Boise Cascade Co (BCC) Q1 2021 Earnings Call Transcript

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Boise Cascade Co (BCC 1.42%)
Q1 2021 Earnings Call
May 7, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, my name is Jeff and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's First Quarter 2021 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 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 incoming, Senior Vice President, CFO and Treasurer of Boise Cascade.

Mr. Hibbs, you may begin your conference.

Unidentified Speaker

Thank you, Jeff. Good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2021 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO, Mike Brown, Head of our Wood Products Operations, Jeff Strom, Head of our Building Materials Distribution Operations, and Wayne Rancourt, our CFO, who will be retiring a week from today after nearly 36 years of outstanding service to Boise Cascade.

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 us for our earnings call today. I'm on Slide Number 3. Our first quarter sales of $1.8 billion were up 56% from first quarter 2020. Our net income was $149.2 million or $3.76 per share compared to net income of $12.2 million or $0.31 per share in the year ago quarter. First quarter 2020 results included $15 million of pre-tax accelerated depreciation and $1.7 million of other closure-related costs or $0.32 per share after tax due to the permanent curtailment of I-joists production at our Roxboro, North Carolina facility.

In first quarter 2021, total US housing starts increased 10% compared to the same period last year. Single-family housing starts, the primary driver of our sales volumes, increased 20%. Given the extraordinary market conditions caused by stronger-than-typical demand during the winter months and ongoing imbalance between industry supply and end-product demand for wood-based commodities, both businesses delivered tremendous financial results during the period.

Our wood products manufacturing business reported segment income of $97.1 million in the first quarter compared to $3.8 million in the year ago quarter. Wood products continued it's focused on increasing manufacturing production rates in response to strong end-product demand, particularly for EWP. Our Building Materials Distribution business reported segment income of $120.2 million on sales of $1.6 billion for the first quarter compared to $29.3 million of segment income on sales of $1 billion in the comparative prior-year quarter.

BMD sales and income were strong throughout the first quarter, as our retail lumber yard customers relied on our broad base of inventory and high service levels to minimize their working capital investment given the historically high commodity product prices. Kelly will walk through the financial results in more detail.

And then, I'll come back and provide an outlook before we take your questions.

Unidentified Speaker

Thank you, Nate. Wood products sales in the first quarter, including sales to our distribution segment, were $432.3 million compared to $320.1 million in first quarter 2020. As Nate mentioned, wood products reported segment income of $97.1 million in the first quarter compared to $3.8 million in the prior year quarter. Reported EBITDA for the business was $110.4 million up from EBITDA of $33.4 million reported in the year ago quarter. The increase in segment income was due primarily to higher plywood, lumber, and EWP sales prices as well as higher I-joists sales volumes. These improvements were offset partially by higher wood fiber and other manufacturing costs.

In addition, first quarter 2020 results included accelerated depreciation and other closure-related costs of $15 million and $1.7 million at our Roxboro, North Carolina facility as previously mentioned. BMD sales in the quarter were $1.6 billion, up 56% from first quarter 2020. Sales volume and sales prices increased 34% and 22% respectively. The business reported segment income of $102 million or EBITDA of $126 million in the first quarter. This compares to segment income of $29.3 million and EBITDA of $34.6 million in the prior year quarter. The increase in segment income was driven by a gross margin increase of $115.3 million resulting primarily from improved sales volumes and gross margins on substantially all product lines, particularly commodity products compared with first quarter 2020. This margin improvement was offset partially by increased selling and distribution expenses of $20.5 million.

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-$12 million in the first quarter 2021 compared with negative-$7.5 million in first quarter 2020. The increase was due primarily to higher incentive compensation driven by our exceptional financial results.

Turning to Slide 5, our first quarter sales volumes for I-Joists were up 20%, while sales volumes for our LVL were down 7% compared with first quarter 2020. Demand for EWP continues to be strong in 2021 fueled by increased housing starts and a higher proportion of single family starts. Pricing in first quarter for I-Joists and LVL were up 9% and 5% respectively compared with fourth quarter 2020, as previously announced price increases took effect and certain temporary price protection arrangements expired. We expect EWP prices to continue to increase sequentially during 2021, reflecting pricing actions taken in late 2020 and thus far in 2021.

Turning to Slide 6, our first quarter plywood sales volume and wood products was 303 million feet compared to 318 million feet in first quarter 2020. The lower volume for plywood sales reflected our continued work to optimize EWP production rolling curtailments at our Elgin plywood facility as we managed environmental permits and log supply availability, periodic short-term disruptions related to COVID-19, and a significant winter storm in Louisiana during February 2021. The 556 average plywood net sales price in first quarter was up 108% from first quarter 2020.

Plywood demand and pricing continue to strengthen and pricing reached historical levels during the first quarter. The strong plywood price momentum continues with prices, thus far, in the second quarter approximately 30% above our first quarter average.

Moving to Slide 7, BMD first quarter sales were $1.6 billion, up 56% from first quarter 2020. By product area, BMD is commodity sales increased to 106%, general line product sales increased 19%, and EWP increased 21%. Gross margin dollars generated improved by $115.3 million in the first quarter compared with the same quarter last year. The gross margin percentage for BMD was 15.1%, up 250 basis points from the 12.6% reported in first quarter 2020 and up 210 basis points sequentially. The impact of the escalating commodity price environment in first quarter is evident in our sales mix and gross margin percentage expansion.

BMD's EBITDA margin was 7.7% for the quarter, up from the 3.3% reported in the year ago quarter, also due to improved leveraging of selling and distribution costs. The trajectory of commodity products pricing during the back half of 2021 will have a key influence on BMD financial results.

I'm now on Slide 8. This slide shows the continued rise in lumber pricing in the first quarter of 2021 and into the first part of second quarter. Strong demand when coupled with capacity constraints continue to create supply demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. Pricing movements from current levels will likely be determined by the strength of end-market consumption and industry operating rates.

Moving to Slide 9, on that slide, one can see a similar pricing pattern for the random lengths composite panel index, which continue to increase during the first quarter of 2021 and early second quarter due to mild winter weather, better than expected demand, and continued industry operating challenges. 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 $149 million during the first quarter, representing a seasonal use of cash.

The increase in accounts receivable was driven by exceptionally strong sales in March 2021. Inventories increased in both segments, particularly BMD, as we worked to maintain service levels and keep pace with the current demand environment. The inventory growth and also extended terms offered by major vendors led to the increase in accounts payable. As is normally the case, we also use cash to pay out incentive compensation and customer rebate accruals during the quarter reducing accrued liabilities. 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.

I'm now on Slide 11. We finished the first quarter with $457 million of cash, our total available liquidity at March 31st was approximately $802 million, which reflects our cash and availability under our committed bank line. We had $444 million of outstanding debt on March 31, 2021. We expect capital expenditures in 2021 to total approximately $90 million to $100 million. Included in our capital spending range is the completion of a log utilization center project at our Florien plywood and veneer plant and a new door assembly operation in Houston.

In addition, our Nashville team has done a great job growing sales since our 2018 acquisition and our 2021 capital spending plans include a project currently under way to expand our distribution capabilities in that market. Our capital expenditure range could increase or decrease as a result of a number of factors including acquisitions, efforts to accelerate organic growth, exercise of lease purchase options, our financial results, future economic conditions, availability of engineering and construction resources, and timing and availability of equipment purchases. Our effective tax rate is expected to be between 25% and 27% in 2021 with ongoing federal legislation activity expected to increase tax rates in 2022 and beyond.

We also estimate remitting between $130 and $150 million of income tax payments during second quarter 2021 as we extend 2020 income tax filings and pay estimated payments on 2021 income. We remain well positioned with sufficient cash in reserve to support internal growth initiatives anticipated working capital uses as well as opportunistic acquisitions as we move through 2021. We will take a prudent approach to capital allocation when evaluating organic and M&A opportunities. As we have demonstrated in the past, if our cash succeeds 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. While there continues to be heightened level of economic uncertainty, low mortgage rates, continuation of work from home practices by many in the economy, the demographics in the US have created a favorable demand environment for new residential construction, particularly single-family housing starts, which we expect to continue in 2021 and into next year. Furthermore, with homeowners spending more time at home, repair and remodel spending may remain elevated as homeowners invest in existing homes. The April Blue Chip consensus for US housing starts is $1.55 million for 2021. Although, we believe that current US demographics support the higher levels forecasted housing starts and many national homebuilders are reporting strong near-term backlogs, supply induced constraints on residential construction and repair and remodeling activity may continue to extend build times and limit activity.

In the face of strong end-product demand, wood products has done an excellent job of focusing on the needs of their customers and continues to make every effort to increase production rates. We also continue to focus on innovation to reduce our cost as well as establishing products and services to address market opportunities in the commercial use of mass timber. In the distribution arena, BMD has done a terrific job of executing and responding to market opportunities at both the local and national level. Effectively managing the impacts of commodity price changes will remain at the forefront for our distribution team during 2021.

Strong demand when coupled with capacity constraints in the first quarter 2021 have created supply demand imbalances in the marketplace and historically high pricing levels for commodity lumber and panel products. As a wholesale distributor of a broad mix of commodity products and manufacturing of certain commodity products, our sales and profitability are influenced by the changes in commodity product prices. With uncertainties in demand and difficulties in judging the appropriate operating rates, commodity wood products pricing is likely to be volatile in the months ahead, we will react appropriately.

As we wrap up our formal comments, I want to express my appreciation for the focus our associates who have maintained on safety and supporting the needs of our customer and supplier partners during these extraordinary market conditions. Our proven values of integrity, safety, respect, and pursuit of excellence have serviced incredibly well as we have navigated through the pandemic and will continue to be our foundation moving forward. We will continue to make sure we use our operating and financial strength to the benefit of our customers, suppliers, communities, and shareholders.

Finally, I'd like to take this opportunity to thank and congratulate Wayne on his upcoming retirement and is nearly 36 years of outstanding service and dedication to Boise Cascade. The impact Wayne has made on the company's clear. His fingerprints on many elements of our strategy and put the company has strong financial position to further our work in our strategy. Beyond the numbers, Wayne has brought a level of passion, commitment, and drive for excellence that is found throughout our organization. The same attitude and approach that shows up in Wayne's work across the Boise community as well. I will certainly miss Wayne's energy and experience the Boise area will clearly benefit is he will continue to build upon terrific work in the community.

Wayne has set a very high standard for our organization and I have full confidence Kelly to continue to build upon the success and momentum generated from Wayne and others. Wayne, all the best to you and Wendy and you're well-deserved retirement.

At this time, we'd like to open the call with any questions. Jeff, would you please open the phone lines?

Questions and Answers:

Operator

Certainly. [Operator Instructions] We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mark Wilde from BMO Capital Markets. Your line is open.

Jesse Brown -- Bank of Montreal -- Analyst

Good morning, guys. It's Jesse Brown on for Mark. First, congrats on retirement, Wayne. All the well-wishes. First question, have you guys seen any kind of demand destruction or any deferrals projects from the high commodity prices especially on the R&R side?

Nate Jorgensen -- Chief Executive Officer

Hey, Jesse. It's, Nate. I'll start that one. I think in terms of any cut of demand destruction, we really haven't seen anything on the single-family. As I mentioned in my comments, I think, single family, there is momentum and actually it seems to be accelerating as we go through the course of the year, consistent what we might expect in the building season. I think in some areas, may be some of the multifamily, like commercial projects, there maybe a little bit more hesitation there. But I'm not sensing any demand destruction, perhaps just simply delaying some of the decisions in terms of multifamily like commercial. On the repair and remodel, we haven't seen anything significant across our system. I think the sales and pace and cadence on repair and remodel remains steady and obviously we work closely with our partners further downstream to make sure we're current with their expectations moving forward, but the current demand environment on repair and remodel, to your question, remains steady and strong at this point in time.

Jesse Brown -- Bank of Montreal -- Analyst

Great, thanks. Then just on the EWP side, you're going to give us a state of your current order books and what kind of backlogs look like? Then on the housing starts side, does EWP have the capacity to support higher levels of housing activity like the $1.8 to $2 million range? Thanks.

Mike Brown -- Head, Wood Products Operations

Good morning, Jesse. It's Mike Brown. To answer your first question about the order files [Phonetic]; I think like many others in this particular segment continue to be extended. I think most of the industry is really on allocation at this point in time. So, we have ongoing demand stretched out for a number of months in front of us. So, the order files are very, very strong. As it relates to your question about industry capacity in general and whether it could meet demands of $1.8 or thereabouts million housing starts, I think based on what we're seeing today across the industry, that would be quite a challenge given the current situation where most manufacturers are already on allocation at approximately 1.5 million should housing starts increased significantly above that. I think there would be increased pressure to try and get there. One of the major limiting factors would be the raw materials needed to make more or EWP.

Jesse Brown -- Bank of Montreal -- Analyst

Great. Then last one from me is can you guys kind of give us a sense of channel inventories and if freight and logistics have played a role and difficulties in rebuilding those inventories?

Jeff Strom -- Head, Building Materials Distribution Operations

Hey, Jesse. This is Jeff. On the inventories, I would tell you they are lean everywhere, all the way through the channel. On the freight side, it is absolutely playing a big part on that on a replenishing inventory across the board.

Jesse Brown -- Bank of Montreal -- Analyst

Great. I'll turn it over. Thanks for all the details.

Operator

Your next question comes from the line of Kurt Yinger from DA Davidson. Your line is open.

Kurt Yinger -- D.A. Davidson -- Analyst

Great, thank you. Good morning everyone. I just wanted to start off on EWP pricing, just with the flurry of announcements in some of the moving pieces around timing, could you just talk about where you expect to be in terms of year-over-year improvements in realizations as we exit 2021 and how you're thinking about some trickle over into 2022 there?

Unidentified Speaker

I'll start on that one. Maybe just to level set, we have had 3 price increases. So, we had one in August, we had another one announced in January, and then in late March, we announced one that will be effective the start of June. As we indicated in our script, we expect sequential pricing to improve from here, Kurt. That being said, if I were to direct you Q1 to Q2, I'd have you think about 2% to 3%. These price increases, as we've talked about before, they do take time to make their way through the channel. Because of the price protection arrangement we have, typically that the roll through is kind of a 9 to 12-month exercise. As these things continue to work their way through the system, we would expect to kind of see benefit. We're not going to see all that benefit, frankly, until we get out into 2022 based upon the announcements we've had today.

Kurt Yinger -- D.A. Davidson -- Analyst

Got it. Okay, that's helpful. Thanks, Kelly. Then very strong volume performance in BMD, even kind of against the tough comp last year, can you just talk about some of the factors playing into that and how your approach to maybe maintaining and managing inventory has played into that relative to what you're seeing from competitors?

Nate Jorgensen -- Chief Executive Officer

I think I'll start with that, Kurt, and then Jeff may add any additional comment. I think, overall, the demand environment remains strong across the number of products and services and we're seeing that certainly in commodities as well as general line and obviously EWP as we've talked about. I think the consistency in the predictability that we bring to our business in BMD is really important. So, we don't try to speculate on inventory. We want to make sure we have the products and services necessary to support all of our brands, all of our franchises across all those product categories. I think that consistency and predictability has been incredibly important for us to date and that is our plan as we move forward in organization again in support of our customers and our suppliers moving forward.

Our balance sheet has remained obviously very strong and we continue to make all the necessary investments in terms of growing our current facility set as well as looking to expand where appropriate. I think as Kelly made his comments, our expansion in Nashville represents how we think about the opportunity, not only in new locations, but how do we continue to invest in our core legacy locations to make sure again we have the capabilities to service and support the marketplace again across all of our products and services. Again, I think that's been incredibly important for us and we'll continue to use that proven scrip as we move forward as an organization.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, that's helpful. And then, just on production and capacity, what are you most focused on in terms of being able to improve your throughput on the wood products side? Is it really near constraint or more labor? Any color there? Then on the BMD side, what are you hearing from your suppliers in terms of their about ability to address some of these material availability challenges?

Mike Brown -- Head, Wood Products Operations

Kurt, I'll weigh in on the production side of things. You've already indicated a couple that are important. In no particular order, it's hard to make the type of EWP we make unless you have the appropriate type of veneer, we call it stress rated veneer. So, producing more of that is critical to not only us, but other people that operate in this sector. We're focused on trying to do more of that and there is only a limited amount of our own internal veneer that can go into EWP, but we are working on trying to find ways and means to shift more of what we would normally call, plywood type veneer, into EWP but there is a limit to that. We are working on deep bottling at some machine centers that we have in some locations and that's sort of a long-term goal obviously. You touched on the labor issue, well that was more of an issue going back 6 months or so more or in the middle of the pandemic, if you want to call it that. We are still facing some labor shortages depending on the geography. If we could be fully staffed at all locations on all days that would certainly help, but at the end of the day, even if that was the case, raw material inputs certainly going to continue to be a big focus for us as we move forward, both internally and whether we can source more from the outside.

Jeff Strom -- Head, Building Materials Distribution Operations

Kurt, this is Jeff. On the BMD side, people who were doing business with our suppliers, they are doing absolutely everything in their power to increase production as much as they can. Sometimes it is held back by lack of raw materials. Sometimes it's held back by a lack of labor and challenges that have on the COVID, but they're doing everything they can. I will tell you we are in constant contact with them, with our vendor partners, and in doing everything we can to know what's going and tell them what we're seeing on our side.

Kurt Yinger -- D.A. Davidson -- Analyst

Got it. All right. Appreciate the color, guys and good luck here in Q2.

Operator

Your next question comes from the line of Reuben Garner from The Benchmark. Your line is open.

Reuben Garner -- The Benchmark Company -- Analyst

Thank you. Good morning, everybody and apologies in advance if I duplicate any questions I had some connection issues throughout the call. First of all, congrats, Wayne and Kelly, to you, both well-deserved. Wayne, enjoy retirement and look forward to staying in touch. My first question is on the commodity environment, what do you think the risks are or what kind of insight do you guys have into whether there is a lot of double ordering going on right now with no inventory in the channel and some transportation issues popping up? Is that a big risk? Why prices are as elevated as they are right now and you could see a pretty hard rollover at some point or is that not maybe as common as it would seem?

Nate Jorgensen -- Chief Executive Officer

Hey, Ruben. It's Nate. Maybe I'll start that one. On commodity pricing, we're running out of ways describe what's taking place there and I would say it's nearly impossible to predict given what's taking place and really the momentum and energy that remains in the market; I think lumber print last night I think even further accelerated off of just study numbers. So I think as we look at kind of taking a step back, that kind of the demand equation and what does that look like and then on the supply side. And I think on the demand side, as we've talked about the momentum and energy feels quite good as we move forward here through really 2021, especially at single-family, which is as you know consumers even more framing materials than multifamily start would. Repair and remodel remains strong. I think on the demand side, it's hard to see anything kind of give in the way of things here over the next couple of quarters. On the supply side, there are limitations of what can be done and we've talked about some of those specific to our business in terms of raw material input, staffing, and COVID related challenges and I think those are replicated across all commodity producers.

To your point, logistics is playing a role in this as well. I think the challenges of getting truck across the system as well as rail challenges in a few markets just creates even more tension on an already tensed system. It's a very, very hard to predict in these historic levels. But in terms of we wanted to step back and some of the fundamentals, they still seem to be in place. We're going to obviously manage and monitor and watch it carefully. We've got the right team, we've got the right tools to make sure that work as far out in front of that conversation as possible.

Reuben Garner -- The Benchmark Company -- Analyst

On that note made on the BMD side of the business, what, if anything, are you guys doing to mitigate downside risk, the possibility of the market turning the other way? Can you tell us where inventory stands from a volume standpoint, relative to normal, and that will help mitigate? Are you doing anything different with contracts or discussions with your customers or are you guys taking the same approach you always have, where you're constantly in the market every day and it will work itself out?

Jeff Strom -- Head, Building Materials Distribution Operations

Hey, Reuben. This is Jeff. We're kind of taking the same approach. We're in the market every day. We're going to buy and sell every single day, like we always have. We will continue to buy to our sales pace as we always have done. We do have many tools at our disposal to really help identify and mitigate risk. We've done a lots of planning and lots of discussions on doing that and then it's something we've dealt with before and we'll deal with again as we move forward.

Reuben Garner -- The Benchmark Company -- Analyst

Got it. I'm going to sneak one more in, you might have already answered this, but can you remind us what's going on in the LVL market? The volumes there lagging the I-Joists and what we're seeing in the broader housing market? I know there's an answer. I just can't remember what it is, can you tell us what the disconnect is there?

Mike Brown -- Head, Wood Products Operations

Yes, Reuben. It's Mike. You would appreciate I think we discussed this maybe last quarter as well. The ongoing theme has been that with a very strong demand for single-family housing, the need to find material that otherwise might normally be 2x4s of 2x10s, to be more exact, people are turning more and more to I-Joists and as a result, as when our customers ask us specifically put orders in, the order file had moved more to an I-Joist based order file as it will be all/I-Joist combination. We moved our production to where our customers were asking and as a result, LVL was down somewhat and I-Joists were up and at the end of the day, that's what the market is demanding and the type of houses that are being built and where they being built required us to change our production to meet the demand of our customer base. It's bit in a nutshell.

Reuben Garner -- The Benchmark Company -- Analyst

Got it. Thanks, Mike. I was thinking it was coming out of [indecipherable] of the plywood side, not necessarily LVL. I forgot that components. Thank you for reminding me and congrats on the quarter and good luck to you guys moving forward.

Operator

Your next question comes from the line of Jonathan Hall from Portland Engineering. Your line is open.

Jonathan Hall -- Portland Engineering -- Analyst

Good morning. Thank you for taking my questions this morning. I was wondering on what has been a greater impact on the high cost of all these raw materials out in the market lately? Could you say it's more of the raw material shortage from say landowners or is it more a challenge on the distribution side? Which is the greater influence do you think?

Nate Jorgensen -- Chief Executive Officer

This is Nate Jorgensen. In terms of what we're seeing on pricing, ultimately it's the marketplace working. We're obviously seeing a very strong demand environment that continues to accelerate and part of that demand is single-family housing starts, which consume more framing material than a traditional multifamily start. I think that's an important equation today. In terms of access to logs, I don't think that's a limiting factor across the system. It's really the converting capacity that exist across much of the manufacturing. We can talk a little bit about some of the impact of COVID in terms of staffing and some of the disruption that's happening across our system among other systems continues to be part of the equation. I think it has improved here over the past maybe 30 days, but still is representative of what we have to manage through on a day in and day out basis.

The other component is, in terms of manufacturing, there's a lot of input materials that are part of that and the supply chains across many products and services are very stressed and some of that is based on logistics, but there are other factors as well. In some respects, the almost the lowest common denominator in terms of what the capacity is and I would say that production has been probably the primary challenge. In terms of the distribution, whether it's wholesale distribution or on the retail side, I think the business remains active, but in terms of their ability to support the marketplace. I don't see that as a significant issue. Much of it is centered around manufacturing and again given all the challenges that's associated with that.

Jonathan Hall -- Portland Engineering -- Analyst

Okay, thank you. I'm kind of asking this next question on behalf of a friend of mine. On the raw material side, with the price of logs, if the supply of logs is constrained, how much is the change in price of logs affecting you guys? If it is shortage in those raw materials, are there any kind of plans or mitigating the risks from landowners and log prices starting to skyrocket significantly or maybe not really much of an issue?

Mike Brown -- Head, Wood Products Operations

Yes, Jonathan. I'd answer your question like this. Different geographies have different challenges, specifically as it relates to log pricing. I'm not sure where you're from, but I'm gathering that you probably understand this already.

Jonathan Hall -- Portland Engineering -- Analyst

Actually, I live in White City. I'm right across from one of your facilities here and it looks like there is plenty of logs in there in the yard. So that's my main reason for asking. I hear about shortages and I'm looking to cross the street going, it looks like a lot of logs in there.

Mike Brown -- Head, Wood Products Operations

Okay, cool. My first comment is not relevant to your location. But in the Southeastern United States, there are many articles that have been written recently around the abundance of log supply and that will be like that probably for a decade ago. As it relates to the Pacific Northwest and your backyard, so to speak, log pricing has started to go up, you are correct. We are out in the market buying logs every day. More recently, I'll say in the last 30 or 60 days maybe, pricing has become elevated again more specifically in certain geographies. In the area you're specifically talking about, it has inched up some but in other parts of Oregon, it has escalated significantly more. Our philosophy has always been that we will buy in the market, but logs to be delivered now or this year, but we also by what we call timber under contract, which we can harvest over number of years depending on the details of that particular purchase. So, we're not having an issue today buying logs, but they are getting more expensive and more so in some locations rather than others, but log supply in of itself today is not a major issue behind us being able to produce what we want to produce.

Jonathan Hall -- Portland Engineering -- Analyst

All right. Thank you. I believe all my other questions have been answered from previous answers. So, thank you for that. Congratulations on the quarter. I hope things continue to look up. Thank you for taking my call.

Operator

Your next question comes from the line of John Babcock from Bank of America. Your line is open.

John Babcock -- Bank of America -- Analyst

Good morning and thanks for taking my questions. First of all, I just want to congratulate on the strong results for the quarter and also to Wayne on his retirement. Just starting out with the first question here. I was wondering if you're worried at all about housing affordability is impact on demand over the next one to two quarters or pent-up demand is too large for this to be an issue?

Nate Jorgensen -- Chief Executive Officer

Hey, John. This is Nate Jorgensen. On affordability, that is something we are watching. As you look at across many communities, markets, across a lot of different price points in terms of the type of home, obviously prices are accelerating and things that have been helpful in terms of affordability, things like interest rates are something that we're monitoring and managing closely. In terms of affordability, today the marketplace seems to taking that in stride. As I look at some of the public builders in terms of what they've been able to accomplish on growing their backlogs, expanding their margins, it continues to look at least short-term, the marketplace is prepared to take on those higher prices. Affordability is something we're watching carefully and obviously at certain parts of the marketplace that may push people to the sidelines and if so, that would potentially have an impact on the overall marketplace. Today, affordability, is something we're watching and but it doesn't seem to be materialized in the marketplace at least today.

John Babcock -- Bank of America -- Analyst

Next, has your cost gone up given the market tightness in wood and if so what's that had cost burden on your P&L?

Mike Brown -- Head, Wood Products Operations

Yes, John, it's Mike. If you think about the log supply and other raw material supply, we buy some lumber obviously, that goes into some of our products, yes, there certainly been some increased pressure on our profitability from raw material inputs. I think you probably heard the answer I just gave to the gentlemen previously about pricing. I would say in the Southeast, essentially flat, in the Pacific Northwest, depending on location, it has increased low-single digit sort of on average across the Pacific Northwest. The cost when you buy lumber that goes into our [indecipherable] facility as well as My Choice facility in Canada. Obviously, most of the market when it comes to those that has been quite an impact. When you put that all together, yes, it has had an impact on our profitability. Compared to the run-up in commodities and the increase in EWP pricing, it really hasn't been a major, major impact on our overall profitability thus far. We'll see where logs go in the future.

John Babcock -- Bank of America -- Analyst

Okay.

Jeff Strom -- Head, Building Materials Distribution Operations

One other point I would add is certainly we talked about scarcity of transportation and challenges with getting wheels under product, if you will, certainly there is some cost escalation going on and transportation because of that. But generally speaking, we passed that through. That hasn't had a large impact on us, but it is certainly causing stress in the system.

John Babcock -- Bank of America -- Analyst

Got you. The other part of the question was also related to the manufacturing side. I assume the mills are running pretty full out, which typically leads to improved cost absorption. But I was just wondering, given some of the stresses these days, if you're seeing any cost on the manufacturing side that might be going out that absent some of these other transportation raw material cost increases?

Mike Brown -- Head, Wood Products Operations

Not really, John. I mean we have other raw materials that I didn't mention. I think most people would realize that things like resin cost is increasing. It's not gone through the roof. But again, if you think about our overall cost structure, it is increasing. But it's not a dramatic increase thus far. Certain locations that would be like the [indecipherable] facility we have in Canada. But on the average across our manufacturing locations, our cost structure, it has inched up somewhat, but not dramatically. When you think about those increases relative to the pricing of the products that we're producing

John Babcock -- Bank of America -- Analyst

Okay. That's right. Last question I had, I was just wondering what Boise Cascade is doing across plywood and EWP including veneer from an operating stance to keep up with demand. I know you provide a little bit of color on this earlier, but if you could just kind of go through that that'll be helpful.

Mike Brown -- Head, Wood Products Operations

Yes, sure. Over the last decade or so, I guess, I'd say we've spent quite a lot of money both acquiring and revamping our existing facilities and where we are today, somewhere between 90% to 95% self-sufficient in veneer supply. We do buy veneer on the outside and that has been impacted somewhat, because of a number of issues. One is, there was a particular supplier in the Southern United States that had a fire. It impacted us as well as other EWP manufacturers. There is some belief and I can't quantify this, that some of the veneer that would normally be available to EWP is going into plywood because the return on these days is so high. What we are continuing to do is sort of what I indicated earlier. Last year, as an example, we finished another dryer rebuild in one of our veneer facilities or plywood facilities in the Southeastern United States. We continue on to try and debottleneck a number of different machine centers that are involved in veneer production and we are always continuously on the look for opportunities to avail ourselves of more stress rated veneer that's in the marketplace.

Unfortunately, there is just not a lot of it at the moment, John. That's really probably the principal issue that we will continue to address as we move through this year and probably into the following year.

John Babcock -- Bank of America -- Analyst

Okay. Well, thanks for the help. Best of luck in the same quarter as well.

Operator

Your next question comes from the line of Kurt Yinger from DA Davidson. Your line is open.

Kurt Yinger -- D.A. Davidson -- Analyst

Thanks for taking my followup. Kelly, just quickly, in your prepared remarks, you touched on 35% sequential improvement in plywood realizations, was that an average quarter-to-date number or kind of on a more spot basis?

Unidentified Speaker

What I quoted there for you, Kurt, was our realizations thus far in the second quarter are about 35% above our first quarter average. Our first quarter average was 556 and so I was just trying to give you some color on where we're at thus far in the second quarter compared to first quarter average.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, that's great, thanks. Then on the BMD side, I suspect will be some seasonal improvements in volume and obviously the continued inflationary trend in commodity prices at least through early May here, is there any reason to think that gross margins can at least approximate the Q1 level if not look more like Q3 of last year?

Nate Jorgensen -- Chief Executive Officer

Kurt, it's Nate. As you look at the commodity side to your point, obviously, it is accelerating and when you look at the commodity profitability and margins and then compare that's obviously what we're experiencing in the general line and EWP. I think the momentum and BMD should be strong again consistent with that product mix and continuing to what we're seeing on price realization, but Kelly, let me ask you add provide a little more color on that if I could?

Unidentified Speaker

That's a good question, Kurt. I would say, it's hard, yes, certainly prices remain strong and certainly commodity prices have ticked up as we move into the second quarter here, but from my perspective, it would be hard for us to perceive hitting the gross margins that we did in the third quarter of 2020. You may recall from the commodity price charts, that was a scenario where it was straight up for a number of weeks as we where we started the third quarter and where we ended the third quarter. So, I would steer you toward the 16.4% gross margin we had in the third quarter of 2020.

Kurt Yinger -- D.A. Davidson -- Analyst

Okay, that's fair. Thanks for that. Then just my last one on capital allocation. We ended the quarter a little over $450 million of cash and you'd probably add to that over the next couple of months here. Can you just remind us what you would consider a comfortable level of cash to hold on the balance sheet and how that might be affecting how you're thinking about the timing of the supplemental dividend or returning cash to shareholders generally?

Unidentified Speaker

I'll take that one for starters. We had another great discussion with our Board of Directors yesterday in terms of how we think about capital allocation and maybe just to remind the audience kind of how we think about it. We first and foremost, want to invest in the asset base we have and we put out the range of $90 to $100 million currently. Then we're very committed to our quarterly dividend and we announced another $0.10 quarterly dividend yesterday and so then once we get beyond that, it's about looking to grow the company in a prudent and thoughtful manner, whether that's organic or whether that's through M&A opportunities. As we think about that, Kurt, we're always trying to manage what's potentially in the pipeline for organic growth or M&A compared to what our cash balances are and as we've said in the past, if our anticipated uses in the near term are less than what we think available to us in terms of the cash on the balance sheet, then we will look to return cash to shareholders and we have mechanisms to do that and so maybe then to back up to your original part of your question, what do we normally think about carrying? We've got leverage targets out there that we are certainly below today and then we would in a normal environment carry something like $150 million of cash, we were above that at the present time, but we're continually just trying to evaluate what's ahead of us and what's appropriate to keep for potential opportunities versus do we have excess that we should return to shareholders.

Kurt Yinger -- D.A. Davidson -- Analyst

Got it, got it. Appreciate all the color there, Kelly, and thanks for taking my followup.

Operator

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

George Staphos -- Bank of America -- Analyst

Hi, everyone. Good morning. I just wanted to follow up with separate question, I had to jump off when Q&A started and congratulation everybody as well and most importantly to Wayne. Thanks for everything, Wayne in the past. Not a fair question, perhaps, how long do you think the lumber markets and the panel markets broadly can keep at the current operating stances and rates with margins as high as they are? When do you think if you had to gauge or if you were in our seats what would you look for to see that there might be some more meaningful supplier response relative to what's currently terrific supply demand balance for the producers? Maybe if that's not somewhere you want to go, is there any way to equate what you're seeing in this cycle and recognize the prices are records, but equate what you're seeing in this cycle relative to say 2005, 2006 late 1990s anyway you could give us some by which we can calibrate over the next couple of years to look at how supply might respond and what we should expect? Thanks again and have a good quarter.

Nate Jorgensen -- Chief Executive Officer

Thanks, George. It's, Nate. I'll take a stab at that. In terms of where we're at from a historic perspective, if you look at the current lumber and I think more specifically the panel index today, today's numbers are twice what the historic level was prior. So, we are beyond even what was even phantoms that not long ago. In terms of people reacting to the current marketplace, I think for us and I suspect others people are just trying to get the right level of context around what is likely going forward and what we try to do, George, continue just to go back to the fundamentals. What is the demand equation look like? What our expectations going forward on a long-term basis in terms of capacity in other decisions and those are not measured in quarters, but years. We'll continue to look through the lens of what's consistent with our strategy and what we want to grow and what we want to support, but also look at the longer-term demographics and certainly the pandemic had some positive influences on that, but in terms of us overreacting to the current marketplace, given its historic levels, that's not likely something we're going to do. We'll will continue to be very guarded and very thoughtful on what is the long-term demand equation look like? How do we think about our share? How do we think about our position relative to our services and capabilities? We'll go from there. I'm not sure if that's completely helpful for you, George. But, but it can ultimately I think today's pricing today's realizations on commodities are stunning and, but in terms of our planning assumptions as we look longer term, I think we'd look at through the lens of more historical pricing as compared to what we're experiencing today.

George Staphos -- Bank of America -- Analyst

No, Nate. Obviously, there is no answer and so we challenge and trying to answer the question. That was very helpful, especially the commentary about looking at longer term and being disciplined on supply demand. I'll leave it there. Thanks again, and we'll talk to you soon.

Operator

Next question we have one more from Jonathan Hall of Portland Engineering. Your line is open.

Jonathan Hall -- Portland Engineering -- Analyst

Hey, guys. I had some more questions just listening to some of the previous and I think maybe, Kurt, you already touched on this, but for the distribution side of things, could you say was the bigger challenge kind of the manufacturing capabilities or was it the transportation? I think the example was like wheels under product?

Jeff Strom -- Head, Building Materials Distribution Operations

Jonathan, this is Jeff. I will tell you that it was tough to get material produced with all the raw material suppliers and everything that we're short, but it was equally tough to get wheels underneath material and move it. Both of them were very difficult to work your way through

Jonathan Hall -- Portland Engineering -- Analyst

Okay. Thank you. The next was kind of what I've been hearing in that's been affecting a lot of companies is the labor market shortage. I don't know if you guys experience anything with that just having trouble trying to hire people, are you desperate for operators or engineers or are you looking to hire more people internally or maybe higher contractors?

Mike Brown -- Head, Wood Products Operations

Yes, Jonathan. This is Mike. I think it would be fair to say, not only for Boise Cascade, but maybe more generally in the employment market that there are significant challenges in getting enough people to come to work all day, every day. Its geographic to some degree and maybe more industry specific in certain locations, but we consistently have open positions and we were doing our best to try and fill them and that's really independent of whether you might call them hourly paid positions or salaried positions. It's a pretty challenging labor market at the moment. We are always looking to bring more people on to increase our bench strength and I think like many have said already, there is a significant level of turnover depending on the geography. You asked about contractors and I'm guessing you're aware of this, we use contractors in pretty much every one of our locations for specific items when they needed, whether they happen to be engineering, or construction related, so, yes we use both internal and contracted related supply as and when needed, but it is a bit of a challenge for sure in certain locations.

Jonathan Hall -- Portland Engineering -- Analyst

Okay, thank you. Also, kind of from my earlier questions. You mentioned that you had seen the cost of raw materials in the Northwest go up, can you comment as to how much you've seen those costs been affected lately by wildfires? Because it seems like just everybody over in the Northwest now just like, well, it's June when are they going to start and it usually just does, it does hurt the logging industry around here quite a bit and just how do you see that effect Boise Cascade?

Mike Brown -- Head, Wood Products Operations

I guess I'd answer your question like this, fires affect everybody including Boise Cascade and obviously the communities close to where the fires occur. Sometimes, not always, depending on where the fires are that can result in a short-term increase in availability, as I'm sure you're aware, because some of those locations need to be harvested reasonably quickly to take advantage of the of the available fiber. It doesn't always happen that way because of various issues that I won't go into, but as it relates specifically to Boise Cascade, I can't really tell you it wouldn't be appropriate to give you numbers on specifically what the changes are in and our cost structure, other than to say that on occasions that helps us because there's availability of raw material that is unexpected but as a general long-term trend, fires are not a good thing for our industry. I mean that's ultimately a reduction in total supply and that makes it more problematic for us and I think I'll probably leave it at that.

Jonathan Hall -- Portland Engineering -- Analyst

Okay, that's fair. Thanks. I did have one more, but I don't want to take up too much more your time.

Wayne Rancourt -- Executive Vice President, Chief Financial Officer & Treasurer

Nate, if you don't mind, I would like to make just a quick comment as we wrap up. Since our IPO, it has been a great pleasure to work with the South-side group that's covered us and I appreciate all the help and support and getting our story in front of investors. I think the company has made great progress since the IPO in migrating our business mix, both on the manufacturing side and in growing our distribution business. I feel incredibly good about the current state of the company and I think we've done a really good job through the succession process of also having the right people in the right chairs. If I think about the business going forward, part of the reason I'm leaving as I feel exceedingly comfortable about where we are from the balance sheet, mix of business, and frankly the leadership of the company. Again, I just want to express my personal thanks to the team that's covered us. It's been a great group to work with and appreciate all the non-deal road shows and conferences and paying attention on calls like this and helping us got our story. It's much appreciate it. All the best to all of you.

Nate Jorgensen -- Chief Executive Officer

Thank you, Wayne. Maybe just close out the call. We appreciate everyone joining us on the call this morning for our update and thank you for your continued interest and support of Boise Cascade. Be safe and be well. Thank you so much.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Unidentified Speaker

Nate Jorgensen -- Chief Executive Officer

Mike Brown -- Head, Wood Products Operations

Jeff Strom -- Head, Building Materials Distribution Operations

Wayne Rancourt -- Executive Vice President, Chief Financial Officer & Treasurer

Jesse Brown -- Bank of Montreal -- Analyst

Kurt Yinger -- D.A. Davidson -- Analyst

Reuben Garner -- The Benchmark Company -- Analyst

Jonathan Hall -- Portland Engineering -- Analyst

John Babcock -- Bank of America -- Analyst

George Staphos -- Bank of America -- Analyst

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