Jul 23, 2015
Executives
Wayne Rancourt - Executive Vice President, Chief Financial Officer and Treasurer Tom Corrick - Chief Executive Officer Dan Hutchinson - Head, Wood Products Operations
Analysts
George Staphos - Bank of America Merrill Lynch Chip Dillon - Vertical Research Steve Chercover - D.A. Davidson Alex Ovshey - Goldman Sachs
Operator
Good morning. My name is Andrew and I’ll be your conference facilitator today.
At this time, I would like to welcome everyone to Boise Cascade Second Quarter 2015 Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer period. [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 Wayne Rancourt, Executive Vice President, CFO, and Treasurer of Boise Cascade. Mr.
Rancourt, you may begin the conference.
Wayne Rancourt
Thank you, Andrew. Good morning, everyone.
I would like to welcome you to Boise Cascade’s second quarter 2015 earnings call and business update. Joining me on today’s call are Tom Corrick, our CEO; Dan Hutchinson, Head of our Wood Products Operations and Nick Stokes, Head of our Building Materials Distribution Operations.
Turning to slide two, I would point out the information regarding our forward-looking statements. The appendix of this presentation includes reconciliations from our GAAP net income to EBITDA.
And with that, I will turn the call over to Tom Corrick.
Tom Corrick
All right. Thanks, Wayne.
Good morning, everybody. Thanks for joining us today for our earnings call.
I’m on slide three. Our second quarter sales of $955 million in total were lower than expected.
Demand in April and May was weaker than we anticipated for many of the products we manufacture and distribute. June was a much better month as weather abated and spring building demand kicked in later than usual.
Our second quarter net income was $20.2 million or $0.51 per share. Wood products EBITDA was $35.4 million, down $7.2 million from the year ago quarter primarily due to lower lumber prices for the non-structural grades of lumber we produce as well as operating issues at our plywood operations in the Carolinas.
BMD had a challenging start to the quarter with limited demand and weak commodity pricing, but in June demand improved and the business reported the best monthly EBITDA performance since 2006. We did make good progress on several of our capital allocation objectives during the quarter, we increased our balance sheet leverage with the $50 million seven-year floating rate term loan, which gets us closer to our leverage target of 2.5 times EBITDA.
The proceeds were used to fund a $40 million contribution to our pension plan. We are making good progress on the $30 million strategic capital program for 2015 that we announced in February.
Additionally, we repurchased 8.1 million of our stocks since our last earnings call. All in all, it was a mixed quarter with regard to our performance in the housing markets.
However, the tone in June and the recent permits and starts data are encouraging. We have work to do in the second half of the year to take full advantage of the improving momentum in housing.
I will have Wayne cover the financial results in more detail and then I will come back with a few more comments on the outlook before we take the questions.
Wayne Rancourt
Thank you, Tom. Turning to slide four, our Wood Products second quarter sales, including sales to our building materials distribution segment were $340 million, down 3% compared with last year’s second quarter.
The decrease in sales was driven primarily by a 5% lower plywood volumes and a 16% decline in our average lumber sales price. Wood products reported second quarter EBITDA of $34.1 million, down $7.2 million from the prior year quarter.
The decline in EBITDA was due primarily to lower lumber pricing and operating issues at our North and South Carolina plywood mills. The North Caroline mill struggled with its energy system during the quarter, which adversely impacted its production.
The installation timeline and cost of the new dryer in South Carolina were adversely impacted by foundation issues that we discovered as we demolished the old dryer. We expect to see better operating performance of both of those mills this quarter.
The energy system in North Carolina is stabilized and we are well up to start up [indiscernible] new dryer at our Chester, South Carolina mill. BMD sales in the quarter were $762 million, essentially flat with the year ago quarter.
Our volumes were up 3%, but that was offset by pricing being down in similar amount. BMD generated EBITDA of $22.5 million during the quarter, which was up 3% from the $21.8 million reported in second quarter 2014.
The increase in EBITDA was driven primarily by a higher gross margin of $1.6 million, offset partially by increased selling and distribution expenses of $900,000. The corporate segment reported negative EBITDA of $5.9 million in the quarter, which was a larger deduct than the $4.4 million reported in second quarter 2014 and that was primarily due to increased pension expense.
Following our $40 million discretionary contribution in the middle of May, we re-measured the funded status of our defined benefit pension planning for accounting purposes. The funded tariff of the plan has improved approximately $70 million since year-end and, as a result, we would expect reported pension expense to be close to zero in the second half of the year, which will reduce our corporate segment back to about $20 million annual run rate.
Turning to slide five, our second quarter plywood sales volumes and wood products were down $20 million or 5% from the same period to year ago and the $20 million short fall was largely attributable to the Carolina operations. The $302 average net sales price for plywood was down $10 from the first quarter of 2015 and essentially flat with last year’s second quarter.
The upcoming comparison to last year’s third quarter plywood pricing will be very difficult. You may recall that in third quarter of 2014, we saw a spike in pricing caused by the loss of a mill in the West due to fire as well as very strong demand for engineered wood product, which diverted the near – within the industry away from plywood.
This year we have seen increased imports of plywood from South America driven by the strong dollar. With relatively flat demand for plywood there has been a corresponding decline in domestic production and industry operating rates.
We believe the resulting lower operating rates in the U.S. are the main driver for the current softness in plywood price that we’ve seen since the start of the second quarter.
Plywood pricing starting out the current quarter is about 5% below the second quarter average that were reported by random links [ph]. Turning to slide six, our second quarter sales volumes for LVL and I-joists were essentially flat compared with the year ago quarter.
LVL pricing was also flat while I-joists sales price realizations improved 3% from the year ago quarter. Last year second and third quarters saw heavy EWP sales volume activity as purchasers try to get ahead of announced price increases.
We haven’t seen any unusual supply chain behavior this year. Moving to slide seven, BMD’s second quarter sales were $762 million, essentially flat with the year-ago quarter.
By product area, BMD’s sales of commodity products decreased 7%, general line products increased 10%, and EWP sales increased 2%. The gross margin percentage for BMD increased by 20 basis points compared with last year’s second quarter driven in part by improved mix in the general line and in part by improving lumber prices in the back half of the quarter.
On slide eight, we have set out the key elements of our working capital. Company net working capital, excluding tax items and accrued interest decreased $35.6 million during the second quarter.
BMD working capital benefited from extended payment terms for certain product that will last through the summer months and that drove the increase in the payables to inventory ratio. I would expect that to normalize as we move toward the year end.
As a reminder, this statistical information filed does exhibit 99.2 to our current 8-K has the receivables inventory and account payable data broken down by the segments for those that were interested in more detail. I’m now on slide nine, our cash balance increased by $60.4 million in the second quarter and we ended the quarter with total available liquidity of $509.6 million.
For those modeling cash flow, we made a total of $40.3 million in pension contributions in the second quarter and repurchased 6.1 million of stock. Subsequent to quarter end, we repurchase an additional 2 million of stock.
Our effective tax rate for the quarter was 36.5% and at this point, we would expect our book tax rate for full year 2015 to be between 36% and 38% depending on what the Congress does on tax credits. As Tom mentioned, we borrowed $50 million under a seven-year floating rate term loan during the quarter.
We also extended the maturity on our existing revolving credit agreement out to April of 2020. We have good balancing flexibility to support our capital allocation directives and feel good about the balance sheet heading into the second half of the year.
And with that, Tom I’ll turn it back over to you.
Tom Corrick
Thank you, Wayne. The consensus estimates for 2015 housing starts in the U.S.
is in line with our original planning level of 1.1 million starts. We continue to believe that the demographics in the United States will support the return to normalized housing levels of 1.4 million, 1.5 million starts.
With that in mind, we are managing our business assuming a favorable backdrop of increasing general economic activity, improving employment, and accelerating new residential construction levels. Our priorities remain to focus on our operational excellence while pursuing organic and strategic growth.
We want to grow organically and pursue acquisitions that we believe will provide a favorable return to our investors. We are committed to allocating our available capital to increase shareholder returns.
Given our cash position and available liquidity, when we believe our shares represent a good return opportunity relative to our other alternatives, we plan to make additional share repurchases. In closing, we are optimistic about the balance of 2015 and what lies ahead in 2016.
Thank you again for joining us on our call this morning. We would welcome any questions that you have at this time.
Operator, would you please open the phone lines.
Operator
Sure. [Operator Instructions] Our first question for the day comes from the line of George Staphos from Bank of America Merrill Lynch.
Your line is open.
George Staphos
Thanks. Hi, everyone.
Good morning. Appreciate the details as always.
I guess the first question I had may be segueing off one of your final comments here Tom and Wayne, you, I think, mentioned that you see relatively good value in the shares here and looking at the repurchase activity that the average share price would suggest that. Having said that, $8 million is reasonable, but given your balance sheet and your cash flow, in theory, you could do more.
Should we surmise that you see even better opportunity to deploy the capital therefore investing internally or acquisitions at the back half of this year rather to share repurchase and that’s the reason why we didn’t see a ton of share repurchases?
Tom Corrick
Yeah, I think, George, it’s fair to say that we are going to proceed opportunistically. And I think as we’ve alluded to on past calls, we do a quarterly update with our board of what we are seeing for organic opportunities to invest capital internally as well as what we were seeing on the acquisition front.
And frankly, those would be our preference since where do deploy, but if we do see weakness in the shares, we are proceeding in large degree quarter-by-quarter with our board and to the extent we have opportunity, we’ll fix them up, but it’s probably going to be a fairly tempered pace given what we are seeing for potential opportunities on acquisition front.
George Staphos
Understood. I guess the second question I had then maybe segueing off of that, the operations in the Carolinas, which you acquired into couple of years ago, can you size for us at all what the impact at the EBITDA line was and what and/or what loss production was from those issues and how quickly you expect that to normalize?
Dan Hutchinson
George, this is Dan Hutchinson.
George Staphos
Hi, Dan.
Dan Hutchinson
The quarter-over-quarter EBITDA impacted about $5 million 2014 to 2015.
George Staphos
Okay.
Dan Hutchinson
And we are starting to see improvement in those as Tom talked about most of that problem at the Chester operation was due to a dryer – construction of the dryer and that dryer is up and running now. And so I expect the third quarter you starting to see things more normal to what we had predicted.
We are starting to see progress now.
Tom Corrick
Then in terms of the volume shortfall it was...
Dan Hutchinson
Long shortfall was there, really.
Wayne Rancourt
Yeah, relative to 2014, we had about $12 million left at Chester and $10 million left at Moncure. And then frankly given what we are seeing in terms of the supply demand balance on plywood, had we not had outage at Chester, there will probably have been more contemplation around down time.
George Staphos
Right, which gets me to my next question, so you mentioned the effect of imports given where the dollar is. Is there a level of housing start activity, obviously we are not going to hold it, you said no guarantee and like, but is there level whether it’s 1-2, 1-3, 1-5 that would in your view it’s tightened the market efficiently where the import issue would be less visible if it is significant in the first place in your numbers, how would you have us frame that?
Tom Corrick
George, this is Tom. A couple of things I’d say about that, I think as we discussed many times, the bulk of our plywood production ends up in things that are directly related to new residential construction.
I think as much as anything relative to the residential construction space will strengthen EWP sales and the demand for incremental veneer is probably going to have as much impact on that going forward as anything.
George Staphos
Okay. I mean fair point, Tom, but I guess more of the point is so if it’s not residential starts, what level of activity are there in terms of repair, remodel growing 4%, 5% or 2% or what have you where GDP would make for a market [ph], you think a little bit tighter and then I will turn over with that?
Thanks.
Tom Corrick
Yeah, let me describe it this way. In the first half of 2014, imports other than from Canada were about 80 million feet per quarter.
If you look at the first half of this year, they are running at about 160 million feet per quarter. So relative to U.S demand historically there have been kind of a 3.5% raise rate, this year it’s probably closer to 7% of U.S.
demand. So I think to your point, if we get the housing start growth of 10% to 15% and if we get a 3% to 4% growth in the economy.
The imports would easily be absorbed and then the other thing you have is what resources – mill that’s schedule to come up in mid 2016. But certainly when we look at the veneer demand for EWP, what we would expect to come from housing starts and general economic activity, we think that we can be in a better balance as we get into the first half of 2016, but obviously it did have some influence in second quarter and into third quarter.
George Staphos
Yeah. That’s fair.
We’ve been modeling for about 200 million square feet from import. I’ll turn it over.
Thanks, guys.
Tom Corrick
Thank you. Operator: Thank you.
Our next question comes from the line Ketan Mamtora from BMO. Your line is open.
Ketan Mamtora
Good morning.
Tom Corrick
Good morning, Ketan.
Ketan Mamtora
Again on imports, just one more time, obviously, we’ve seen imports rise quite a bit, is there any difference in the kind of board that comes from South America or do you guys compete directly with that board?
Tom Corrick
There are really – when you think of South America, there are two different kinds of imports that are occurring, coming from Chile, you’re getting a sanded plywood and that’s really not in the markets we compete, coming from Brazil, you’re getting a more of a sheeting products that we compete against.
Ketan Mamtora
Got you. And how much risk do you think there is even with the kind of increase that we’ve seen for that imports to grow further?
Tom Corrick
I think that you’re going to – I personally think you are going to continue to see some growth. It’s really going to be a function though, other world economies, the price in the U.S.
and exchange rates, but I think there is some risk if the imports increase.
Ketan Mamtora
Got you. And then – and just one thing I want to clarify, did you say that in the distribution business, June was the best month that you saw since 2006?
Dan Hutchinson
This is Dan. That is correct.
Yes, best EBITDA in some months since 2006.
Ketan Mamtora
So what drove that? Where did you really see demand pull through?
Dan Hutchinson
I think as we stated in both the comments as well as the release, spring came a little later and so I think there was a little bit of pent up demand through the first half of the second quarter, and clearly the pricing trends on commodities in general got better halfway through the quarter and dealers started to see orders and jobs ahead of them and were more comfortable taking inventory and we were in a position to take advantage of that. And so I think it’s a combination of pricing market getting a little better on commodities, demand being pretty steady, changing mix for us in terms of the spring building season.
Ketan Mamtora
Got you. And how have the trends been thus far in July?
Tom Corrick
Similar to June, so far the quarter is starting out well in the distribution business. And then, I think that’s reflective of what you saw in permit and starts numbers in May and June.
We would expect pretty good carry over given what we seen on starts and permits into the third quarter.
Ketan Mamtora
Okay, thanks. That’s very helpful.
I’ll join it over.
Operator
Thank you. Our next question comes from the line of Chip Dillon from Vertical Research.
Your line is open.
Tom Corrick
Good morning, Chip.
Chip Dillon
Yes, good morning. First question has to deal with the plywood business.
Did I hear you say that June was a much better month that you had resolved the issues as you got into June or did I miss hear that?
Wayne Rancourt
Yeah, there are two issues that Tom mentioned one was the combustor at Montana facility that’s running much better that’s running fine. The other was the dryer issues that we had and the dryer started up in early June.
Chip Dillon
Okay. I got you.
Wayne Rancourt
So...
Chip Dillon
When we think about...
Wayne Rancourt
I am sorry.
Chip Dillon
Go ahead. I am sorry.
Wayne Rancourt
No I just said, we are in the start-up curve on the dryer.
Chip Dillon
-
Wayne Rancourt
Yeah, so let me give you just a couple of numbers and these are available on Random Lengths website, but let me just give you a couple of grade. So, in the second quarter half-inch [indiscernible] in the West started at 422 at first week of April, got as low as 387 and recovered back on the week of June 12 ,at 415 and it has since fallen.
First couple of weeks in July were 390 and this last Friday it was at 393. In the South, if you look at 15 seconds, 30 seconds floor ply, you know it started second quarter at 440 dropped down to 390, got back couple of sites 420 in the second week of June and by looking at the first couple weeks of July we had 395, 385 and last Friday it was at 382.
So you know the trends in July are down from where we were on second quarter average but given what we’re seeing on start activity in July and August we’re reasonably optimistic that we’ll see prices stabilize and hope they move up as we move through the quarter.
Chip Dillon
-
Tom Corrick
-
Chip Dillon
Okay. And then just one last one, I know the Canadian U.S.
lumber agreement I believe expires in October and there are various schools of through, maybe they won’t send us much down here, because there could be a worse regime later on the other hand, you know it’s very tempting to send more lumber down here because of the currency situation, what is sort of your view on how you see lumber in the late 2015, 2016 environment, I know it’s not a big business for you?
Wayne Rancourt
Yeah. I think probably an important thing for us Chip is it’s got two different impacts.
If you look at the distribution business, clearly what’s going on in dimension lumber matters a lot for Nick and his guys because half of their sales are in commodities and lumber would be major category within that. So the dimension price matters a lot on the distribution side.
On the manufacturing side, we’re essentially doing shop lumber and boards that would go through the home center channel. So we’re not a major player at all in dimension lumber and that’s part if you compare our results on lumber pricing being down 16%.
The industrial rates and shop rates were down far more than dimension was in the quarter. So, if you track what’s going on in the manufacturing and the lumber for us you really need to pay pension to the shop and the pine boards and less so to the dimension.
Tom Corrick
The other thing I would add as I think the currency issue plays a role not only in terms of the Canadian’s focusing on the United States, but also Canadians challenging getting into Asia right now, partially because things are slower and partially because others parts of the world are now more competitive. So, I think that, you know, there is a number of things going on there that would put downward pressure on it and at the end of the day a lot of it feels like currency.
Chip Dillon
I see. And then one last one, could you just talk a little bit about the current and maybe perspective environment that would cause in both the Carolinas and then in your other regions.
You see any real change having occurred?
Dan Hutchinson
Yes, Chip, this is Dan. We have not seen really dramatic changes occur in the Southeast Louisiana Carolinas, I mean we continue to see a really good supply demand situation there.
In the west nothing dramatic kind of continuation, so I don’t see any significant dramatic change. We talked a little about dry summer and fire issues in that.
I think there could be some issues associated with that in the short-term, but nothing new in the long-term really that’s cropped up.
Chip Dillon
Okay. Thank you.
Operator
Thank you. Our next question comes from the line of Steve Chercover from D.A.
Davidson. Your line is open.
Steven Chercover
Good morning everyone. How are you?
So yes my questions are kind of I guess follow-on to some of the previous questions. You quantified the impact operationally.
Can you tell us what the weather impact was on BMD from the very wet Texas floods?
Wayne Rancourt
No, not really. I mean it’s anecdotal and it’s very subjective and I can’t tell you exactly how it is.
But clearly given the magnitude of the moisture down there things came to a stop for three weeks and our business results reflect that and the big question Steve is whether or not we get that back in the next three weeks or the next six weeks or the next nine weeks and we’ll have to see how that goes.
Steven Chercover
Yeah it had to be extensive, the ground was saturated, the foundations that didn’t get poured, aren’t going to get poured?
Wayne Rancourt
All of the above. Everything that you think about in terms of what rain and weather and moisture causes things to delay.
Steven Chercover
Got it. Well not just to dwell on weather, but we all know how dry it is here in the west and the impact on logging, so has that had any impact on your log decks in this part of the world and I mean I think given the export situation log prices have actually going down despite the drought?
Tom Corrick
Yeah I think that’s it. And so far it really has not had any impact on our log deck.
We are in good shape.
Steven Chercover
Got it. And I guess we’ve been surprised that realization in engineer wood were flat, are there any pending price increases?
Tom Corrick
We will continue to look at the supply demand situation.
Dan Hutchinson
I was going to say, I think Steve on realizations, we will see what we get on price increases in August and September and that’s going to largely be driven by what the activity levels are and competing products, as I mentioned on lower pricing is. The other things to keep in mind, as you think about our prices going forward sequentially.
As we do sell a fair amount of engineered wood into Canada, so the weak Canadian dollar relative to where we were a year ago hit us a little bit on translation.
Steven Chercover
And then my final question, as Plywood cools we know that that’s a negative impact on your P&L, but how does it change the acquisition landscape, everyone knows that you’re interested in both the near-end plywood?
Dan Hutchinson
Steve, I would say there that again if you look at the plywood space, virtually all those assets are in the hands of either strategies or families and honestly I don’t see much movement. The things that seem to drive those decisions for those players, I don’t believe or proceed are tied to the volatility that we see in the marketplace in times in the plywood space.
I think everybody knows that we are interested and we continue to pursue things, but I don’t think this is going to have material impact on how that plays out.
Steven Chercover
Okay. And maybe just a long shot, since the currency has had an impact on imports of plywood it also give you a better currency to go shopping, perhaps in South America, is there any interest to go abroad?
Tom Corrick
Yeah, I would tell you that if we were to go abroad nothing against South America, but as an organization that would be probably a challenge certainly in the near term and if we’re going to do anything we would probably look north of the border Europe initially. I don’t know that we would move to South America unless we can move there in the meaningful way, because without having a presence doing on small acquisitions down there would probably be more of a distraction.
Wayne Rancourt
Yeah. Steve we were there in the 2000s, we’ve had a near operational, a little bit of plywood in Brazil which we sold at the beginning of the downturn and I think the key to that world and I think we learned out of all that is if you are going to do, you better do it big, it is not something that you are going to do on the margin successfully.
Steven Chercover
Yeah. And I guess as I understand that your NOLs up in Canada would make an acquisition up there perhaps a little more strategic.
Wayne Rancourt
Yeah. I think it’s fair to say that if you look at where the Canadian dollar is if you look at the NOLs that we have accumulated in Canada making an acquisition north of the border if we can figure out how to get the right legal and tax structure would make sense and we continue to actively look at things that would make sense from a strategic standpoint.
We obviously wouldn’t do adjust for the NOLs, but to the extent we can get the right product situation and either integration and distribution on what we do on the EWP would be of considerable interest to do something in Canada.
Steven Chercover
Very good. Thanks for taking my questions.
Wayne Rancourt
Thanks Steve.
Operator
Okay. Thank you.
Our next question comes from the line of Alex Ovshey from Goldman Sachs. Your line is open.
Wayne Rancourt
Good morning Alex.
Alex Ovshey
Hi, good morning, Wayne. Good morning Tom.
Tom Corrick
Good morning Alex.
Alex Ovshey
Good morning Tom. On the plywood side, you guys are putting in some capital to free up some production over the next couple of years.
But in the context of what we are seeing in the market where demand is flattish and the strength in the dollars is creating opportunities for folks outside of this country, I mean is there any thought around maybe scaling back, some in the capital that’s not going into the plywood systems?
Tom Corrick
Well, I think the critical point there Alex, is that that project is being pursued to supply veneer to our EWP business. And there is both material very significant cost different between internal or external veneer sourcing and frankly some pretty significant limits on the available supply of external veneer.
So this is, I think a pretty critical component of our strategy to continue to grow EWP sales in-line with the housing recovery.
Alex Ovshey
That’s fair, Tom. Maybe just let’s talk about the relationship there.
Is there really a sum for how much plywood you need to make cube of OVL?
Dan Hutchinson
That’s a great operational question and we can change that ratio a lot by how we run the plant, and larger the ratio of veneer going to EWP is the more things you have to do to get there. I would say that a pretty typical number though would be in the range of 40% of our total of veneer production could end up in EWP in those regions where we produce EWP.
Alex Ovshey
Okay. That’s helpful.
Maybe just going back to Plywood as well look you look at OSB that thing sitting at cash cost, the price is at cash cost right now, Plywood would have started to come down again this is totally out of your control but the strengthening of dollar obviously is hurting, I mean is there risk that plywood could come down to cash costs or as you look at the landscape in plywood, I mean what do you think this different in plywood relative to the competitive landscape in OSB right now?
Wayne Rancourt
Yeah that involves a couple of things, I think we feel pretty good about the industries structure and frankly we have been pretty focused on operating our assets on a way that generates return on capital as oppose to just running for cash and we would expect to operate our facilities in line with demand not necessarily focused on market, but return on capital. The other thing is Plywood mills by their nature are a lot more flexible in terms of adding shifts and changing capacity dynamics than you’d have in an 800 million square foot continuous press OSB facility.
So, I think, if you look at the structure of the industry in terms of the major players and if you look at the flexibility they have within the individual facilities I just think we’ve got a structure that at least over the last couple of years has been more constructive and I would expect that going forward.
Tom Corrick
I think the other key issue is just the OSB industry and how much idle capacity there was in remains, which is an overhang that we just simply don’t see in the plywood space.
Alex Ovshey
Okay. I appreciate that color there.
And maybe last one from me just on the input cost side saw, saw logs I mean in the Pacific Northwest looking at like log lines, I think that the pricing is down pretty materially there? And so should we see that benefit at some point in your restaurant plywood business if there is a saw log price continues to kind of stay at the current level?
Wayne Rancourt
I guess what I’d say about that is certainly in the last, I think we had a very good logging year on the West Coast, which allowed, we really never had the spring shutdown that we typically would see, log supplies will [indiscernible] sales into Asia slowed down a bit and I think the last month or two we’ve seen a significant reduction. A good chunk of our wood is purchased in advance, I don’t think there is any doubt Alex that if it stayed this way for a long time you have to have an impact, but this is kind of a slot market and we don’t rely nor does anybody rely 100% on the spot market for the log supply.
Alex Ovshey
Got it. Thanks Tom Wayne, appreciate it.
A - Tom Corrick Thanks Alex.
Operator
Thank you. Our next question comes from the line of George Staphos of Bank of America Merrill Lynch.
Your line is open.
George Staphos
Thanks. I just wanted to catch up on one thing, I think it’s a sage way from Steve’s question I think I know the answer, but what you are suggesting is even though there is a potential for a difficult fire season you are not seeing that also effect demand for plywood or any of your other products on the West Coast would that be fair?
Tom Corrick
Yeah I don’t think we are tying any difficult fire season to plywood demand in any meaningful way.
George Staphos
Okay. Thanks for that.
And then would it be possible at all to notionally talk about your operating rates across your key businesses, third quarter versus second quarter versus the year ago whatever you can share it would be helpful.
Tom Corrick
Well, I think that really the only negative in operating rates we had in the second quarter is related to the operational issues we had in the Carolinas and we continuously evaluate that because we obviously - we’re having push wood into the pipeline that’s not a good thing. So, I can’t tell you where that will play out, but the veneer dryers tend to operate reasonably full.
On the EWP side, I think, recently we said we’re in the range of 65% to 70%. I think that number continues to be pretty good number recognizing as we bring these dryers that has an impact on our capacity.
George Staphos
Okay. I can’t remember number being a little bit higher on EWP in the past Tom, so has the operating rate declined or is that just faulty recollection?
Tom Corrick
Well, I think probably there were some numbers [indiscernible] about not only by us, but by others last summer and we had that real spike in demand that I think, it pushed this system really hard. And I think the one reason there was a price increase last summer.
And that’s certainly I think looking back on it. You can see the comps second quarter this year, second quarter last year and they are obviously not the same.
I think the APA shows I-joists production down 8% and LVL production down 5%. So that would obviously have an impact on capacity utilization.
George Staphos
Sure. That’s true.
With that I’ll let you go guys. Have a good rest of the quarter and we will see you soon.
Tom Corrick
Thanks, George.
Operator
Thank you. [Operator Instructions] And that looks like all the questions that we have in the queue.
So I would like to turn the call back over to management for closing remarks.
Wayne Rancourt
Okay. Thanks everyone for joining us.
If you have any questions give us call or otherwise we will talk to you next quarter. Thanks Andrew.
Operator
Thank you. Ladies and gentlemen, thank you again for your participation in today’s conference.
This now concludes the program and you may all disconnect your telephone lines at this time. Everyone have a great day.