BOISE CASCADE Co

The following tables set forth our operating results in dollars and as a percentage of sales for the three and nine months ended September 30, 2024 and 2023:

Sales Volumes and Prices

Set forth below are historical U.S. housing starts data, segment sales volumes and average net selling prices for the principal products sold by our Wood Products segment, and sales mix and gross margin information for our BMD segment for the three and nine months ended September 30, 2024 and 2023:

(a) Actual U.S. housing starts data reported by the U.S. Census Bureau.

(b) We define gross margin as "Sales" less "Materials, labor, and other operating expenses (excluding depreciation)." Substantially all costs included in "Materials, labor, and other operating expenses (excluding depreciation)" for our BMD segment are for inventory purchased for resale. Gross margin percentage is gross margin as a percentage of segment sales.

Sales

For the three months ended September 30, 2024, total sales decreased $120.7 million, or 7%, to $1,713.7 million from $1,834.4 million during the three months ended September 30, 2023. For the nine months ended September 30, 2024, total sales decreased $37.2 million, or 1%, to $5,156.8 million from $5,194.0 million for the same period in the prior year. As described below, the change in sales was driven by the changes in sales prices and volumes for the products we manufacture and distribute with single-family residential construction activity being the key demand driver of our sales. In third quarter 2024, total U.S. housing starts and single-family housing starts decreased 3% and 1%, respectively, compared with the same period in 2023. On a year-to-date basis through September 2024, total housing starts decreased 3%, while single-family housing starts increased 10%, compared with the same period in 2023. Average composite panel prices for the three and nine months ended September 30, 2024 were 19% lower and 4% higher, respectively, than in the same period in the prior year, as reflected by Random Lengths composite panel pricing. Average composite lumber prices for the three and nine months ended September 30, 2024 were 13% and 7% lower, respectively, than in the same period in the prior year, as reflected by Random Lengths composite lumber pricing.

Wood Products. Sales, including sales to our BMD segment, decreased $61.3 million, or 12%, to $453.9 million for the three months ended September 30, 2024, from $515.2 million for the three months ended September 30, 2023. The decrease in sales was driven by lower plywood sales prices of 13% resulting in decreased sales of $19.2 million, and lower sales prices for LVL and I-joists (collectively referred to as EWP) of 5% and 6%, respectively, resulting in decreased sales of $7.2 million and $6.7 million, respectively. Sales volumes for I-joists decreased 8% resulting in decreased sales of $10.7 million, while sales volumes for LVL and plywood were flat. I-joist sales volumes are influenced by multiple factors, including the level of housing starts, competition from other wood-based products, and an increasing proportion of concrete floor applications that limit wood floor opportunity. In addition, other sales, including lumber and residual byproducts, decreased $9.8 million.

For the nine months ended September 30, 2024, sales, including sales to our BMD segment, decreased $70.3 million, or 5%, to $1,412.6 million from $1,482.9 million for the same period in the prior year. The decrease in sales was driven by lower sales prices of 6% for both LVL and I-joists, resulting in decreased sales of $27.8 million and $21.8 million, respectively. Plywood sales volumes and sales prices decreased 7% and 4%, respectively, resulting in decreased sales of $33.4 million and $16.1 million, respectively. Plywood sales volumes decreased as we shifted a higher proportion of our internally produced veneer into EWP production, given the change in demand for EWP. In addition, other sales, including lumber and residual byproducts, decreased $38.6 million. These decreases were partially offset by higher sales volumes for LVL and I-joists of 12% and 9%, respectively, resulting in increased sales of $46.2 million and $32.3 million, respectively.

Building Materials Distribution. Sales decreased $102.8 million, or 6%, to $1,567.5 million for the three months ended September 30, 2024, from $1,670.3 million for the three months ended September 30, 2023. Compared with the same quarter in the prior year, the overall decrease in sales was driven by a sales price decrease of 6%, as sales volumes were flat. Excluding the impact of the BROSCO acquisition on October 2, 2023, sales would have decreased by 9%. By product line, commodity sales decreased 12%, or $76.2 million; general line product sales increased 4%, or $27.1 million; and EWP sales (substantially all of which are sourced through our Wood Products segment) decreased 14%, or $53.7 million.

During the nine months ended September 30, 2024, sales increased $41.6 million, or 1%, to $4,727.7 million from $4,686.1 million for the same period in the prior year. The overall increase in sales was driven by a sales volume increase of 4%, offset partially by a sales price decrease of 3%. Excluding the impact of the BROSCO acquisition, sales would have decreased by 2%. By product line, commodity sales decreased 6%, or $105.5 million; general line product sales increased 9%, or $165.4 million; and sales of EWP decreased 2%, or $18.3 million.

Costs and Expenses

Materials, labor, and other operating expenses (excluding depreciation) decreased $66.5 million, or 5%, to $1,375.7 million for the three months ended September 30, 2024, compared with $1,442.2 million during the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses decreased due to lower sales volumes, offset partially by increased labor costs, compared with third quarter 2023. However, materials, labor, and other operating expenses as a percentage of sales (MLO rate) in our Wood Products segment increased by 650 basis points, primarily as the result of lower EWP and plywood sales prices. In BMD, the decrease in materials, labor, and other operating expenses compared with third quarter 2023 was driven by lower purchased materials costs as a result of a decrease in product prices. The BMD segment MLO rate decreased 50 basis points, driven by higher margin percentages on general line products, offset partially by lower margins on commodity and EWP products.

For the nine months ended September 30, 2024, materials, labor, and other operating expenses (excluding depreciation) increased $24.6 million, or 1%, to $4,123.8 million, compared with $4,099.2 million in the same period in the prior year. In our Wood Products segment, materials, labor, and other operating expenses increased due to higher EWP sales volumes and higher costs of OSB (used in the manufacture of I-joists), compared with the first nine months of 2023. Labor costs were also higher compared with the same period in the prior year. The MLO rate in our Wood Products segment increased by 410 basis points, due primarily to lower EWP and plywood sales prices. In BMD, the increase in materials, labor, and other operating expenses compared with the first nine months of 2023 was driven by higher purchased materials costs due primarily to the BROSCO acquisition. However, the BMD segment MLO rate decreased 20 basis points, driven by higher margin percentages on our general line sales, offset by lower margins on our EWP sales compared with the first nine months of 2023.

Depreciation and amortization expense increased $5.4 million, or 17%, to $36.9 million for the three months ended September 30, 2024, compared with $31.5 million during the same period in the prior year. For the nine months ended September 30, 2024, depreciation and amortization expense increased $13.7 million, or 15%, to $107.1 million, compared with $93.4 million in the same period in the prior year. The increase in both periods was due to the BROSCO acquisition and other capital expenditures. For the nine months ended September 30, 2024, the increase was also due to $2.2 million of accelerated depreciation recorded in first quarter 2024 for the indefinite curtailment of lumber production at our Chapman, Alabama facility.

Selling and distribution expenses, inclusive of the BROSCO acquisition, increased $9.8 million, or 7%, to $157.5 million for the three months ended September 30, 2024, compared with $147.7 million during the same period in the prior year. The increase was due primarily to higher employee-related expense of $8.1 million, offset partially by decreased incentive compensation expense of $2.1 million. In addition, costs related to professional fees and shipping and handling increased $1.3 million. For the nine months ended September 30, 2024, selling and distribution expenses increased $35.7 million, or 9%, to $451.4 million, compared with $415.7 million during the same period in 2023. The increase was due primarily to higher employee-related expenses of $20.9 million, offset partially by decreased incentive compensation expense of $2.7 million. Shipping and handling and occupancy costs increased $2.7 million and $2.6 million, respectively. In addition, costs related to professional fees, travel and entertainment, and advertising increased $4.8 million.

General and administrative expenses decreased $1.4 million, or 5%, to $26.2 million for the three months ended September 30, 2024, compared with $27.6 million for the same period in the prior year. For the nine months ended September 30, 2024, general and administrative expenses decreased $7.0 million, or 8%, to $77.2 million, compared with $84.2 million during the same period in 2023. The decrease in both periods was primarily the result of lower incentive compensation and professional fees, offset partially by an increase in other employee-related expenses.

Income From Operations

Income from operations decreased $68.3 million to $117.4 million for the three months ended September 30, 2024, compared with $185.6 million for the three months ended September 30, 2023. Income from operations decreased $105.9 million to $397.3 million for the nine months ended September 30, 2024, compared with $503.2 million for the nine months ended September 30, 2023.

Wood Products. Segment income decreased $45.7 million to $53.9 million for the three months ended September 30, 2024, compared with $99.6 million for the three months ended September 30, 2023. The decrease in segment income was due primarily to lower EWP and plywood sales prices, as well as higher conversion costs. In addition, lower I-joist sales volumes also contributed to the decrease in segment income.

For the nine months ended September 30, 2024, segment income decreased $75.1 million to $197.9 million from $273.0 million for the nine months ended September 30, 2023. The decrease in segment income was due primarily to lower EWP and plywood sales prices, as well as higher wood fiber and conversion costs. These decreases in segment income were offset partially by higher EWP sales volumes.

Building Materials Distribution. Segment income decreased $22.3 million to $74.8 million for the three months ended September 30, 2024, from $97.1 million for the three months ended September 30, 2023. The decrease in segment income was driven by increased selling and distribution expenses and depreciation and amortization expense of $10.0 million and $5.1 million, respectively. In addition, gross margin decreased $7.7 million, driven by lower margins on commodity products and EWP, offset partially by improved margins on general line products.

For the nine months ended September 30, 2024, segment income decreased $32.6 million to $232.7 million from $265.3 million for the nine months ended September 30, 2023. The decline in segment income was driven by increased selling and distribution expenses and depreciation and amortization expense of $37.4 million and $13.5 million, respectively. These decreases in segment income were offset partially by a gross margin increase of $15.4 million, resulting primarily from improved gross margins on general line products, offset partially by lower gross margins on EWP and commodity products. In addition, general and administrative expenses decreased $3.1 million.

Corporate. Unallocated corporate expenses increased $0.3 million to $11.3 million for the three months ended September 30, 2024, from $11.0 million for the same period in the prior year. For the nine months ended September 30, 2024, unallocated corporate expenses decreased $1.9 million to $33.2 million from $35.1 million for the nine months ended September 30, 2023. The decrease was due primarily to lower incentive compensation.

Other

Interest Income. Interest income decreased $3.6 million to $10.2 million for the three months ended September 30, 2024, from $13.8 million for the same period in the prior year. For the nine months ended September 30, 2024, interest income decreased $3.7 million to $31.3 million from $35.0 million for the nine months ended September 30, 2023. The decrease in both periods was due primarily to lower average balances of cash equivalents.

Change in fair value of interest rate swaps. For information related to our interest rate swap, see the discussion under "Interest Rate Risk and Interest Rate Swap" of Note 2, Summary of Significant Accounting Policies, of the Condensed Notes to Unaudited Quarterly Consolidated Financial Statements in "Item 1. Financial Statements" of this Form 10-Q.

Income Tax Provision

For the three and nine months ended September 30, 2024, we recorded $29.8 million and $101.1 million, respectively, of income tax expense and had an effective rate of 24.7% and 24.8%, respectively. For the three and nine months ended September 30, 2023, we recorded $49.0 million and $131.7 million, respectively, of income tax expense and had an effective rate of 25.5% and 25.4%, respectively. For all periods, the primary reason for the difference between the federal statutory income tax rate of 21% and the effective tax rate was the effect of state taxes.