Boise Cascade (BCC) Q1 2022 Earnings Call Transcript

Boise Cascade (BCC -1.38%)
Q1 2022 Earnings Call
May 06, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Latanya, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade's first quarter 2022 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 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, senior vice president, CFO, and treasurer, Boise Cascade. Mr. Hibbs, you may begin your conference.

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Thank you, Latanya, and good morning, everyone. I would like to welcome you to Boise Cascade's first quarter 2022 earnings call and business update. Joining me on today's call are Nate Jorgensen, our CEO; Mike Brown, head of our wood products operations; and Jeff Strom, head of our building materials distribution operations. Turning to Slide 2, I would point out the information regarding our forward-looking statements.

The appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Nate.

Nate Jorgensen -- Chief Executive Officer

Thanks, Kelly. Good morning, everyone. Thank you for joining for our earnings call today. I'm on Slide 3.

2022 is off to a tremendous start with both of our businesses delivering outstanding operating and financial results. Our consolidated first quarter sales of $2.3 billion were up 28% from the first quarter of 2021. Our net income was $302.6 million or $7.61 per share, compared to net income of $149.2 million or $3.76 per share in the year-ago quarter. In first quarter 2022, total U.S.

housing starts increased 10% compared to the same period last year. Single-family housing starts, the primary dryer of sales volumes increased 4%. Wood products reported segment EBITDA of $203.8 million in the first quarter, compared to $110.4 million in the year-ago quarter. Wood products benefited from improved EWP sales realization and plywood sales prices compared to last year's first quarter.

Wood products continue to focus on manufacturing production levels in response to continued strong end product demand for our EWP during the quarter. Building materials distribution reported segment EBITDA of $232.5 million on sales of $2.1 billion for the first quarter, compared to $126 million of segment EBITDA on sales of $1.6 billion in the comparative prior-year quarter. While BMD's results were favorably impacted by escalating commodity product prices during the quarter, majority of the quarter, increasing margins across EWP and general line products continue to be a consistent and key dryer of BMD's outstanding results. Kelly will walk through the financial results in more detail, and then I'll come back and provide our outlook before we take your questions.

Kelly?

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Thank you, Nate. I'm on Slide 4. Wood products sales in the first quarter, including sales to our distribution segment were $558.9 million, compared to $432.3 million in first quarter 2021. As Nate mentioned, wood products reported segment EBITDA of $203.8 million, up from EBITDA of $110.4 million reported in the year-ago quarter.

The increase in segment EBITDA was due primarily to higher EWP and plywood sales prices, offset partially by higher wood fiber costs and other manufacturing costs. BMD sales in the quarter were $2.1 billion, up 29% from first quarter 2021. BMD reported segment EBITDA of $232.5 million in the first quarter, compared to segment EBITDA of $126 million in the prior-year quarter. The improvement in segment EBITDA was driven by a gross margin increase of $133.6 million, resulting from improved gross margins across substantially all product lines.

The margin improvement was offset partially by increased selling and distribution expenses of $25.5 million. Turning to Slide 5. Our first quarter sales volumes for LVL were up 6%, while sales volumes for I-joists were down 9% compared with first quarter 2021. Transportation constraints continue to hinder our ability to consistently move finished goods inventory into the marketplace.

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

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

As we moved into second quarter, plywood pricing declined. Our price realizations through April are approximately 12% below our first quarter average. In addition, we expect second quarter plywood volumes of approximately 300 million square feet as our project at Chester, South Carolina to replace the veneer drier has commenced and will negatively impact near-term production volumes. Moving to Slide 7.

BMD's first quarter sales were $2.1 billion, up 29% from first quarter 2021, driven by sales price increases as sales volumes were flat. By product line, commodity sales increased 22%. General line product sales increased 30% and EWP increased 54%. Gross margin dollars generated improved by $133.6 million in first quarter compared with the same quarter last year, resulting from improved gross margins across substantially all product lines.

The gross margin percentage for BMD was 18%, up 290 basis points from the 15.1% reported in first quarter 2021. BMD's EBITDA margin was 11% for the quarter, up from the 7.7% reported in the year-ago quarter. BMD sales pace thus far in second quarter of 2022 remains strong across product lines and we continue to benefit from the stability and strength of EWP and general line products. The BMD team has also done a great job of mitigating our exposure to the commodity price declines we experienced in April.

I'm now on Slide 8. This slide shows the rise in lumber pricing during first quarter 2022, followed by sharp declines beginning in the second quarter as downside price risk created hesitancy across the marketplace. Pricing has shown signs of stabilization in recent weeks as we move into spring building season. Turning to Slide 9, one can see similar pricing patterns for the random lengths composite panel index.

We expect future commodity product pricing will continue to be volatile, with ongoing challenges for the transportation and labor having a meaningful influence on supply side uncertainties. On Slide 10, we have set out the key elements of our working capital. Net working capital, excluding cash, income tax items and accrued interest, increased $214.3 million during the first quarter, representing a seasonal use of cash. The increase in accounts receivable was driven by strong sales in March 2022.

Inventories increased in both segments, particularly BMD due primarily to increased inventory valuations. The increase in accounts payable and accrued liabilities was driven by increased inventories and higher accrued rebates, offset partially by employee incentive compensation payouts made during the quarter. The statistical information filed as Exhibit 99.2 to our 8-K has the receivables, inventory, and accounts payable data broken down by segment for those interested in the detail. Turning to Slide 11.

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

Included in our capital spending range is funding to complete organic expansions in Ohio, Kentucky, and Minnesota and a new dryer at our Chester, South Carolina veneer and plywood plant. Availability of engineering and construction resources and timing and availability of equipment purchases is expected to have an influence on 2022 spending. Our effective tax rate is expected to be between 25% and 27%. We also estimate remitting between $165 million and $185 million of income tax payments during second quarter 2022 for estimated payments on 2022 income.

Yesterday our board approved a $0.12 per share quarterly dividend and a $2.50 per share supplemental dividend payable on June 15 to stockholders of record on June 1. After payment of the dividends and previously mentioned tax payments, our balance sheet remains well-positioned to support internal growth initiatives, as well as opportunistic acquisitions, as we move through 2022. Nate will speak more to our avenues for growth shortly. As we have demonstrated in the past, if our cash exceeds the opportunities ahead of us, we will utilize mechanisms to return cash to our shareholders.

Our overarching objective remains to successfully grow our business while generating appropriate returns on shareholder capital. I will turn it back over to Nate to discuss our business outlook.

Nate Jorgensen -- Chief Executive Officer

Thanks, Kelly. I'm on Slide 12. The demand environment for new residential construction continues to be favorable, supported by demographics in the U.S. and continuation of work from home practices by many in the economy.

We expect demand to remain strong in 2022 with April Blue Chip consensus for U.S. housing starts at $1.65 million. In addition, limited new and existing home inventory availability and the age of U.S. housing stock will continue to provide a favorable backdrop for residential construction and repair and remodel spending.

Although we believe that current U.S. demographics support the forecasted level of housing starts and many national homebuilders are reporting strong near-term backlogs, labor shortages, and supply induced constraints on residential construction activity may continue to extend build times and limit activity. In addition, the pace of residential construction and repair and remodeling activity may be affected by the economic impact and the cost of building materials and construction, housing affordability, wage growth, prospective homebuyers access to financing and consumer confidence, as well as other factors. In wood products, we continue to enjoy strong demand and pricing momentum for EWP.

Capital projects will continue to focus on veneer production to support our EWP growth, which includes completion of our Chester dryer project in early third quarter. BMD continues with its steady execution of organic growth and is progressing well with its build-out of our expansion projects in Marion, Ohio; Walton, Kentucky, and Lakeville, Minnesota. The BMD team also continues to work a solid pipeline of additional organic growth opportunities in existing and new markets that we expect to share in upcoming quarters. These projects will add capacity to our system in support of our customers and suppliers.

BMD continues to execute at a high level as we navigate fluid market conditions. We expect continued firm pricing in our EWP and general product line categories and remain confident and we will effectively manage impacts and capture opportunities associated with fluctuating commodity prices. The extraordinary results of last year's second quarter will make our upcoming comparative results challenging, but we fully expect to deliver another solid quarter when we speak again in the summer. Our company remains incredibly well-positioned and we will continue to make sure we use our operating and financial strength to the benefit of our customers, suppliers, communities, and shareholders.

Our balance sheet provides us great flexibility to continue our pursuit of further organic or M&A growth opportunities. Lastly, I want to express my gratitude to our associates whose can-do attitude and customer-focused mindset continues to make our tremendous results possible. Thank you for joining us today and your continued support and interest in Boise Cascade. We would welcome any questions at this time.

Latanya, would you please open the phone line?

Questions & Answers:

Operator

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

Mark Wilde -- BMO Capital Markets -- Analyst

Good morning, Nate. Good morning, Kelly. My mother used to say, "No good deed goes unpunished." Looking at your stock this morning, it seems to be the case. But just looking at the quarter, I wondered that, Nate, if you could just help us unpack that decline in EWP shipments.

It sounds like some of it just was kind of constraints from webbed stock, but anything else would be helpful. It was surprising to me given the fact that the industry is on allocation and demand is very strong.

Nate Jorgensen -- Chief Executive Officer

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

Mike Brown -- Head of Wood Products Operations

Yeah, good morning, Mark, thanks very much for the question. Yes, I think as Kelly pointed out in the prepared remarks and Nate's comments, we certainly would have liked to have made more and obviously sold more if we've been able to get all the raw materials that we were looking for. The webbed stock that we use comes from Canada. And as I'm sure you're aware, there have been significant logistical issues north of the border.

So yes, it really was a question about availability of webbed stock. And we certainly hope in the not too far distant future, that situation will be resolved.

Mark Wilde -- BMO Capital Markets -- Analyst

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

Mike Brown -- Head of Wood Products Operations

Yeah, Mark. So sort of interesting quarter. So January actually was a terrible month for us in terms of COVID-related activity, if you want to call it that. But since then, things have got markedly better.

So I certainly wouldn't say that COVID is no longer here. But when we look at our operations and look at the weekly updates from each of the regional managers, the number of absentees that we have now due to COVID is, I'd say, at its lowest in probably the last two years, still some, but almost 0. So maybe it was the process that we put in place almost two years ago. But certainly we've seen a marked improvement in terms of the COVID side of things.

So that's really why we didn't call it out.

Mark Wilde -- BMO Capital Markets -- Analyst

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

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, no, you're right, Mark, and that's fair. And I would tell you the -- we have a pretty big range there. You'll notice the $110 million to $130 million and $130 million is probably aspirational, given the supply chain challenges we've talked about. Breaking it between the two segments a little bit for you, wood products, we're targeting about $60 million for this year.

And to give you a few highlights on that, and Mike can correct me if I'm wrong here, but we've got the Chester dryer we talked about, that's probably $6 million or so that we're going to get spent this year to get that up and functional probably early third quarter. We've also got a fair bit of work going in the Southeast as normal to make sure we secure and support efficient veneer supply in our system. So projects at Florien around some laid work, Oakdale, some dryer controls and infrastructure and then Alexandria, a few things to continue to improve our outline there. And so that's probably the highlight to hit for you on wood products.

And then BMD, we hit on the -- in our comments, we hit on the three organic expansions we're working. So our Walton, Kentucky, and then our greenfield in Marion and then our brownfield in Walton, Kentucky that really is part of the broader Cincinnati, Ohio market. So all those three are active and probably combined, we're probably looking at around $20 million or so this year related to those projects that will get spent. And then we've got a good amount of rolling stock that we're hoping to get purchased this year as well.

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

Mark Wilde -- BMO Capital Markets -- Analyst

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

Nate Jorgensen -- Chief Executive Officer

Yeah, Mark, it's Nate. Let me take that one. I think in terms of the door, the millwork side of things, we like that business. Obviously we've grown that business and specifically in Texas with our two new locations there and we continue to look for other opportunities to grow that platform.

So my view is that that will be an important part of our growth story in BMD moving forward. And I think we've got the right level of support, both from our customers and suppliers to continue to advance that conversation across to other markets. So yes, that is, for me, part of our growth story and plan as we head over the next couple of years.

Mark Wilde -- BMO Capital Markets -- Analyst

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

Nate Jorgensen -- Chief Executive Officer

Yeah. I think there's probably a couple of spots. Obviously we have the privilege to have very close relationships with not only our direct customers but also the parts of the builder community and really understand what that demand signal looks like also in the repair and remodel. But I think for me, Mark, the things that we'll be centered on is cost of money and what's happening there.

We'll be looking closely at inventory levels in terms of unsold inventory, both in terms of new and existing homes. Those will be important demand signals that we'll continue to monitor. And I think my expectation is we feel good about what's in front of us here, short-term, but longer term, I think we're going to stay centered and focused on what the demand environment looks like. Long-term we feel good about this industry and the fundamentals, but also recognize the cost of money and some maybe recessionary pressures might be out there that we'll have to make sure we're monitoring and adjust as appropriate.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. Sounds good. I'll turn it over. Thanks, Nate. 

Nate Jorgensen -- Chief Executive Officer

Thanks, Mark.

Operator

And our next question comes from Neil Corey of Goldman Sachs. Your line is open.

Nate Jorgensen -- Chief Executive Officer

Good morning.

Susan Maklari -- Goldman Sachs -- Analyst

I don't know, maybe -- did she mean Susan Maklari?

Nate Jorgensen -- Chief Executive Officer

Good morning, Sue. That is the name we expected. Go ahead.

Susan Maklari -- Goldman Sachs -- Analyst

Here we go. I'm sorry, I misheard her. I'm sorry about that. Well, good morning everyone, and congrats on a good quarter.

I think my first question is sort of thinking about this bigger picture. Last summer, it was the DIY market that kind of caused prices to come down. And when we look out this year, it feels as if the supply demand environment is obviously, to some extent, a bit more disciplined perhaps. Obviously things on the ground are exceptionally tight, it seems on the EWP side and even just sort of across building materials.

And so as we get into the summer, how are you thinking about the overall sort of landscape and the ability to continue to see some of those volumes rise and maybe even on a relative basis, supporting pricing as we move to the back half of the year?

Nate Jorgensen -- Chief Executive Officer

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

And I think the market in terms of demand signal feels again good, steady, consistent and we're expecting that as we now kind of climb into the spring housing season. But I think also people are somewhat measured in making sure that the risk-reward equation makes sense. And so I think that will be, I think, a key theme as we go through the course of 2022. And frankly that matches up really well with who we are and what we do.

Obviously I think there'll be perhaps a bit more even dependence on wholesale two-step distribution on a range of products and services as, again, people try to manage those risks. And I know Jeff and our BND team is really well-positioned to support customers as they kind of navigate some potential changes in the marketplace. So again, overall, we feel good about where things are at. And again, we see and feel the market, again, managing that risk reward as we go into this latter part of the second quarter and third quarter.

Susan Maklari -- Goldman Sachs -- Analyst

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

Nate Jorgensen -- Chief Executive Officer

Yeah, I'll start, and then Mike and Jeff and Kelly can jump in here as well. I think in terms of -- obviously, the pricing on some products and services comes down to supply and demand balance. And I think as we look at several of the categories that we're in today, things remain very tensioned in terms of supply and demand and essentially under allocation. So there would need to be probably a reasonable adjustment on demand or increase in supply for that equation to change.

I think there is still in the marketplace on those products and services, great desire to purchase product. And so we don't see any kind of hesitancy at least short-term on any of those items. I think if we see some sort of kind of disruption on the demand side, I love how our organization and business is positioned to compete in that environment. We have, I think, the talent, the resources, and the capability to grow and gain share as appropriate, should those market conditions allow us to take advantage of maybe a little bit lower demand environment overall and more steady supply as a result.

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

Susan Maklari -- Goldman Sachs -- Analyst

Yeah, OK. That's great color, Nate. Thank you. I'm going to squeeze one more in, which is I know last night you announced the supplemental dividend along with your quarterly dividend.

Can you just talk a little bit about capital allocation? And when you do think about the outlook for the business, is there any interest at all in doing some buybacks? Or how should we think about shareholder returns and just capital allocation in general?

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah. Sue, this is Kelly. So our script is very much the same in terms of how we think about it, first and foremost, investing in ourselves. And you've heard about our expanded capital program that we have.

And then we've signaled that there's a number of other organic opportunities in BMD that are in the pipeline that we hope to speak more to in the future as those come to fruition. And then we want to keep that modest quarterly dividend that's sustainable through any business cycle. After that we'll look to grow, whether that's M&A or is that further organic projects like we've spoken to. And then we'll bounce all that up against what's our balance sheet look like in our cash position and how do we return it.

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

Susan Maklari -- Goldman Sachs -- Analyst

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

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Yeah, sure, yeah. I mean, we are confident for 2022. We feel really good about our balance sheet and really good about some of the things in the pipeline for BMD for sure.

Susan Maklari -- Goldman Sachs -- Analyst

Yeah, OK. Well, great. Thank you for all the color, and good luck with everything.

Nate Jorgensen -- Chief Executive Officer

Thanks, Susan.

Operator

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

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

Great. Thank you, and good morning, everyone.

Nate Jorgensen -- Chief Executive Officer

Good morning, Kurt.

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

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

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

So I'll take the second part first. Order files and I think you're talking specific to EWP, they're still extended. We can sell what we can make, assuming we can get wheels underneath it. So the demand side is strong.

On pricing, I referenced 10% sequentially second quarter compared to first, I would say, and that's with the early 2022 price increase that we announced, the fuse, if you will, in terms of the different mechanisms that kind of defer that pricing realization. That window is a little bit shorter this time than it has been in previous increase announcements. And so we expect high single digits each of the next two sequential quarters. And then after that, we think barring any future increases, we pretty well got everything realized at that point.

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

Got it. OK. That's helpful. Thanks, Kelly.

And then, I guess, on the BMD side, I was hoping you could talk a little bit at a high level, any kind of notable changes in demand patterns across the different kind of customer cohorts? And then over the last 1.5 months or so, home center demand has kind of been cited as the big driving force in terms of the short-lived correction in commodity prices. Has that turned around more recently? And is that a product-specific kind of phenomena or consistent with what you saw in maybe other general line categories as well?

Jeff Strom -- Head of Building Materials Distribution Operations

Kurt, this is Jeff. I'll tell you on the demand sign for all products. It's strong across everything. It absolutely is.

It hasn't abated at all. And then when you talk about the home center, if you think of what we kind of break what goes through there a little bit, the professional remodeler business, that demand has been very strong, has remained that way. But as prices ticked up, the do-it-yourself or has that seemed to be where it slowed down a little bit. And then price is corrected and you ask, has that picked back up, I'll tell you from where we're seeing, it absolutely has, things corrected.

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

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

Jeff Strom -- Head of Building Materials Distribution Operations

Yeah, no, it's definitely been on the commodity side. And it was just very similar to last year when the commodity got up to the levels they did and hit the wall and did the same thing this year for the do-it-yourself, particularly.

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

Got it. OK. That's helpful. And then it sounds like the rebuild at the Scotch mill is kind of complete after the fire last year.

Is that something that could provide you guys some relief in terms of third-party veneer supply or not really?

Mike Brown -- Head of Wood Products Operations

Good morning, Kurt, it's Mike. Yes, we have a long-standing relationship with the folks at Scotch and you are correct. The information I have is that the Green End project is pretty much up and finished. They're running more or less at or very close to the production levels that they had before the fire.

We were actually able to assist Scotch during the rebuild phase by supplying them with some of our green veneer. So we won't see a tremendous increase in the supply of veneer from the Scotch plywood company, even though the Green End's up and running. It's more swapping the veneer that they will appeal themselves to the veneer that we were sending them from one of our facilities. But yes, it will certainly help a little bit, but it's not a major or a significant increase in availability of veneer to us.

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

Got it. That's helpful. Thanks, Mike. And then just my last one on capital allocation and maybe M&A specifically.

Could you just talk about kind of the strategic priorities and maybe focus areas with M&A? And just whether you think there is a possibility of putting some cash to work with deals this year?

Nate Jorgensen -- Chief Executive Officer

Yeah, Kurt, it's Nate. I'll take that one. I think as we look at our wood products opportunities and specifically our EWP franchise, I think that we're still centered on how do we grow our veneer capabilities? And obviously, that's an important part -- has been an important part of who we are and will continue to be going forward. So we want to continue to look at how do we strengthen our capabilities there and continue to build upon, again, the platform that we currently have in place.

So that remains an important opportunity. I would say maybe behind that within wood products, we continue to look at maybe the opportunity around mass timber. What does that opportunity look like? That's probably more of a long-term opportunity for us and the industry, but that is something that we continue to work and better understand in terms of what our fit is and where our position might be in that opportunity moving forward. For BMD, we really have it probably broken down into three pieces.

One is around how do we grow and support our existing footprint, and we have been doing that in several examples over the last couple of years in terms of expanding our capabilities and capacity in support of our growing business, as well as our growing product mix and vendors that we're supporting. Probably the second element is there are, in BMD is, there are markets today that we serve, but we serve from a distance and an opportunity to get a little bit closer to market to increase our presence and our service is something that is going to be -- continue to be important for us as we move forward. And then finally, just to maybe circle back on the question, I think, Mark had just on our door shop and our millwork franchise. That remains an important part of how we think about capital and growth for BMD as we move forward.

So those would be probably the three components within BMD. And again, as we described earlier, we're well-positioned to financially work those opportunities. And I think we have, again, really good clarity and focus on what are the key growth levers that we need to be working across that book in wood products and BMD?

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

OK. All right. Well, appreciate the color, Nate. And good luck here on Q2, guys.

Nate Jorgensen -- Chief Executive Officer

Thanks, Kurt.

Operator

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

Reuben Garner -- The Benchmark Company -- Analyst

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

Nate Jorgensen -- Chief Executive Officer

Yeah, sure. Good question, Reuben. Good morning. Let me maybe start with a little bit of a reminder of Q1.

It is kind of the quarter of a trifecta, if you will, when you think about our gross margins. We had escalating commodity prices for the majority of the quarter and we continue to see really good margins and margin growth across our EWP and general product line. So we had the trifecta that really got us to the 18% gross margin. So then your question about, OK, tell us how you're doing so far in the second quarter? Our sales pace is really consistent with first quarter.

It's stayed very strong. And the margin goodness we get from EWP and general line remains and is probably getting a little bit of escalation there. And then we've done a really good job in April with kind of managing and mitigating the negative impacts of commodities. And we've essentially worked through that high-cost inventory.

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

Reuben Garner -- The Benchmark Company -- Analyst

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

Jeff Strom -- Head of Building Materials Distribution Operations

Hello, Reuben, this is Jeff. On the growth side, if you think about the lack of supply and how difficult it is, the growth has been 100% driven on price. There's no volume growth there. If we could get it, we know we could grow it.

And then there isn't a product line on the general line that we're selling that is not in that situation right now. It's still pinched up. It's kind of across the board on everything.

Reuben Garner -- The Benchmark Company -- Analyst

OK, perfect. That's interesting. And then last one, I think, if I could sneak one more in. The engineered wood business within BMD continues to grow faster or looks to me to be continuing to grow faster than your EWP business from a manufacturing standpoint.

How much more runway do you have there to sell more internally or through your own distribution?

Nate Jorgensen -- Chief Executive Officer

hey, Reuben. It's Nate. This is me. I'll take that one.

I think in terms of the overall EWP category, obviously, it remains under allocation. And so, again, as we've described earlier, we expect that scenario to continue. I think when you look at the internal consumption by BMD as compared to a product that is sold to independent third-party distribution, a bit of change in terms of our external third-party distribution footprint in terms of the relationship. So that when you look at comps that I suspect is part of the equation.

What we've tried to be is very consistent, fair, and predictable in terms of all of our relationships, internal and external when it comes to EWP and allocation. So that would be, again, probably a bit of a channel change last year that's contributing to that difference as opposed to taking a kind of a material different view of how we think about internal versus external distribution.

Reuben Garner -- The Benchmark Company -- Analyst

Understood. And sorry, I said last one, but I want to sneak one more small one in, if I could. So if I have the numbers correct here, that was the first quarter for in a while of volume growth for plywood. And I know that's been a focus using the veneer for more valuable sources or more valuable means internally.

Anything unique about the first quarter there? Was that just a one-off? Can you, I guess, any color you can provide would be helpful?

Mike Brown -- Head of Wood Products Operations

Yeah, Ruben, it's Mike. Yes, so I think the number was rounded up with 317 million feet of plywood. If you look back at 2021, we had one quarter that was significantly more than that. It was 337 and several other quarters that were right around 305, 310.

So as a general rule of thumb, we sort of tend to run around the 310 million feet of plywood each quarter, sometimes a bit more, sometimes a bit less, depends on how we run. You can imagine, but there's no sort of structural change the way we're doing business. We weren't deliberately trying to put any additional fiber into plywood as compared to EWP because we just don't run our business that way. So it was just one of those sort of series of events that led to us making a bit more plywood as compared to, for example, the prior quarter, which was, I think, 305, if I remember correctly.

So nothing structurally different. I promise you.

Reuben Garner -- The Benchmark Company -- Analyst

Perfect. Thanks, guys. I just wanted to clarify. Congrats on the quarter, and good luck going forward.

Nate Jorgensen -- Chief Executive Officer

Thanks, Reuben.

Operator

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

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Good morning. How are you doing? Nice quarter. I guess you can take the rest of the year off, if you'd like, but it probably won't happen.

I wanted to hit a little bit on EWP and ply. So if possible, you talked about Florien, you talked about Alex, you obviously have the Chester project. In broad strokes, if you want to be granular, what will that do both to your veneer and EWP production in terms of growth? What does that add to you on an annualized basis looking out to '23 and beyond? And should we expect kind of relatedly imply, are you running close to 300 through 3Q since the project at Chester won't be done until early 3Q? Or will you see better production there?

Mike Brown -- Head of Wood Products Operations

OK. I'll start, and of course, others will chip in, as appropriate, George. So let me start with Chester, OK? So the project in Chester is a very small dryer. We have three dryers there.

It's the smallest of the dryers and effectively will be out of service for like one quarter. So because of the size of that, the total gross impact on veneer production at Chester's sort of going to be from that dryer is sort of like 10 million feet, it's not very much in the scheme of things, right? But don't forget that as Kelly pointed out, our total production will be down a bit this quarter because we did something else at Chester. We actually took the whole mill down for three weeks because we had a boiler project. So during the month of April, effectively, the mill will only run for like one week.

So that will have a more significant impact. And I think Kelly's comment was more along the lines. We should expect that our plywood volume in Q2 will be more like 300, compared to the 317 that we saw in Q1. And so that's taking all of that stuff into account.

As it relates to, will this make a significant impact on our ability to produce more EWP? The reality, unfortunately in some respects, is no. This small dryer in particular, we run mostly, not always, but we mostly run veneer through that that we call strip veneer, which actually goes into plywood, not into EWP. So it doesn't give us a huge lift even though it will be a new dryer. There's not a significant lift in total strip-related veneer production from this project.

You asked about Florien, which has been an ongoing set of projects now for a number of years. That's mostly, I would say, complete. And we have some upside there, if you will, potentially in the future because we have another small dryer that we are thinking about replacing should we ever be able to find the pass to do it because they're now about two years away if we ordered them. So again, nothing that I see as sort of a significant step-up in EWP production from internally generated veneer.

The challenge, as you've heard me say several quarters, at least, is that we do buy some veneer on the outside. And that has been particularly challenging in the Pacific Northwest of recent times, where I would add that log prices are very high. And so external suppliers of veneer have been challenged and as a result some availability has declined. And to a little bit, we did buy a bit of veneer in the South as well.

And as I mentioned earlier, with the Scotch Green End project being completed, maybe there will be a little bit of additional third-party veneer available. But in the scheme of things, this is sort of like a very small potential increase, nothing really of any significance.

George Staphos -- Bank of America Merrill Lynch -- Analyst

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

Mike Brown -- Head of Wood Products Operations

So I guess I'd answer that question like this, George. We believe if we could get all the people we need for all the days of the year, and we could get all the veneer that we need to fill our current installed capacity, we might be able to produce about 6% more in total. That's the sort of the number that we have used regularly now for some period of time. So the challenges are, can we get all the people all the days? And to the point I just made previously around can we possibly find some external veneer that would allow us to crank up production to sort of meet our nameplate capacity? And that's obviously what we're trying to do.

I will comment on your sort of question around productivity. So if you go back more than a decade, sort of about the time of the great recession, if you look at the productivity of our machine centers, we've really squeezed most of the blood out of that stone. Our machine centers have really, really, really improved tremendously because of the work of our folks. So we might be able to get a little bit more because we are working on turning some things and changing out some parts.

But to your point, it's a very low percentage points, a point here or a point there, it's not like it -- we won't get 6% just additional by productivity increases.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Understood. Appreciate that rundown there, Mike. Can you talk a little bit about where you see inventories in the chain right now? There is a sort of a standard narrative most of the year that inventories were lean. Maybe inventories are a little bit high in Canada, but that tension was allowing the markets to do what they've been doing.

Are you seeing any build in inventory? Or are you seeing this continued destocking effect where buyers ultimately expect prices to head lower, which would make sense. And so therefore they're not really stocking up. Inventories are low and therefore you wind up with this continued tension and pricing in a good way from your vantage point. How would you frame it, given that very broad question?

Jeff Strom -- Head of Building Materials Distribution Operations

Hey, George. This is Jeff. I'd just say overall, in general, I believe that the inventories in the general are lean. And if you think about the general line, the EWP, and even the millwork, they've all been strictly allocated, tough to get the transportation issues.

So that piece of it is definitely lean. On the commodity side, with the risk-reward and where the numbers were and people who're definitely waiting for a correction, I would tell you that still seems to be lean out there right now as people are looking to buy back in. And we've seen that from the demand that comes out of our warehouse. So there's still -- if you look at where the numbers stopped this time and recorrected, it's still a significant number.

So there is still risk out there. I mean, look where we're at right now price-wise.

George Staphos -- Bank of America Merrill Lynch -- Analyst

OK. Thanks for that one, Jeff. Two last ones on capital allocation and I'll turn it over. So back to the question of the supplemental and, again, congratulations on the way you're allocating capital.

And I know it's tough to predict. We're not really asking you to do that, but what factors would you need to see come into play for you to consider another supplemental this year? Because at these rates, even with the regular dividend, even with the capex of $110 million to $130 million, you're going to have excess cash. So I recognize there are other things, other growth projects, potential M&A. What would need to happen time-wise and consideration-wise such that you would consider another supplemental? And then my other question, and I'll turn it over.

As you think about mass timber and CLT, would you consider -- could you update us on your thoughts about whether you'd be willing to partner with anybody in that area? And is there any way to somehow get some benefit from the whole credit concept, which seems to be also driving people's interest in mass timber, recognizing that once it's cut down and put into a stud, that credit is no longer there? It was in the harvesting or the deferral. But how do you partner with people around getting more of an ESG credit for what you do and in turn how you might be able to use that in terms of applying capital to that business? Thanks, guys, and good luck in the quarter.

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

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

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

Mike Brown -- Head of Wood Products Operations

Yes. First things first, George, on the partnering question. We were actually doing that already. So it's sort of behind the scenes, we're obviously not out there in the CLT market.

People like to talk about CLT as much as anything else. But we have a group of folks, a gentleman by the name of Dennis Bolt, that has been working in this space now for going on three years. We don't produce a lot of material that we are able to -- our own material that we can put into these sorts of projects at the moment because of our allocated situation on our traditional EWP. But we are involved in a small way already partnering with third parties to put together the supply of raw materials on a number of different projects.

So as a general statement, we are doing it and we'll continue to do it. And if there is an opportunity that presents itself that's larger in scale, then we will certainly look at that very, very, very closely. The second question part of your question, I believe, was around the carbon credit item and how that fits into ESG in general?

George Staphos -- Bank of America Merrill Lynch -- Analyst

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

Mike Brown -- Head of Wood Products Operations

So this is a bit like -- this may not be the totally fully thought-through answer to your question. But my view -- personal view on the carbon credit side of things as it relates to mass timber, it could become a thing over time. But it's sort of an add-on as opposed to the core component of why you would do mass timber? So again, if we can find a way to either using this some way our traditional products or develop new products that we can put into mass timber and partner with other folks, there may be an additional upside premium that comes, that falls to those that produce because of the carbon credit-related issue. I think we're in the pretty early days of trying to find what that all looks like.

So I'm not sure I'm quite going to tell you how much that might be and when it is and what it might look like. So I'm going to hedge my best and say we'll be taking a closer look over time. But from my opinion, that's somewhat in the future and not the core part of how to justify mass timber buildings.

Nate Jorgensen -- Chief Executive Officer

Maybe George, maybe just --

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hey, Nate, sorry.

Nate Jorgensen -- Chief Executive Officer

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

George Staphos -- Bank of America Merrill Lynch -- Analyst

Appreciate that. Thank you, Nate. Thank you, Mike. Talk to you guys soon.

Have a good quarter. 

Operator

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

Mark Wilde -- BMO Capital Markets -- Analyst

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

Jeff Strom -- Head of Building Materials Distribution Operations

Mark, this is Jeff. The door side is on strict allocation on the exterior doors and has been and in fact, if anything, the allocation got tighter and now they're working hard just to try to get back to the allocated levels. So that's kind of the same. And on the roofing side, the little bit that we're in, it's been incredibly difficult as well.

There has been no change in that whatsoever.

Nate Jorgensen -- Chief Executive Officer

Mark, it's Nate. Maybe just another quick comment on, I think too, other products and services in some cases that we don't represent or distribute, I think are having an impact on the overall capability and capacity of our industry. And so sometimes it's regionally specific, but I think today in certain markets, it's garage doors. Again, we don't do anything with garage doors, but it isn't limiting perhaps what the overall capacity for the housing industry is.

And I think we, again, are kind of, in some cases, running from bottleneck to bottleneck on both supply and services. So that's an element that has been with us for a period of time, and we would expect that storyboard likely to remain as we go through the course of this year.

Mark Wilde -- BMO Capital Markets -- Analyst

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

Nate Jorgensen -- Chief Executive Officer

Mark, yeah. So I'll start with the second one first, resins. Thankfully, we have just tremendous partners in that particular space. So while there were some challenges going back to ice storms and the like some time ago, I'm very happy to say that our partners in supplying us with resin.

They didn't miss a beat. Yes, we have to shuffle a few things around here, there, and everywhere, but we didn't lose production because of a lack of resin supply. So it's an opportunity to thank my resin partners because they did a great job. As it relates to log pricing, log pricing has gone up.

There's no doubt about that. In the South, there has been some, I would call it, a relatively small incremental increase Q1 to Q1. That sort of, I'd say, sort of mid to low single-digit sort of numbers. Some of that has to do with weather as always.

There's been depends some challenging weather situations. I guess we'll see how that pans out over the next little while. But as a very general comment, a little bit of increase in the South, but nothing like the order of magnitude of sort of increases we've seen in the Pacific Northwest. So generally speaking, the increases in the West have been significantly higher, I'll say, sort of compared to Q1 of the prior year, not quite 10%, but in that order of magnitude.

The challenge that we've seen has continued into Q2. So the last set of data that I looked at sort of indicated that the prices that we're having to pay is not all day every day, but for certain sales or the purchase of certain sales of timber, it kind of an all-time record highs. And that's a bit of a challenge for us, the challenge for the whole industry, to be honest. And there's a variety of reasons behind that.

But I think as we move forward, they will start to tailor off a little bit, but I don't see that sort of dropping immediately back to sort of like the historical levels. So expect sort of sustained higher log costs for a period of time.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. And then the last one I had was just kind of going back to something George was asking about in terms of partnering up in the mass timber area. I'm just struck by the fact that we're starting to see some fairly innovative European companies invest in the wood products business over here. And it seems to me the wood products companies in Europe have been generally at the front edge of some of these new engineered products.

And I just wondered whether you would seem to be a pretty valuable entree into the market channel to the market for companies like Binderholz and others as they start to build out here? Any thoughts on that?

Nate Jorgensen -- Chief Executive Officer

Yeah, Mark. It's Nate. I think when you look at the mass timber opportunity here in North America and then to your point, what's happening in other parts of the globe? Europe is well ahead of us. And they've been building with mass timber for, in some cases, decades.

So I think in terms of maybe what our level of optimism and confidence about that being a relevant and capable solution moving forward, we do look and have spent time better understanding what the European market has done. So not surprising there, perhaps our Europeans that are looking to expand their capabilities to other parts of the world. But I think part of that momentum has certainly been centered on, and again, in some cases, decades of experience in Europe, where they have proven mass timber CLT can be a very competitive solution relative to steel and concrete. So that's not a surprise, and it's something again, we continue to learn from, not just what's happening in North America, but happened across the globe.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. All right. Sounds good. Good luck in the second quarter and through the year, Nate.

Nate Jorgensen -- Chief Executive Officer

Thanks, Mark.

Operator

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

Nate Jorgensen -- Chief Executive Officer

OK, great. Thanks, Latanya. Just again, we appreciate everyone joining us today for this morning's call and update, and we appreciate your continued interest and support of Boise Cascade. With that, please stay safe and be well.

Thank you.

Operator

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

Duration: 65 minutes

Call participants:

Kelly Hibbs -- Senior Vice President, Chief Financial Officer, and Treasurer

Nate Jorgensen -- Chief Executive Officer

Mark Wilde -- BMO Capital Markets -- Analyst

Mike Brown -- Head of Wood Products Operations

Susan Maklari -- Goldman Sachs -- Analyst

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

Jeff Strom -- Head of Building Materials Distribution Operations

Reuben Garner -- The Benchmark Company -- Analyst

George Staphos -- Bank of America Merrill Lynch -- Analyst

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