Boise Cascade Co (BCC) 2014 Q1 法說會逐字稿

Good morning. My name is Kevin, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Boise Cascade first-quarter 2014 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 to date, 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 to you Wayne Rancourt, the Senior Vice President, CFO, and Treasurer, Boise Cascade. Mr. Rancourt, you may begin your conference.

Thank you, Kevin. Good morning, everyone. I'd like to welcome you to Boise Cascade's first-quarter 2014 earnings call and business update. Joining me this morning on today's call are Tom Carlile, our CEO; Tom Lovlien, head of our wood products operations; and Nick Stokes, head of our building materials distribution operations.

Turning to slide 2, I'd point out the information regarding our forward-looking statements. The appendix of the presentation includes reconciliations from our GAAP net income to adjusted net income and EBITDA.

Now I will turn the call over to Tom Carlile.

Good morning. Thank you for joining us on our earnings call today. I am on slide 3.

It was a challenging first quarter in both of our businesses, as an unusually harsh winter tempered what we had expected for end-product demand. We reported $767 million of sales in the first quarter, up 3% compared to the first quarter of 2013.

Plywood sales growth resulting from our acquisition of two plywood facilities at the end of the third quarter of 2013 and higher product shipment volumes in our building materials distribution business more than offset the impact of lower commodity prices and drove the modest increase in sales.

We earned net income of $5.6 million in the first quarter 2014, which was down $6.6 million from the adjusted net income of $12.2 million reported in the year-ago quarter.

As we discussed on our last earnings call, we expected this quarter to be a tough quarter for revenue and earnings comparison given last year's first-quarter elevated commodity pricing for structural panels and lumber. The string of severe weather events this year compounded the situation, with a significant number of lost shipping days and higher operating costs.

Fortunately, we saw better demand in late March, and that has carried into April. We should have a better feel for the actual state of the new-home construction as we get through the next six to eight weeks and we are able to sort out how much of the lack of activity in the first quarter was solely due to weather and how much is reflective of general economic conditions hindering the pace of housing recovery.

Consensus estimates for 2014 housing starts have dropped modestly, which is not surprising given the weaker than expected activity levels in the first quarter. We still expect the full year to show improvement over 2013 and believe over the next few years US housing starts will return to long-term trend levels of 1.4 million to 1.5 million.

With that overview, I'll ask Wayne to provide more detail on the financial results.

Thank you, Tom. Turning to slide 4, wood product sales were $293 million in first quarter, up 9% compared to the year-ago quarter. The sales increase was attributable primarily to 20% higher plywood sales volumes, 5% higher engineered wood products prices, and 23% higher lumber prices offset in part by 11% lower plywood prices.

Wood products first-quarter EBITDA was $23 million, down $4.1 million from the year-ago quarter. Lower plywood prices and higher wood fiber costs were the principal factors behind the earnings decline. The recently acquired plywood operations contributed $2 million of EBITDA in this year's first quarter.

BMD sales increased 1% to $586 million in the first quarter due to 5% higher volumes and 4% lower prices than in the first quarter 2013. BMD's first-quarter EBITDA was $8.2 million, down $2 million from the $10.2 million reported in the first quarter of 2013. I would note that the $8.2 million reported in the first quarter for BMD included a $1.6 million pretax gain from selling 2 surplus properties.

Turning to slide 5, our first-quarter plywood sales volumes in wood products showed the impact of the recent acquisition. We are continuing to sell a portion of the production from the new facilities as high-strength veneer, which doesn't show up in the plywood sales data.

We are planning to share EBITDA for the acquired facilities until the anniversary of the acquisition but for competitive reasons do not intend to break out product sales data for those individual mills.

Our $294 average net sales price for plywood was down 11% from first-quarter 2013 and down 3% sequentially from fourth quarter of 2013. Plywood pricing is a key driver of the financial performance for wood products, so we pay close attention to our production levels relative to what we're seeing in market demand. We did take a modest amount of market-related downtime earlier this month at our Medford, Oregon, plywood operations to keep our production and inventories in line with demand and transportation constraints.

In March, we experienced service disruptions on transportation including both truck and rail car availability, which hindered our ability to ship committed volumes on schedule. The demand and transportation situation has improved since then, and we are not anticipating further reductions in plywood production at this time.

Turning to slide 6, our first-quarter sales volumes for LVL and I-joists were each down 3% compared with the year-ago quarter, which was reflective of the tough environment for new single-family residential construction in the quarter. Shipments have picked up in April, and we believe the momentum will continue. Our LVL and I-joists sales price realizations each improved 5% from the year-ago quarter and were essentially flat with fourth-quarter 2013.

We believe the pricing dynamics for engineered wood products will continue to improve as industry capacity utilization rates move higher with increased housing starts.

Moving to slide 7, BMD's first-quarter sales were $586 million, up 1% compared with the year-ago quarter. As I said earlier, volume gains were 5% and largely offset by price declines of 4%.

Lower prices within our commodity category compared to first-quarter 2013, particularly for oriented strand board, hindered our top-line growth comparison and negatively impact our expense leverage.

Those that have been following our Company since last year will recall the steep decline in commodity pricing in the second quarter 2013 and the negative impact it had on our gross margins and reported earnings in the distribution business. We anticipate improved earnings comparisons for the distribution business in the second quarter this year, as business activity has finally picked up and commodity pricing has been less volatile than what the industry experienced in the first half of 2013.

On slide 8, we've set of the key elements of our working capital. Company working capital increased $39.1 million during the first quarter. BMD's inventory investment increased about $38 million during the quarter in anticipation of the spring selling season. Some of the inventory investment was covered by our vendors with extended terms, which is why our Accounts Payable also jumped in the quarter. The seasonal Accounts Payable terms will run off in the second quarter, and we will be making our semi-annual interest payment on our senior notes on May 1.

As noted earlier, sales activity in late March picked up, contributing to the rise in Accounts Receivable compared to year end. As a reminder, the statistical information filed as Exhibit 99.2 on our 8-K has the receivables, inventory, and Accounts Payable data broken down by segment for those that are interested in more detail.

I'm now on slide 9. We used $32.3 million of our cash in the first quarter to fund the increase in working capital, which is a typical seasonal occurrence. Our bank line availability and balance sheet cash give us considerable flexibility to grow our businesses organically or through targeted acquisitions. I expect our free cash flow generation to improve as we move through the balance of this year.

And with that, I will turn it back to Tom to wrap up.

Thank you, Wayne. The consensus estimate for 2014 total US housing starts now stands at 1,080,000, which would be up about 17% from starts experienced in 2013. We believe the demographics in the US should support a return to residential construction of 1.4 million to 1.5 million starts per year in the years ahead.

We will continue to manage our business to be supportive of our customers and capture the opportunities in the markets generate.

The product pricing has been volatile over the last 18 months, and that could continue to be the case as producers and customers try to predict and react to changes in supply and demand. With that in mind, we will be closely focused on market conditions and will be appropriately nimble on production and inventory levels.

I am optimistic about the outlook for the remainder of the year. We expect to see additional production and earnings from the acquired mills as we target maintenance and capital spending to bring the mills up to our standard and continue to implement operations improvement process used at our other facilities.

EWP sales volumes are back on their upward trend. And as we move into spring, I expect further revenue and earnings growth in our distribution business. In addition to the leverage we will get out of our existing businesses, we will continue to look for additional opportunities to create shareholder value. At the moment, acquisition values are challenging given the liquidity available in the debt markets and the seller valuation expectations, but we are continuing to seek out favorable situations to grow our Company.

Thank you again for joining us on our call this morning and your support as investors. We would welcome any questions at this time.

Operator, would you please open the phone lines?

(Operator Instructions) George Staphos, Bank of America.

Congratulations on the progress. The first question I have, maybe Tom, segueing off your last comment, given that M&A multiples seem like they are high -- at least that's the implication of what you were saying -- do you therefore see perhaps more opportunity this year to use cash flow for buybacks, say, as way of increasing shareholder value? And I have some follow-ons.

As we've stated in the past, our first priority is try to grow the Company if we can find opportunities that add value. And then we would look at returning cash to shareholders. We do not have a plan that we are ready to discuss beyond that at this point in time, but it's a topic we discuss at the Board meeting every time we meet.

Okay. So maybe just a summary would be -- to the extent you can comment on a forum like this, we understand -- is that you're still going to keep beating the bushes for investment candidates, and you haven't yet become so frustrated that you're considering a buyback at this juncture. Would that be fair?

That feels better now than it used to. Yes.

Okay. Second question I had, back in February, realizing that's a couple of months ago and a lot of bad weather since then and the slower start to the year since that point, you were saying that your customers, both on the distributor side and builder side, were optimistic about the year. Are they, from your vantage point, similarly optimistic about the prospects for 2014? Recognizing we lost maybe a month or two here. Or are they also feeling a little bit more cautious on the outlook for the building season this year, recognizing that, ultimately, you hope that you're going back to $1.4 million, $1.5 million on the trend line?

George, what we are hearing from our customers is they remain optimistic and positive. They are telling us they're seeing their business pick up, which we are seeing in our shipments. So I think the general tone is still positive.

Okay. Two last ones and I will turn it over. Should we worry at all -- and why, why not -- that with drier projects like you have had with Oakdale, and you are growing your veneer capacity, that if EWP doesn't really pick up, you hope it does with single-family starts, that you might wind up excess capacitizing the plywood markets other than they would otherwise be?

And then can you comment at all on what the impact from the downtime at Medford was in the quarter? Thank you.

Maybe I'll take that one, George. I think we are very cognizant of the impact on the near production and whether it flows into EWP and plywood. And we're trying to do that on a metered basis to make sure that we don't end up in the situation that you mentioned. So we are not expecting our plywood volumes to grow. And so far, the absorption rate in EWP has been in line with what we've expected. Particularly as we got into late March and April, we feel good about the takeaways.

As far as the downtime at Medford, it was very much in response to what we were seeing on transportation difficulties and a build in inventory. And, again, when we look at order files and demand rates, we're trying to be responsive and nimble. We lost, or took down by choice, about a week's production, and it's probably about 4 million feet. So if you compare that to the 400-plus million we sold in the first quarter, you're talking about 1% of production, and some of that may get made up in the second quarter. But we are not inclined to push product into the market if it's going to end up driving prices down.

Thanks for the detail, Wayne. I'll turn it over.

Thank you.

Alex Ovshey, Goldman Sachs.

A couple of questions for you guys. On the distribution business, your volumes were up. Obviously the pricing comparison was difficult on a year-over-year basis. Would you be able to help us with a bridge? What was the positive impact of the volume being up in the distribution impact? What was the negative impact of having lower selling prices? Any other sort of maybe one-time issues that may have impacted the first quarter of 2014 versus last year?

On the distribution business, it's a bit of a challenge. To get essentially the same revenue number, we had to have 5% higher activity if you think about the volumes we were shipping.

Yes.

And probably the poster child is oriented strand board, if I look at where was on a North Central basis. We went from 420, I think on North Central, to the low 200's. So if you think about trying to maintain the same revenue, you had to ship twice as much OSB volume.

Yes.

So that was clearly an impact. And if you look at February, our daily sales rates dropped to about $8.6 million. And if I look at that compared to where we were in March, we were probably $1.2 million higher in March.

And if you think about where the profitability comes in that business, most of the operating leverage comes once we get above $9 million daily sales -- in terms of covering payroll and covering fixed cost. So, clearly, having the spring activity would be better in late March and into April is going to help profitability a lot in the second quarter for BMD.

I got you, Wayne. And then just as a follow-up, in the second quarter of last year I believe there was just inventory adjustments given sort of the steep correction in price. Was there anything like that that was flowing through the numbers in BMD the first quarter of 2014?

No, things were pretty stable. We had, if you look at the lumber composite in the fourth week of the quarter, it was slightly above 400, and at the end of the quarter it was at 362. So not a huge percentage change in lumber, and that's probably the one commodity product where we saw some declines in prices throughout the quarter.

Panels were actually pretty stable. They kind of hovered -- the panel composite hovered right around 360 for most of the quarter.

Got you. Yes, that's right. And then on the EWP side, would you be willing to tell us what your April volumes are up by?

Alex, we can tell you that our April volumes have picked up nicely. We're not going to give you a percent. But the activity in EWP has been very strong.

Got you, that's fair. Obviously, it's still early on. Okay, and then just my last question. I mean, we're a quarter through now -- I guess maybe be a little bit more into that. In terms of fiber inflation, can you just update us on what your expectation is for fiber with fiber inflation in 2014?

Yes, as we've alluded to on prior calls, the fiber inflation that we're seeing is principally in the West, and it fluctuates a lot depending on what China is doing and what is going on in the export market. And that has -- activity level has backed off in the last several weeks from where it was earlier in the first quarter.

But we are probably up close to 10% in the West on wood cost compared to first quarter of 2013. I'd contrast that with the South, which -- as many of you know, our opinion is given growth rates down there and given the housing downturn, we think there's a pretty good availability in the growth to drain ratio. It's certainly been favorable in the South, and we haven't seen any real increase in our delivered log costs in the South if you compare it to a year ago.

And I think that's consistent with what a couple of the REIT guys have said that they are experiencing on their values. So we do pay attention to what those guys are seeing. But most of the inflation has been in the West. And by building inventories in the fourth quarter, we were able to, in a large part, stay out of the way of the first-quarter price issues on logs in the West.

Very helpful. Thank you very much.

Thanks, Alex.

Chip Dillon, Vertical Research.

Gentlemen, first question is on the lumber side. I think we -- this is just a picky one for the model. Maybe we have to wait for the Q, but what was the volume, and what was the average price there?

Price was up 23%, so we came in at 569.

Okay.

And then on the volumes, we were actually down 8% compared to the year-ago quarter. One thing I've mentioned, the lumber we produce is really going to guys that are doing windows and doors and industrial and going to home centers. So don't contrast with guys that are selling to dimension for framing houses.

Got you, I understand. So volumes were around 46 million square feet -- board feet?

Yes.

Okay, got you. And then you kind of called out a $1.6 million gain from I guess selling a couple of properties. So obviously, I'm getting to about $0.03. So if you strip that out, it would have been about an $0.11 quarter. Is there anything else I'm missing there?

No.

And you have more of these properties you think you'll be (multiple speakers) --

That was $1.6 million pretax.

Right. So after tax, I'm guessing it's about $1.1 million, and that would be $0.02 to $0.03 a share. And are there more properties like that out there for sale, or are these sort of intermittent?

No, this was -- we had done some relocation in Dallas to a -- not quite adjacent, but a property that allowed us to expand capacity in Dallas. So this was selling a surplus property up near Plano. And then we also moved our Baltimore location to a larger facility; and this is one that's near commuter rail, our old location, so we were finally able to get that sold to a developer.

Got you. And I think Tom mentioned in terms of looking at acquisitions -- and I guess am thinking more on the distribution realm -- is really the issue of sort of the ask a more important issue than the ability to get financing? I would imagine you guys would have no problem, given your strong balance sheet, getting financing, but maybe it's more of a difference of opinion of what is realistic on price.

Chip, that's -- the handicap has been expected valuations, not financing.

Yes, got you. And then I guess the last one, which is sort of the wild card here, is as you all look at the building season, I noticed last year -- I think it was this time last year -- some of your contacts out in the field were talking about difficulty in getting labor. And I think you all mentioned Phoenix and framers for example.

And as we go into this year, do you think that problem has been solved any? And yet, do you still think it's going to be -- and maybe a different way to ask it is do you think with the weather we've had that there could be maybe a longer or even stronger season in the next couple of months just because we need to make up for lost time? Or is there just not enough people -- are there not enough people out there to do the work?

Chip, this is Nick Stokes. I think the feedback we get is generally similar, although I think the need has moderated a bit. Certainly if you look at housing starts in the first quarter, they were down. And so the acuteness of the shortage, if you will, probably wasn't resonating as widely as it might have been, given our expectations. I think in some geographies, those situations still exist.

Yes, got you. Okay. Thank you.

Bill Hoffmann, RBC Capital Markets.

Wayne or Tom, I wonder if you could just talk about what you're seeing right now in plywood market conditions. You talked about a little bit of downtime in Oregon, but I was surprised that your inventory increase this year was actually more muted than I might have thought, especially with the addition of the Southeastern plywood mills.

I can speak to that. This is Tom Lovlien. Actually, the plywood markets are steady. And, as Wayne mentioned, part of the reason we took the downtime in Medford was to make sure we balanced the supply and demand as we saw it at the time. Plus, in the Pacific Northwest, we are continuing to have transportation problems, which have not really mitigated even though the weather has improved and cars are starting to move out of the East Coast on a more regular basis. But we still are facing issues with transportation. And we have built some inventory in our plywood mills; however, that inventory is sold (technical difficulty) cars and trucks in April, which we are working on.

So your sense is that the inventory downstream is reasonably balanced at this point time?

That's my sense.

Okay. Second question is -- just has to do with, given that we've seen significant weakness in OSB prices, are you getting any sense that there's pressure on plywood markets from that? Are you guys switching -- shifting back to OSB now that it's so much cheaper than plywood?

I don't know -- again, the plywood targeted market is a small percentage of the residential construction. And there's still parts of the country that prefers plywood over OSB. There might be a little movement, but we wouldn't say that's a big factor to our plywood demand.

Okay. Thank you. And just last question, the Southeastern plywood mills -- any thoughts on how they are operating? How the cost position is there? Is it running as you would expect it now you get into the sort of almost the first year of owning those?

Bill, the first quarter, the earnings out of the Southeast mills was below our expectations, but it was -- part of it was weather impact. We had downtime in those mills because of weather, which is highly unusual. But probably a more important part of it was the maintenance work and the capital work that we have done that impacts volume but also has higher cost structure. We are working hard to make those facilities look like the rest of our plywood assets, and that did impact us in the first quarter and carry into the second quarter to some degree.

Okay. Thank you.

(Operator Instructions) Steve Chercover, D.A. Davidson.

So the first question. Wayne, you said you expect improved comps from BMD going forward. I'm assuming that's a year-over-year comp. And is there any way to -- that we should incorporate, the write-down that you endured last year in the second quarter?

Well, if you go back to a year ago, I think we'll -- unless we really get surprised will clearly be better than the second quarter, and I would expect improvement sequentially, too, just given what we're seeing in daily sales rates. If you look back a year ago, we made $10 million in the first quarter on an EBITDA basis in BMD and in the second quarter made $5.5 million.

And I think that clearly is reflective of the downdraft we saw in commodity prices and when I just think about where we are on a daily sales rate and income on April, I'm quite comfortable that we will do very well compared to second quarter of 2013. And we'll do -- again, unless we get really surprised by something, we should do meaningfully better than we did in the first quarter of this year in BMD.

Great. And second question, is it your sense that the wood products industry was prepared to supply 1.1 million starts this year as opposed to the new consensus of 1.08? And how does the seasonality of housing starts versus, I think, the kind of linear production of wood play into that?

Well, to be honest with you, we are trying to manage supply and demand as we see our order files on plywood. It's true on our lumber business and the other products we produce. So being at the front end here on the earnings curve, I don't have a good feel for where the OSB guys are in terms of supply and demand and where the lumber guys are.

So in terms of prepping, I don't know that you'd see a big difference between trying to prepare for 1.1 versus 1,080,000. I think the real question, literally, is week by week there's a lot of flex in the supply chain and how producers are responding to what they are seeing in terms of order file and pricing is probably more important than that 20,000 swing in housing start expectations.

And, as I say, we're trying to be very thoughtful about what we're producing and what we're seeing on order files and how the supply chain is behaving so that we are not trying to push product into a market that's not ready to accept it or is skittish about inventory levels. (multiple speakers) I think our manufacturing guys have been very thoughtful about that through the first quarter and into the beginning here on the second quarter.

Yes, I think since you came back as a public Company, you've been very nimble and that's terrific. Do you have any sense what field inventories are like notwithstanding you managing to your order file?

Steve, as you know, it is a little difficult to get a hard view on field inventories. We do have a little bit of advantage in that we have some -- we could look at our own distribution business. We don't think there's probably a shortage of field inventories, but we don't think there is a glut.

Another way to think about this is as we ended the quarter to the degree we had more inventory that we wanted in our plywood and lumber business, we had orders for that volume. And we just couldn't get it shipped. And so that's another way to maybe give you a flavor of what might be happening out there.

I think particularly with the stability in the panel composite, there hasn't been a big push. And just given the winter weather, there hasn't been a big push to build inventories for spring demand. And there hasn't been a big motivation in terms of people seeing a strong upswing in prices; I think we finally got a $5 movement up in OSB last week.

So maybe that's been on the bottom, and maybe we're going to start seeing the demand pull up relative to supply. But we don't get a sense that there's a lot of inventory that's been stuffed into the channels. The flipside is we also don't think that there's a lot of people that are short inventory at this point.

And final question on that same front, the fact that rail cars are now starting to move, we also don't have the sense that guys are piling up unsold inventory within the mills. I think there's a real limit to how much they can produce without getting into a boxcar.

I'll let Lovlien speak to our own physical situation, but generally we can have a couple of days of inventory on the ground and then it starts to get to be an issue.

At least in our situation, we do not have storage capacity to build inventories beyond just a few days of production. And to the extent that we get there, we really -- particularly from a safety perspective, we really don't generally build those inventories beyond those few days because it's dangerous. It's -- we're putting material in areas where it's not normally stacked. So you have forklift, traffic issues, et cetera, et cetera. So we are very careful about not getting ourselves in a situation where we can't ultimately get that wood shipped in an orderly manner.

Understood. Thanks Tom, Tom, and Wayne.

George Staphos, Bank of America.

Follow-on. First of all, could you give us a sense of where operating rates are across your major businesses, presuming that they are not up significantly from last year. But if you had any kind of color, that would be helpful.

And then on the West Coast, Wayne, was there much effect at all from residual markets in terms of your profitability? And if so, is that a big number or a small number? And then I had one other question.

No real change on the residuals.

Okay, and then on operating risks?

Yes, if you look at plywood, we are still -- with the exception of Medford, we're still running pretty full. As Tom said, we have had some production issues in the new mills in the Carolinas related to weather, and we are doing some focused things on maintenance. But I would expect production to be up quite a bit in the second quarter there. But, again, we'll be very mindful about where prices are and where demand is in the spring. But we are probably in, if you looked at the system, in the low- to mid-90s on the plywood and veneer mills; so, pretty full operating rates.

Certainly, if I look at our recent shipments out of Alexandria, the big EWP facility in Louisiana, that has come up quite a bit. If you looked at the system in general, I would guess that we're probably running at 65%, 70% on EWP.

And on lumber, again, we are looking at product markets and producing basically to demands and paying attention to log availability and margins. And I wouldn't expect a big change in our lumber production. We're kind of running what we want to run relative to log availability and end product markets, and we think we're in a pretty good balance there. So I wouldn't look for a big change in production on that. And it's not a big item in our affairs, but our particleboard mill has been running at a much higher operating rate this year, and that's basically responding to increased demand from the downstream market.

So feel pretty good about our operating rates. Really the upside for us is principally going to be in EWP volumes.

Okay. With particleboard running well, should we take it as a good indicator for future demand for the rest of your business -- i.e. particleboard is doing well. And I'm guessing some of that is maybe finding its way into furniture, and there's a lot of that being produced here, as used to be the case. And the other end markets that might be a forerunner of your lumber and plywood markets, or is that off base?

No, that's not off base. You're right on track because a significant part of our particleboard now goes into the kitchen cabinets business. And that business is growing, and that's been a major contributor to our ability to take our mill back to normalized levels. It's not 100% by any stretch, but certainly we're running at a much higher level than we did over the last three years. But you're right on.

It helps us on the residual situation in the Northwest because to the extent particleboard ramps up, more of the residuals can flow to that operation.

Right. Tom, do you have a view on how much the cabinet-related piece of particleboard is up or just generally how much is particleboard up for you this year versus last year?

Well, if I look at our volumes, we are up --

About 30% from last year.

Yes.

Really?

Yes.

Okay. And that leads me to my last question. With cabinets apparently picking up, that's hopeful as a sign for repair/remodel. Do you have a sense for -- from talking to your home improvement customers, home improvement center customers -- whether big ticket is improving at all within repair/remodel? And then, broadly, what do you think for the growth rates there this year?

That's always a tough one. We get a sense that there's been some pickup, but it's -- our volume -- the products we sell to the big boxes is continues to increase. But go beyond that, we're probably not a very good source beyond that.

But on the repair and remodel, our general assumption, based on what we're seeing, is that repair and remodel will be up somewhere around 4% to 5% this year.

Okay. And your customers are saying that big ticket is coming back? Or not?

I don't have any information on that, to be honest with you.

All right. Thanks for your answers, guys. Good luck in the quarter.

Thanks, George.

Adam Rudiger, Wells Fargo.

First -- and I jumped on a little bit late, so I apologize if these have been asked already. The first question was on the increased fiber costs. Can you quantify that? And then can you talk about, historically, how those costs change relative to a period like now where prices are a little bit lower and volumes are not doing a whole lot different versus a year ago?

Adam, Wayne answered the question probably before you got on. But, in general, in the West, our fiber costs increased around 10% in the quarter, and it's flat in the South. On a historical trend basis, fiber cost in the West typically is higher in the first quarter as you get through all the winter issues and depends on how much -- how many logs the industry put in inventory and had going into the winter months.

We see some moderation on the West as the export demand has come back a little bit, but the West is a much more competitive fiber cost market. We don't anticipate much change in the South. And, again, the wood basket of our new plywood plants is our lowest-cost wood basket, and we like what we're experiencing there.

Okay. Sorry for asking a duplicative question. The second question I had is when you think about the rest of this year and maybe even next year, it's seems so much is just hinging upon an overall improvement in new construction and demand. So aside from those things, aside from the big macro demand that we're all waiting for, when you think about the initiatives or the things that you're working on or the opportunities for improvement, what would be the biggest areas or biggest opportunities that you have internally when you look at your businesses?

Well, the biggest levers other than price, which we all know is huge for us, would be in the manufacturing and its activities like the drier projects, which generate more veneer but they also significantly lower our manufacturing costs. We'll get some improvement in our Southeast operations that we'd anticipated when we acquired them. But we continue to make some improvement on the manufacturing and recovery component in manufacturing.

In distribution it's more -- it's a longer lead time as we add products and we work on margins. We do that all the time, but it's going to be gradual improvement versus something significant.

Thanks for taking my questions.

I'm not showing any further questions at this time. I'd like to turn the conference back over to Wayne for closing remarks.

Okay. Thank you, Kevin.

Thanks, everyone, for joining our call today; your interest in our Company. And if you have any follow-up questions, please reach out to us and would be happy to answer them. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect. And have a wonderful day.