Boise Cascade’s Business Overview and Financials

Boise Cascade Company (BCC) is a leading producer of engineered wood products (EWP) and plywood in North America, as well as a leading U.S. wholesale distributor of building materials. With a history spanning over seven decades, the company has established itself as a vertically integrated powerhouse, adeptly navigating the dynamic building materials industry.

Boise Cascade’s roots trace back to 1957 when it was founded as a forest products company, initially focused on lumber and plywood production. Over the years, the company has undergone significant transformations, including a period of diversification in the 1960s and 1970s when it expanded into paper, office products, and real estate sectors. However, facing integration challenges and changing market conditions in the 1980s and 1990s, Boise Cascade underwent a major restructuring in the late 1990s and early 2000s. This strategic shift involved divesting non-core businesses and refocusing on its core building products operations, which has been instrumental in shaping the company’s current structure and success.

Today, Boise Cascade operates through two reportable segments: Wood Products and Building Materials Distribution (BMD). The Wood Products segment primarily manufactures EWP, such as laminated veneer lumber (LVL) and I-joists, as well as plywood. The BMD segment is a wholesale distributor of a wide range of building materials, including commodity products, general line items, and engineered wood products sourced from the Wood Products segment.

Over the past two decades, Boise Cascade has continually strengthened its position in the industry through strategic initiatives. These include modernizing production facilities, expanding its distribution network, and making strategic acquisitions. A notable recent example is the 2023 acquisition of Brockway-Smith Company (BROSCO), a wholesale distributor specializing in doors and millwork, which has further enhanced Boise Cascade’s product offerings and market reach.

Financial Performance

Over the years, Boise Cascade has demonstrated its financial strength and resilience. As of the latest reported quarter (Q3 2024), the company had total assets of $3.44 billion and generated quarterly sales of $1.71 billion. The company’s net income was $91.0 million, or $2.33 per share, in Q3 2024, lower compared to the prior-year quarter’s $143.1 million, or $3.58 per share. This represents a 36% year-over-year decrease in net income, primarily due to lower sales and increased costs.

For the most recent fiscal year, Boise Cascade reported revenue of $6.84 billion, net income of $483.66 million, operating cash flow of $687.46 million, and free cash flow of $472.02 million. In the most recent quarter, the company generated revenue of $1.71 billion, net income of $91.038 million, operating cash flow of $174.587 million, and free cash flow of $112.926 million. Year-over-year revenue decreased 7%, driven by lower sales volumes and prices across the company’s product lines, particularly engineered wood products (EWP) and plywood.

Boise Cascade’s financial ratios paint a picture of a well-managed and financially sound company. The company’s current ratio stood at 3.13 as of the latest quarter, indicating a strong ability to meet short-term obligations. The debt-to-equity ratio was a conservative 0.21, demonstrating prudent financial leverage. Additionally, Boise Cascade’s return on equity of 18.24% and return on invested capital of 18.52% in the latest fiscal year highlight the company’s ability to generate attractive returns for shareholders.

The company maintains a strong liquidity position with $761.6 million in cash and cash equivalents as of September 30, 2024. Boise Cascade also has access to $395.7 million under its $400 million revolving credit facility. The company’s quick ratio of 1.90 further underscores its solid short-term liquidity position.

Navigating the Changing Housing Market

Boise Cascade’s performance is closely tied to the health of the residential construction industry, with single-family housing starts being a key driver of demand for its products. During the third quarter of 2024, total U.S. housing starts and single-family housing starts decreased 3% and 1%, respectively, compared to the prior-year period.

To navigate the changing housing market dynamics, Boise Cascade has leveraged its vertically integrated business model. The company’s Wood Products segment has been able to adjust production and product mix to meet evolving customer needs, while the BMD segment has demonstrated resilience in managing inventory and product sourcing amid shifting demand patterns.

For example, in the third quarter of 2024, the company’s BMD segment reported a 50-basis-point increase in gross margin percentage, driven by higher margins on general line products, which offset lower margins on commodity and engineered wood products. This agility has allowed Boise Cascade to maintain its competitive edge and deliver solid financial results, even in the face of market headwinds.

Boise Cascade’s Growth Initiatives and Capital Allocation

Looking ahead, Boise Cascade remains committed to driving growth through strategic investments. The company has continued to invest in its existing asset base, with capital expenditures of $136 million in the first nine months of 2024. These investments have focused on business improvement, quality and efficiency projects, replacement and expansion initiatives, as well as ongoing environmental compliance efforts. For the full year 2025, Boise Cascade expects capital spending to be between $200 million and $220 million.

In addition to organic growth, Boise Cascade has demonstrated a balanced capital allocation strategy. The company paid $220 million in combined regular and special dividends during the first nine months of 2024, while also repurchasing approximately $165 million worth of its common stock, or nearly 1.3 million shares, through October 2024. This multi-faceted approach to capital deployment reflects Boise Cascade’s commitment to delivering value to its shareholders.

The company’s board recently approved a $0.21 per share quarterly dividend, payable on December 18th. Furthermore, Boise Cascade has authorized the repurchase of an additional 1.4 million shares under its share repurchase program, demonstrating continued confidence in the company’s financial strength and commitment to returning value to shareholders.

Liquidity

Boise Cascade has maintained a strong liquidity position, which provides financial flexibility and supports its ongoing operations and strategic initiatives. The company’s robust cash flow generation, combined with its conservative balance sheet, ensures that it has ample resources to fund its growth plans, navigate market fluctuations, and return value to shareholders through dividends and share repurchases.

Segment Performance

Wood Products Segment

Boise Cascade’s Wood Products segment primarily manufactures engineered wood products (EWP) and plywood. For the three months ended September 30, 2024, Wood Products segment sales decreased 12% to $453.9 million compared to the same period in the prior year. This was driven by lower sales prices for EWP and plywood, with LVL and I-joists seeing declines of 5% and 6%, respectively, and plywood prices down 13%. Sales volumes were flat for LVL and plywood, but I-joist volumes decreased 8%.

Segment income for Wood Products decreased 46% to $53.9 million in the third quarter of 2024 compared to the same period in 2023. This was primarily due to the lower EWP and plywood sales prices, as well as higher conversion costs. For the first nine months of 2024, Wood Products segment income decreased 28% to $197.9 million, also impacted by lower EWP and plywood prices and higher wood fiber and conversion costs, partially offset by higher EWP sales volumes.

The segment’s EBITDA for Q3 2024 was $77.4 million, down from $122.9 million in the year-ago quarter, reflecting the challenging market conditions and pricing pressures faced by the segment.

Building Materials Distribution (BMD) Segment

Boise Cascade’s Building Materials Distribution (BMD) segment is a wholesale distributor of building materials. For the three months ended September 30, 2024, BMD segment sales decreased 6% to $1.57 billion compared to the third quarter of 2023. This was driven by a 6% decrease in sales prices, partially offset by flat sales volumes. By product line, commodity sales decreased 12%, general line sales increased 4%, and EWP sales decreased 14%. Excluding the impact of the BROSCO acquisition in October 2023, BMD sales would have decreased 9%.

Segment income for BMD decreased 23% to $74.8 million in the third quarter of 2024 compared to the same period in the prior year. This was primarily due to increased selling and distribution expenses, as well as higher depreciation and amortization from the BROSCO acquisition. For the first nine months of 2024, BMD segment income decreased 12% to $232.7 million, with the increase in selling, distribution, and depreciation expenses offsetting a gross margin improvement.

The segment’s EBITDA for Q3 2024 was $87.7 million, down from $104.9 million in the year-ago quarter, reflecting the impact of lower sales and increased expenses.

Outlook and Guidance

For the fourth quarter of 2024, Boise Cascade expects seasonally lower EWP and plywood volumes compared to Q3. The company anticipates low-single-digit sequential price declines for EWP in Q4 and seasonal price erosion for plywood as the quarter progresses. The BMD segment is expected to face headwinds in sales due to seasonal factors and two fewer sales days compared to Q3.

Looking ahead to the broader industry outlook, current forecasts for U.S. housing starts are approximately 1.35 million for 2024 and at or modestly above 1.4 million for 2025, compared to 1.42 million in 2023. Single-family housing starts are outpacing 2023 levels by 10%, while multifamily starts have declined sharply. Despite the short-term challenges, Boise Cascade remains bullish on the medium and longer-term view on housing fundamentals.

Risks and Challenges

While Boise Cascade has navigated the industry’s challenges with aplomb, the company is not without its risks. The company’s performance is heavily dependent on the health of the residential construction market, which can be influenced by macroeconomic factors such as interest rates, consumer confidence, and housing affordability. Fluctuations in commodity prices, particularly for wood fiber and other raw materials, can also impact the company’s profitability.

Additionally, Boise Cascade faces competition from other manufacturers and distributors in the building materials industry. The company’s ability to maintain its competitive edge and market share will be crucial in the years ahead.

Conclusion

Boise Cascade Company has proven itself to be a resilient and adaptable player in the building materials industry. With its vertically integrated business model, strategic investments, and balanced capital allocation, the company has demonstrated the ability to navigate the changing market dynamics and deliver solid financial results. Despite facing headwinds in the recent quarter, Boise Cascade’s strong liquidity position, ongoing capital investments, and commitment to shareholder returns position it well for future growth. As Boise Cascade continues to capitalize on industry trends and execute its growth initiatives, it remains a compelling investment opportunity for those seeking exposure to the dynamic building materials sector.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.