Breaking its results down by segment, wood products -- which include I-joists, beams, lumber, plywood panels -- experienced a 20% dive, mainly driven by lower sales prices and volumes for plywood. The weakness reflects softer market conditions, as well as the sale or closure of three lumber mills and a particleboard plant.
Meanwhile, the Building Materials Distribution (87% of revs) segment had a 9% drop in sales as sinking commodity prices impacted results. The BMD business includes engineered wood products, plywood, siding, insulation, roofing, and other items.
Click here to access BCC's press release.
BCC's financial results are highly correlated to the health of the housing market, in particular, single family housing starts. In 1Q19, total U.S. housing starts fell by about 10% yr/yr while single family housing starts dipped by 5%.
Of particular note is the weakness in the western U.S., where single family housing starts plummeted by 27% in March. A significant issue facing that market has been housing affordability as home prices skyrocketed higher over the past few years due to supply constraints.
BCC singled out the cold market in the west, as did home builder KB Homes (KBH), when it reported mixed Q1 results on March 26. The company missed expectations on the top line as net orders declined by 4% due to a slow-down in its West Coast market.
BCC and KBH are certainly not alone in terms of housing-related companies issuing uninspiring results lately. D.R. Horton (DHI), Sherwin-Williams (SHW), Floor & Decor (FND), and the Tile Shop (TTS) are a few others that have offered downside or mixed financial results lately.
However, most of these companies offered encouraging outlooks or guidance, stating that lower interest rates, solid economic conditions, and stabilizing home prices should lead to improved results throughout the remainder of the year. Furthermore, unfavorable weather conditions in Q1 negatively impacted completions and deliveries. These optimistic outlooks have supported these stocks despite their soft quarterly results.
BCC’s tone was more cautious, though, stating that affordability constraints, availability of labor and building lots, and higher industry inventory levels of commodity products could continue to provide headwinds. Supporting its view is the fact that overall housing permits fell by 1.7% in March, which is typically a harbinger for future housing construction.
From a company-specific standpoint, BCC commented that even if lumber prices rebound sharply from current levels - which are 35% below average levels - its yr/yr financial comparisons would still be negative in 2Q19. The cause for the decline in prices is due to higher industry capacity brought on last year, combined with the sluggish housing environment. This exposure to falling commodity prices is likely why its outlook for 2019 is a bit more subdued than others.
Key Takeaways: There have been plenty of data points over the past couple of quarters indicating that the housing market did cool off. We've seen it in the financial results from builders and suppliers alike. So, BCC's weak Q1 report doesn't come as a surprise.
What does catch our attention though is that its outlook seems more cautious than most housing-related companies. While it acknowledges that lower interest rates have helped support housing sales, and that U.S. demographics are supportive, it doesn't foresee much improvement on the near-term horizon.
In summary, BCC seems a little more cautious than other housing-related stocks, but, that is at least partially due to industry-specific issues stemming from high inventory levels of lumber and plywood.