factors that our board of directors may deem relevant.
As we begin the third quarter, Wood Products is in the process of attempting to restore production rates to pre-COVID-19 levels in response to strong end-product demand. However, we continue to experience periodic short-term disruptions at many locations due to COVID-19. In addition, we expect activity levels across our distribution network to continue to vary widely as COVID-19 impacts geographies across the U.S. to differing degrees, and federal, state, or local restrictions are implemented or rescinded. To date, we have not experienced significant supply chain disruptions that would limit our ability to meet customer delivery commitments or source the necessary raw materials and finished goods needed by our operations. We continue to conduct business with modifications to mill and distribution center housekeeping and cleanliness protocols, employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. In addition, we continue to actively monitor evolving developments and may take actions that alter our business operations as may be required by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, suppliers, communities, and stockholders.
As of July 2020, the Blue Chip Economic Indicators consensus forecast for 2020 and 2021 single- and multi-family housing starts in the U.S. were 1.19 million and 1.27 million units, respectively, compared with actual housing starts of 1.29 million in 2019, as reported by the U.S. Census Bureau. Although we believe that current U.S. demographics support a higher level of housing starts, the impacts of COVID-19 on residential construction are uncertain. In particular, the economic consequences of COVID-19 may adversely affect the pace of household formation rates and residential repair-and-remodeling activity due to high unemployment rates, lower wages, reduced consumer confidence, prospective home buyers’ lack of ability to view homes in person, homebuyers’ access to and cost of financing, and housing affordability, as well as other factors. Beyond economic uncertainties, the pandemic may improve the demand for single-family residential construction as homeowners consider a transition to less densely populated geographies. Furthermore, with homeowners spending more time at home, repair and remodel spending may continue to strengthen as homeowners invest in existing homes.
Increased construction activity in May and June of 2020, when coupled with second-quarter capacity curtailments of commodity products across the industry, have created supply/demand imbalances in the marketplace. As such, order files at the manufacturing level have extended, and composite lumber and panel prices at the end of the second quarter were 30-40% above price realizations early in the quarter. We anticipate that commodity products pricing in the third quarter of 2020 will be subject to price volatility that will be dependent on the impact of COVID-19 on residential construction, capacity restoration and industry operating rates, net import and export activity, transportation constraints or disruptions, inventory levels in various distribution channels, and seasonal demand patterns.