Fintel-covered engineered wood products stock Boise Cascade (US:BCC) reported first-quarter results on Thursday after markets closed with net income of $96.7 million, or EPS of $2.43, well ahead of the consensus estimate of $1.75 per share.
Boise Cascade is a familiar name at Fintel showing up several times on the Dividend Screener and Leaderboard. More recently, we have observed several other quantitative metrics turn attractive which has resulted in us beginning coverage on the stock.
The results showed a deterioration in operation conditions when compared to the first quarter of 2022. Despite a weaker environment due to lower single-family housing starts and commodity product prices, the company’s strength and resilience was evident as they delivered solid financial results.
Nate Jorgensen, CEO of the materials maker, stated that economic uncertainties persist but the company remains committed to its growth initiatives, providing high service levels to vendor and customer partners, and rewarding shareholders through continued special dividend payments.
Fewer New Houses
Single-family housing starts are the key demand driver of Boise Cascade’s sales, which decreased by 29% over the year to $1.54 billion. The sales result figure was within market expectations. The group generated adjusted EBITDA of $158.7 million, well below the prior year but much better than market expectations of around $120 million.
Fintel’s quantitative measurements of BCC’s management effectiveness over previous quarters are shown in the chart and table displayed below.
The table and chart show how management has been able to grow underlying operating returns for investors in previous quarters despite the several headwinds. This is shown in the operating cash return on invested capital (OCROIC) which is at its highest level in five years.
This is a Fintel-created metric that makes it hard for management to hide underlying performance of the company.
The impact resulted in a 22% decrease in sales for the Wood Products segment to $437.43 million, with EBITDA declining 63% to $69.40 million. The decrease was primarily driven by lower plywood sales prices and lower sales volumes for EWP. However, higher plywood sales volumes and higher EWP sales prices partially offset the decreases.
BMD’s segment sales decreased by $732.6 million, or 35%, to $1,379.2 million, caused by sales price and sales volume decreases of 20% and 15%, respectively. Commodity sales decreased 50%, general line product sales decreased 13%, and sales of EWP decreased 24%.
Boise Cascade ended Q1 2023 with a healthy $1 billion of cash and cash equivalents and undrawn bank facility giving total liquidity of $1.4 billion.
The chart below shows the growing levels of cash generated from the group’s operations in the last few years. While investment capital and debt balance has deterred from cash flows, they are easily manageable with the balance sheet flexibility that management has at its disposal.
Fintel gives BCC a Quality Score of 87.71 which ranks the stock highly versus peers.
Boise Cascade expects capital expenditures in 2023 to total approximately $120 million to $140 million with spending planned for greenfield distribution centers, mill projects and the purchase of a property to house additional assembly in Kansas City.
Goldman Sachs analyst Susan Maklari thinks that the results beat was driven by EBIT margins and a lower tax rate. The analyst highlighted that even though the results were tempered by headwinds from declines in volumes from housing activity, management was able to effectively adjust costs including commodity deflation that drove profitability ahead of expectations.
Management quality and effectiveness is a factor that the Fintel platform regularly measures stocks on with the Quality Score being included in several models.
Fintel’s consensus target price of $73.24 suggests analysts think the stock could rise 7% over the next year.
As a manufacturer of certain commodity products, Boise Cascade has sales and profitability exposure to declines in commodity product prices and rising input costs.
The company’s distribution business purchases and resells a broad mix of commodity products with periods of increasing prices providing the opportunity for higher sales and increased margins.
One positive highlighted by the Fintel platform has been the growing level of institutional buying activity in the stock over the past quarter. The number of institutions on the register has grown by 4% in the most recent quarter to 737 currently.
Additionally the average portfolio allocation by the institutions has risen by 55% to 0.275% on average per holder.
Fintel’s Fund Sentiment Score of 87.09 is bullish on the company ranking the stock in the top 5% out of 37,004 globally screened securities for the highest levels of fund buying activity.
This article originally appeared on Fintel
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