Boise Cascade Holdings, L.L.C. (BC Holdings or Company) announced net income of $26.2 million for the quarter ended September 30, 2009. Included in its net income was $28.2 million of noncash income associated with the Company’s equity investment in Boise Inc.
In third quarter 2009, BC Holdings’ building products subsidiary, Boise Cascade, L.L.C., reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of $11.9 million, as compared to negative EBITDA of $3.5 million in second quarter 2009. The Company’s cash and net debt position improved $9.5 million during the third quarter, with the company reporting $279.1 million of available liquidity at September 30, 2009. The individual segment results are discussed in more detail below.
“The lackluster demand for new residential construction continues to present challenges, but we are executing well. In Building Materials Distribution, sales were up 9% from the second quarter and EBITDA increased 21%. In Wood Products, sales increased 21% from the second quarter and the business reported positive EBITDA of $3.4 million, which was significantly better than the $9.8 million of negative EBITDA in the prior quarter. The first few months of operations have gone well at the two acquisitions we made in June. We have improved our cost position over the last year and it shows. Most importantly, even in this difficult market our employees are achieving the best safety results in the history of our Wood Products and Building Materials Distribution operations. We also have a very good liquidity position to get us through this winter and allow us to take advantage of market opportunities as we move into next year,” commented Tom Carlile, CEO of Boise Cascade.
Third Quarter Segment Results
U.S. housing starts declined 32% in the third quarter, dropping from an annualized rate of 0.87 million in third quarter 2008 to 0.59 million in third quarter 2009. In the third quarter, continuing foreclosures, high inventories of unsold homes, rising unemployment, and low consumer confidence contributed to a weak demand environment for the building products we manufacture and distribute.
Sales in our Building Materials Distribution (BMD) business during the third quarter were $472.2 million, compared with $433.7 million in second quarter 2009 and $584.1 million in third quarter 2008. Compared with third quarter 2008, the 19% decline in sales resulted from a 13% decline in product volumes sold and a 7% decrease in product prices. EBITDA generated by BMD improved 21% to $11.6 million in third quarter 2009 from $9.6 million of EBITDA in second quarter 2009. BMD’s third quarter 2008 EBITDA was $12.1 million. The segment’s lower sales activity, compared to the same quarter a year ago, resulted in fewer gross margin dollars being generated to cover cash operating costs, such as occupancy, payroll, and delivery. However, well over 90% of the decline in gross profit dollars, compared to third quarter 2008, was offset by lower operating costs and cost reduction initiatives implemented over the last year.
Sales in our Wood Products segment during the third quarter were $163.2 million, compared with $134.4 million in second quarter 2009 and $215.1 million in third quarter 2008. Compared with third quarter 2008, sales of engineered wood products, plywood, and particleboard declined due to lower volumes and prices. Lumber sales also declined on lower volumes and modestly higher prices than the same quarter a year ago. Third quarter EBITDA for Wood Products was $3.4 million, a sharp improvement from the negative $9.8 million of EBITDA reported in second quarter 2009. Wood Products reported $3.6 million of positive EBITDA in third quarter 2008. Lower log costs, productivity improvements, and curtailments at facilities previously generating cash losses essentially offset the negative impact of lower sales volumes and prices compared to the same quarter a year ago. We have been taking rolling curtailments at all of our Wood Products operations to maintain appropriate inventory levels, while trying to minimize the negative impact these curtailments have on our employees and our operating results.
Outlook
We expect end-product demand to remain weak when compared to normal historical demand levels, with single-family housing starts unlikely to show any significant rebound during the remainder of 2009. Absent a change in unemployment trends, stronger levels of consumer confidence, and a reduction in foreclosures and housing vacancy rates, weakness in final demand for the products we manufacture and distribute is likely to continue into the first half of 2010. Industry product sales volumes are likely to remain depressed and commodity wood product prices will largely depend on operating rates. We expect to manage our production levels to our sales demand, which will likely cause us to operate our facilities below their capacity.
