Boise Cascade Company (BCC) Q2 2026 Earnings Report, Transcript and Summary

Good morning. My name is Dave, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Boise Cascade's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Forrey, Senior Vice President, Finance and Investor Relations. Mr. Forrey, you may begin your conference.

Good morning, everyone. I would like to welcome you to Boise Cascade's Second Quarter 2026 Earnings Call and Business Update. Joining me on today's call are Jeff Strom, our CEO; Kelly Hibbs, our CFO; Jo Barney, leader of our Building Materials Distribution operations; and Troy Little, leader of our Wood Products Operations. Turning to Slide 2. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income to segment EBITDA. I will now turn the call over to Jeff.

Thanks, Chris. Good morning, everyone, and thank you for joining us for our earnings call. I'm on Slide 3. In the second quarter, total U.S. housing starts and single-family housing starts decreased 1% and 4%, respectively, compared to prior year quarter. Our consolidated second quarter sales increased 5% year-over-year to $1.8 billion. Our net income and earnings per share were $57.3 million and $1.63 per share, both higher than the prior year quarter when excluding gains on asset sales reflected in prior year results. I'm pleased with the outstanding results we were able to deliver despite continued demand uncertainty resulting from geopolitical events and volatile mortgage rates. The challenges of consumer sentiment and home affordability remain the most significant headwinds for residential construction activity. In this environment, we're continuing to leverage our integrated model, which consistently demonstrates its value and resilience. Moving to Slide 4. Yesterday, we made the exciting announcement that we're expanding our distribution partnership with James Hardie across a complete portfolio of industry-leading products. including Hardie Siding and Trim, AZEK Exteriors and TimberTech Decking and Railing. As part of the agreement, James Hardie will consolidate its distribution network across all regional markets and has designated Boise Cascade as a sole nationwide distribution partner. We will transition away from distributing competing siding and PVC trim products and bring in James Hardie's full suite of products nationwide. As the sole nationwide distributor, Boise Cascade will be uniquely positioned to provide our customers with a simpler purchasing experience, deeper engagement and support and greater access to James Hardie products. This agreement is consistent with our focus on delivering the best products and service for our customers, which is at the core of every strategic decision we make at Boise Cascade. With that said, a partnership of this magnitude will take time to implement. We will work down inventory from legacy suppliers throughout the remainder of the year. During that time, we will onboard inventory, train our product teams and begin climbing the sales ramp. We'll provide progress updates as we move through the remainder of 2026 and into 2027. Kelly will now walk through our segment financial results, capital allocation priorities and third quarter guidance, after which I'll provide insights on our business outlook and make closing comments before we open the call for questions.

Thank you, Jeff. I'm on Slide 5. BMD sales in the quarter were $1.7 billion, up 5% from second quarter 2025. BMD reported segment EBITDA of $85.6 million in the second quarter compared to segment EBITDA of $91.8 million in the prior year quarter. Gross margin increased $9.2 million compared with the prior year quarter, resulting from higher gross margins on commodity and general line products, offset partially by lower gross margins on EWP. Selling and distribution expenses were up $10.8 million from second quarter 2025, approximately 50% of which was due to higher fuel and outbound delivery costs. In addition, prior year results benefited from a $3.8 million gain on the sale of a nonoperating property. In Wood Products, our sales in the second quarter, including sales to our distribution segment, were $459.6 million, up 3% compared to second quarter 2025. Wood Products segment EBITDA was $52.4 million compared to EBITDA of $37.3 million reported in the year ago quarter. The increase in segment EBITDA was primarily due to higher plywood prices and sales volumes as well as lower per unit OSB costs used in the production of I-joists. These increases were offset partially by lower EWP sales prices as well as higher per unit conversion costs. In addition, prior year results included a $3.9 million gain on the sale of our former Roxboro, North Carolina property. Moving to Slide 6 and 7. BMD's year-over-year second quarter sales increase of 5% was driven by net sales volume and price increases of 4% and 1%, respectively. By product line, general line product sales increased 9%, commodity sales increased 7% and sales of EWP decreased 6%. Sequentially, BMD sales were up 22%. Our second quarter gross margin was 15.2%, down 20 basis points year-over-year. Competitive pressures drove lower gross margins on general line products and EWP, offset partially by improved gross margins on commodity products due mainly to higher trending lumber prices. BMD EBITDA margin was 5% for the quarter, down from 5.7% in the year ago quarter. The 70-basis point decline resulted from lower gross margins, higher selling and distribution costs and the asset sale gain that boosted prior year EBITDA margin by 30 basis points. On a sequential basis, EBITDA margin was up sharply from the 3.5% reported in the first quarter. Seasonal demand improvement, higher gross margin dollars and percentages and improved operating expense leverage from increased volumes positively impacted our second quarter results. Turning to Slide 8. On a year-over-year basis, second quarter I-joist and LVL volumes were each down 2%. Sequential I-joist and LVL volumes were up 18% and 17%, respectively, driven by seasonal demand improvements and the pull forward of some volume. Related to volume pull forward, as expected, some customers ordered more product in the second quarter to get ahead of our announced price increase, and we believe possibly out of concern that transportation constraints could result in product shortages. I will speak to our EWP price increase in more detail when addressing our third quarter outlook. As it relates to second quarter pricing, I-joist and LVL realizations declined 7% and 4%, respectively, versus the prior year quarter and were nearly flat sequentially. Turning to Slide 9. Our second quarter plywood sales volume was 368 million feet compared to 356 million feet in second quarter 2025. The year-over-year increase in plywood volumes was driven by lower volumes in the prior year quarter due to downtime at our Kettle Falls, Washington mill to complete a scheduled maintenance project as well as the planned outage for capital projects at our Oakdale, Louisiana mill. Sequentially, our plywood sales volumes were down 1% from first quarter 2026 as we diverted more veneer to EWP production to meet stronger-than-anticipated demand across our EWP product lines. The average plywood net sales price was $393 per thousand in the second quarter, representing a 15% increase year-over-year and sequentially. We attribute the recent improvement in plywood pricing to reduced imports. Notably, Brazilian imports declined by 25% year-over-year through the second quarter of 2026 despite a temporary reduction in tariff rates that accelerated imports in the second quarter. New Section 301 tariffs are now in effect, increasing the effective tariff rate, which may influence market dynamics in the coming months. I'm now on Slide 10. We had capital expenditures of $63 million in the first 6 months of 2026, including $23 million in the second quarter. BMD and Wood Products spent $8 million and $15 million, respectively, on capital projects in the second quarter. Our capital spending range for 2026 remains at $150 million to $170 million. Speaking to shareholder returns, we paid $18 million in regular dividends during the first 6 months of 2026, including $8 million in the second quarter. Our Board of Directors also recently approved a 5% increase in the quarterly dividend on our common stock to $0.23 per share that will be paid in mid-September. Through the first 6 months of 2026, we repurchased approximately $108 million of Boise Cascade common stock, including approximately $43 million in the second quarter. At the end of the second quarter, about $130 million of our outstanding common stock was available for repurchase under our existing share repurchase program. The ongoing strength of our balance sheet and cash generation capability through the cycle leaves us well positioned to continue pursuing our strategic objectives. I'm now on Slide 11, where we have outlined a range of potential EBITDA outcomes for the third quarter, along with the key assumptions underlying these projections. Activities associated with the ramp-up of our expanded partnership with James Hardie, the wind down of our former suppliers' product lines and termination provisions that delay the full implementation of James Hardie's distribution realignment will take time to play out and are expected to affect our near-term results. Accordingly, we expect revenue pressure in decking, siding and trim as we work through these changes. Decking will be the most notable category given it amounted to approximately 9% of BMD's last 12 months' revenue. Beginning October 1 of this year, our agreement provides elements of financial support as we ramp sales across the full suite of James Hardie products, and we are confident in our ability to mitigate the near-term impacts while positioning the company for stronger long-term growth. With that said, inclusive of supplier transition activities, we currently estimate BMD's third quarter EBITDA will be between $53 million and $68 million. Our daily sales pace through July was consistent with the second quarter sales pace of $26.5 million per day and is expected to moderate based on forward-looking end market signals and supplier transition activities. Gross margins are expected to be between 14% and 14.75%. In Wood Products, we announced an EWP price increase in the latter part of the second quarter that we expect to increase our pricing by approximately 3% when fully implemented. Contractual obligations will delay the realization of the full benefits of this action, but we expect to begin seeing the impact of the price increase as we move through the third quarter. Turning to our anticipated results for Wood Products. We estimate third quarter EBITDA will be between $22 million and $57 million. Our EWP order file is strong, but order intake in recent weeks has moderated to the extent that we expect volumes to decline mid-single digits sequentially. EWP pricing is expected to increase slightly on a sequential basis. In Plywood, we expect volumes to decline low single digits sequentially. On Plywood pricing, quarter-to-date realizations were 5% above our second quarter average with the balance of the quarter dependent upon end market demand and ongoing import supply volatility. We expect our per unit manufacturing costs will be comparable to second quarter. With that, I'll turn it over to Jeff to share our business outlook and closing remarks.

Thank you, Kelly. I'm on Slide 12. Looking forward to the third quarter, the path to recovery in homebuilding remains elusive. Ongoing geopolitical uncertainty, volatile treasury yields and mortgage rates and persistent inflation continue to weigh on the macroeconomic outlook. In response, homebuilders have relied on incentives to stimulate demand while maintaining discipline around starts and spec inventory. Repair and remodeling is consistent but unspectacular growth is reflective of cautious consumer behavior, low home turnover and a reluctance to tap homeowner equity at current interest rates. Our exceptional results in the quarter, despite the backdrop, reflect the strength of our operations and the value Boise Cascade brings to the channel. BMD's high-quality products and world-class service create solutions for customers and vendors in all operating environments. In Wood Products, we are encouraged that the EWP price stability seen in prior quarters has continued and progressed into successful pricing actions. We continue to create value through Boise Cascade's integrated manufacturing and distribution model, which connects real-time customer demand and disciplined production, inventory and logistics decisions. The daily alignment between our Wood Products and Building Materials Distribution segments enhances channel visibility, allowing us to better match production rates and inventory strategies to end market conditions and leads to improved service levels for customers. Cross-divisional coordination, supported by our strong financial position provides the stability and flexibility to allocate capital efficiently, execute our strategy and respond quickly to changing market dynamics. We remain focused on expanding the benefits of this integrated model by bringing our divisions closer together and stimulating innovation across the organization to support long-term value creation. As we plan for the future, long-term residential construction fundamentals remain constructive, supported by generational tailwinds and an undersupplied housing market. High homeowner equity and an aging U.S. housing stock supports sustained repair and remodel spending and reinforce the industry's solid underlying demand drivers. Against this backdrop, we believe Boise Cascade's investment made throughout the business cycle will position us to capitalize on these tailwinds and outpace industry growth over time. Lastly, James Hardie is a trusted long-term partner, and we look forward to working closely with the team in the coming months as we work to unlock the full potential of our expanded distribution agreement. Our team is eager and highly motivated to sell James Hardie's industry-leading portfolio of products. We have a long history of growing supplier product lines through our nationwide footprint and superior service, and I am confident that we will do so again across James Hardie's product portfolio. During this transition, my #1 priority is ensuring that we continue to take great care of our customers by doing things the Boise way. That means providing customers with high-quality service and support across all of our offerings, earning the respect through our transparency and maintaining their trust through integrity. Lastly, it means pursuing excellence with intense effort, focus and clarity of mission. Thank you for joining us today and for your continued support and interest in Boise Cascade. We welcome any questions at this time.

[Operator Instructions] Our first question comes from Susan Maklari with Goldman Sachs.

I want to start with the strategic shift in general line to James Hardie. Can you talk a bit more about the long-term path for profitability, the efficiencies that you could see perhaps in terms of working with one supplier versus multiple suppliers for decking and siding? And then just overall, are the terms of this deal consistent with prior deals? Or is there anything that we should be aware of?

Yes, Sue, let me take that a little bit. I'll start with this. This is all about growth. And we really feel strong about that and feel like there's tremendous opportunity for us and how we're going to go about doing that. First, we're picking up the entire portfolio, and we're excited about that. It brings more addressable market to us that we can go after. How are we going to do that? First, I'll talk about some of the things, the exits that Hardie is making. They're significant. There's opportunity there. We have to go out and win that and win our fair share, and I really believe we'll do that, number one. Second thing I talk about is kind of our national account opportunity in the home centers. Having one complete product line that we can go offer across the entire country, we believe is a competitive advantage for us, and we look to take advantage of that. The next thing is I'm just talking about the conversion of our existing customer base. I'm going to say this, we've been a very strong distributor player in the decking market for a long time. And we have a customer base that has come to rely on us, and they've told us that very clearly and consistently. And so we really believe that we have the opportunity to convert some of that. for how we've performed in the past, the service we provide and the reliance they've had on us. Next thing I'll talk about is the James Hardie sales force. It's fantastic. We've worked with them in the past. We know about their pull-through ability and what they can do, the relationships with contractors, with builders. They've got an excellent marketing team that we know is going to help us. And then there's a lot of conversion opportunities out there that we know we can go grab on whether it's the products or different products now that we can offer. So we're really, really excited about that. As far as the terms of the deal. . .

Yes. I'd say, Sue, in terms of the general day-to-day terms, not really inconsistent with what we've had with our former decking supplier. And Jeff hit on it a bit ago just in terms of clarity of mission here in terms of how we move forward. Certainly, we're going to move forward with urgency as we transition away from former product lines. We're also going to move with urgency as we work towards our transition to expand our relationship with Hardie, but it's very important that we're -- we do that in a very thoughtful and a new territory fashion, so we make sure that ramp is well orchestrated. And the focus will be on that successful transition and clearly a mission around working to mitigate the financial impacts, the near-term financial impacts ahead of us, including there are certain elements that we have in our arrangement with James Hardie that will help support that transition as we ramp sales.

And Sue, I'll jump in here for a second. As far as the synergies of the strength in aligning with one brand, James Hardie now has the industry's really broadest portfolio of exterior products. They are #1 or #2 across each of their product categories, right? They're #1 in siding, #1 in PVC trim, #1 in fiber-cement trim, #2 in composite decking, although we believe that we have the strength to help them get to #1 there. We believe that aligning with one brand will create customer stickiness for us. If you think about our ability to drive down the transaction cost for our customers when there is 1 PO, receiving delivery truck, dealing with one sales rep, potentially one bundled pricing program, one marketing strategy across multiple products. When you think about, to Jeff's point, our combined sales forces, Boise Cascade has over 600 salespeople across the country that will be partnered with James Hardie and TimberTech AZEK sales teams. We think that there is strength there. And then for our business, we think about improving things like our truck fill rates, our large average order sizes, better cross-selling opportunities across our footprint and a greater ability to differentiate ourselves from other distributors in the market.

Okay. That is all great color. And I want to shift now to EWP. You talked about some pull forward in the volumes that you saw there in the second quarter. Given that, how are you thinking about the channel inventories as we look in the second half of the year and especially given that a lot of the big public builders have downwardly revised their expectations for 2026 closings? And then also, what does that mean in terms of the realization of the 3% price increase that you've announced?

Yes, this is Troy. Yes, as you mentioned, the commentary we're hearing on the builder side, the uptick on the interest rates, kind of all headwinds heading into the second half of the year. I guess I would say our order file throughout Q2, it did continue to grow, and that's what helped us support a price increase. in terms of how that plays out, we -- the pull forward was some of our arrangements, volumes, the price protection, undoubtedly, we saw some activity prior to the increase going into effect. But right now, as we move into August, our order file is about 3x what it was this time last year. And so we're still feeling pretty good. The intake side has slowed. But I think combined with the existing order file and what we're kind of seeing right now, I feel pretty good about that runway through August at least. But then like you said, going forward, the commentary from builders, plus we had at least one large dealer talk about kind of peeling back their days on hand. So all of that will have some effect.

I'm just going to add 2 things a little bit. The pull forward of orders with the price increase is normal. That happens every time. So I just want to stress that. It's nothing different. And then the reluctance that you've heard a little bit about what's going on with builders and what they're going to carry as far as EWP, that plays in the hands of distribution once again. So when things slow down, people are relying more and more on just-in-time inventory, it's a good thing for us.

And the next question comes from Michael Roxland with Truist.

Congrats on the progress. First question I had, how long do you guys think it will take for the Hardie transition to happen and to replace the prior business? Is that something that occurs fully by year-end? Is it by the end of 1Q '27? And any early estimate on how fast that business could grow relative to the progress that you [ transitioned away ] and any incremental margin benefit as well?

Yes. Good question, Mike. So I would say, in general, it's going to be -- it's too early to provide specifics around some of your questions there. Like I said earlier, we're going to move with urgency, but there are certain things that we're not in control of, in particular, things around Hardie and how the distribution arrangements that they exited from and how long that may take before those distribution arrangements are fully exited. That could be 1 quarter and that could be 2 quarters. And then for us, we're still working down our current inventory and then start to build our new inventory probably September time frame. So it's not going to happen in the fourth or the first quarter in terms of when we get back to normal. I think this will be a journey that will take multiple quarters. And there's a lot of things to play out yet before we can really provide a lot of specifics, but we will absolutely continue to provide updates as we move through the balance of the year and into 2027.

Yes. I'll jump in there, too. So to Kelly's point, we're going to -- we'll start loading in many of our locations in September, right? We're going to be working through our inventories over the next couple of months, our current set of inventory. And we'll probably likely move some inventory around our system if we need to. It's still good inventory that we have on the ground that we can sell, and we're going to work to do that. We'll probably utilize our larger branches to help us move some decking -- have an [ access hub ], allow us to move some decking around our footprint so that we can wind down our smaller locations sooner. As the James Hardie exited distributors wind down their inventory levels, we want to make sure that we are ready to serve in every market that needs James Hardie product. So we'll start loading in, in September. The James Hardie exits have roughly 90 days. So we'll be working closely with James Hardie to monitor the inventory in the channel. But we plan to start selling the full suite of James Hardie products in the fourth quarter, both driving conversions, product conversions as well as capitalizing on the distribution consolidation that will be taking place in the market.

Got it. That's extremely helpful color. Just on that point, do you think based on what you've seen with Hardie and your interactions with Hardie over time, having them as a customer, do you think that the growth potential from Hardie is greater than the business they left? And if so, by how much roughly order of magnitude or range bound, 3%, 5% -- just give us an idea of how much further growth we could expect once Hardie is fully deployed within BMD.

Mike, our opportunity is significant. It truly is. If you think about some of the PVC products and the Class A fire rated products that we have not nationally participated in, I think our growth opportunity there is very, very meaningful. I think the opportunity we have to continue to grow our Siding business is very, very meaningful. And I think we bring along with us a customer base that we have a chance to convert. So the opportunity, when we get there, we really believe is meaningful, and it has us completely excited to go after and go do this.

Yes. I would tell you, we don't see it as a one-for-one offset on revenue. We see it as a strategic shift to owning the full exterior combined portfolio, where we align with one brand in order to gain a larger share of the full exterior envelope of the home. In fact, we are realigning our branded products team. They will become our exterior products team to be fully aligned and engaged with the James Hardie strategy.

Got it. One final question, I'll turn it over. Just in terms of Brazilian imports, obviously, concerns that they would increase in the second half. But it seems like with those new 301 tariffs, maybe there's the potential for that to defer or to discourage increasing imports from Brazil. So thoughts around maybe plywood market holding up rather well given the 301 rollout.

Yes, it's Troy. Yes, as you mentioned, the second quarter did tick up volume-wise year-to-date versus the prior year. It's still down. I think there was a couple of announced competitor capacity coming offline. And then, of course, for us, we ship veneer from our plywood production over to the EWP side. So I think net-net of all that, there's probably less plywood, especially in the Southeast. So that's probably helped with the prices. I mean, specific to Brazil, what we're seeing, we have a heavy 58 mix in the Southeast to support our EWP business. And it seems a little weird, but I think it's actually, the Brazilian stuff seems to be a little bit complementary to what they supply with the specialty products, maybe some different thicknesses that actually allow our relationship with BMD for them to fill in where we can't supply because of our product mix. So right now, it seems to be, I would say, a nonevent. But the current prices probably allow that even with the Section 301 in effect, some of that volume is still coming, so it will probably be dependent on prices moving forward.

And the next question comes from George Staphos with Bank of America.

I wanted to -- recognizing there are lots of moving parts here, is there a way to quantify what the transitional impact was in terms of third quarter guidance for BMD? And with your -- if you will, your existing product line that you're going to be winding down inventories on, if I understood it correctly, you're going to be moving that to some of your larger locations. What else do you do to ultimately make sure that product is more or less out of your files as the James Hardie product is coming in?

Yes. So let me take the first part of that question, and maybe I'll have Joe help amplify a bit on kind of how we're moving through our existing inventory with our former Boise decking supplier. So in terms of the guide, you're right, George, the supplier transition activities are influenced -- are reflected in that guide. And so how so, certainly from a top line standpoint, I mean, end markets are slowing a bit, so that's reflected. And then also the fact that we're moving through our inventory. And as you might expect, the fast turning the A-grade stuff, that's going to turn out pretty quick. And then the other products will continue to turn, but maybe in a bit of a slower rate. And so overall -- and we won't be adding new inventory for that brand, obviously. So that's going to be a component of the daily sales decrease we expect to see as we get into August and September. And then on the margin profile, you notice that is a little bit lower also. And that's going to be a function of kind of what Joe hit on a bit ago, which is we have certain geographies where we move a lot of composite decking, some markets a little bit less. And so we're going to, as best we can, kind of do a hub and spoke to move products around to where it can move and where it can turn quickly. And there'll be some costs that we have to bear to make that happen. Joe, anything else you'd add in terms of how we kind of thread the needle between exiting one and adding another?

Yes. So I would first say that we are still selling through a significant amount of this inventory per day. We have not seen that slow down. So we're still moving through our inventory. We feel pretty good about that and the levels that we'll be able to get it down to. We have a lot of support from our customer base. A lot of our long-term customers who were willing to purchase that inventory who we've been selling to for a very long time. So we've got a lot of avenues where we can push this inventory. The home centers are an avenue for us. We've got a lot of support there. They move through a lot of this material. So we've got some optionality there. And then if we get down to it, some of it can be recycled. So we've got a lot of options that we can push this inventory out to as we wind it down.

George, I'm just going to add 2 little things. There's still a lot of decking season left. We have a solid 2 months left for us that we can move some. And then I just want to stress the customer help that we've been hearing from our customers that will help us out that are, "Okay, what do I need to move for you?" It's been significant. So we feel good about what we can do there.

Jeff, is there maybe a little bit of margin degradation, too because, forgive the elemental question, but or point do you have to market down at all to make sure it's gone so that you have space when the new Hardie product comes in? Or no, not really because you still have 2 months in decking season, et cetera, et cetera?

I'd say not -- on one hand, I'd say not really because we have 2 months and we have people that are willing to help us on that. But I would say when we get towards the end and we have to start moving product around, we'll be incurring some freight charges on things and things that might not be the fastest moving. There could be some of that at the very end.

Okay. Now at the national big box retailers, I can imagine they'd be very happy to get the one full suite of products from you as you're aligned with Hardie. With smaller lumber yards, and places like that, what are you going to do to help them now become more accustomed to your new product line where before they were accustomed to your old decking product line, especially with the contractors that are in that market. Is that a big deal? Or is that not that big of a deal in terms of the sort of the margin that you got to work through the costs that you have to work through?

George, James Hardie's reputation in the industry for the products they produce is fantastic. And if you look at what their growth rate has been over the last several years in the decking category, particularly, it's always hard to move people. There's no doubt about it. But we have a sales force that's very capable. We're working with James Hardie force, which is very capable. We have a reputation for servicing the dealers that they've come to rely on. And some of the work that used to be done at the dealer level that we do for people, they understand the value that we bring. And so converting them [ mildly ]. Nothing is easy, and we're not naive to that, but we believe we can do it.

No, of course. I guess last question for me, and I'll turn it over and recognizing it might be a bit of a sensitive topic. Do you intend to -- and can you carry SKUs from other manufacturers in some of the key categories that Hardie supplies? Or are you more or less going to focus entirely on selling the full suite of Hardie products from decking to siding, et cetera?

So I would tell you that we will be very focused on James Hardie's whole portfolio, obviously. But there are some carve-outs of some products that we hope to maintain, but it's too early to tell how that will go.

And the next question comes from Ketan Mamtora with BMO Capital Markets.

Maybe just coming back to the third quarter distribution EBITDA guidance, and I appreciate that there are quite a few moving pieces here in the short term. But I'm just curious, if quarter-to-date sales pace is sort of consistent with Q2, can you give us some big buckets that is driving the sequential drop in EBITDA from Q2 to Q3? I see that there is some of the transition element there. But is it possible for you all to just quantify for us what is sort of underlying demand versus kind of the transition impact in the short term?

Yes. So if I understand your question, I'll try here, assuming I understand your question, Ketan, which is -- so the majority of what we're seeing in the step down, I would say, is attributable to the supplier transition activities in terms of the daily sales pace and the margin degradation that I spoke to. I think at the same time, you heard us in some of our prepared remarks talk about generally a bit of a slowing environment. We benefited from some tailwinds in commodity, in particular, lumber and plywood in the first half of the year in BMD. And so I don't -- given demand softening, it's hard to envision that we'll continue to see some tailwinds there. So it's a combination of supplier transition, which is the heavier part of it and then also influenced by just generally softer end market in terms of our near-term view, Ketan.

Understood. Kelly, would it be fair to say about 2/3 of this then is the supplier transition or more or less any just rough order of magnitude?

Yes. I think that's probably fair, Ketan.

This is Jo. I don't want to get lost to in the fact that, yes, there's going to be some short-term noise here as far as the transition of inventory and moving in and moving one out and loading the other one in. So there will be some short-term noise, whether that's 1 quarter or 2. But I don't want to lose track of how big we can be with this product category. We were the largest distributor for our previous supplier decking line, and we plan to be the same for the James Hardie and the TimberTech decking line, but it won't end with decking. That's the great thing about this full suite of products and the fact that we will be carrying all of them because as we cross-sell, we'll have the opportunity to become the largest in every category. And I think we're going to gain wallet share as James Hardie makes their exits and consolidates their distribution network. We'll be able to leverage our national scale and serve every market. Our national footprint will allow us to better align with the home centers and the national dealers, even the multifamily players. It's going to give us a competitive advantage as far as that goes. And we really believe that our service, our value, our reliability with our customers really from East Coast to West Coast now will help us win both wallet and market share in these product categories.

Got it. No, that's helpful context, Jo. And then on EWP, you mentioned there was some pull forward and recognize this is something that happens every time there's a price increase. So I appreciate that. Again, is it possible to sort of quantify how much of an impact that could have had on Q2?

In terms of Q2 volumes, yes, I'm not sure that -- I mean, that was the order file. So in terms of our shipments, generally speaking, we -- the mills ran well. We -- our operating rates were in the 85% to 90% on the EWP side. So I mean it's more of our ability to produce it and get it shipped out. And I think that was fairly consistent. So I don't know that there was really an amount that I would add.

Yes. And I would say, Ketan, it's hard for us to specifically quantify how much volume might have been pulled forward a bit, whether it was a transportation issue or the -- getting ahead of the price increase. But I feel like we've reflected that. If you see the third quarter guide, I think that's largely influencing why we're saying mid-single-digit sequential decline in terms of volumes. That has a bit of pull forward as well as a little bit destocking we're hearing through the channel.

Understood. And then just last question. On the freight and transportation side, any sense of sort of how much of incremental cost that is hitting you in Q3 or H2? I recognize that these things is changing day-to-day, week-to-week. But if it were to stay at this level, how much of a drag for transportation and freight is either Q2 or H2?

Yes. So in our prepared remarks, we did call out in terms of the impact of our increase in our selling and distribution expenses and about 50% of that year-over-year increase in our selling and distribution expenses was a function of higher fuel in our own trucks as well as higher outbound delivery costs we're paying. So it's been pretty meaningful. And I think generally speaking, we're -- I think we're doing a pretty good job of passing that through, not 100% of it. But I think generally speaking, we're doing a pretty good job, and it's something we're going to continue to tightly manage and monitor to make sure we're trying to do our best to kind of break even on all fronts.

And the next question comes from Jeff Stevenson with Loop Capital.

I was wondering if you could provide more color on the EWP competitive environment during the quarter with order files 3x stronger at this time than last year and pricing largely stabilizing. And then what went into the decision to implement third quarter price increases after the 1 to 2 years of deflation headwinds you've seen in the category?

Yes, this is Troy. As we've talked about in the past, I mean, we were seeing prices stabilize for the last few quarters despite the competitive pressures that we were still seeing. And then the cost escalation has been there for a while. We just didn't have the order file necessarily to back a price increase at that time. And then as we did move through the quarter, even prior to what we would call pull forward, we were still seeing pretty decent demand in our order file growing. And so implementing that price increase was a little bit of the desire to address cost inflation, but also the order file and the demand that was there. And then we have seen that pull forward 3x what it was, like we talked about. But I think that's what helped us implement that. It was the price increase itself. I mean we got what the market would bear in each market. I mean we ran the gamut. We had price increases. We were in markets where we were flat, and we actually had markets where we actually had to go down to match competitive pressures. And so as reported, we had about -- we believe it's going to be about 3% once all said and done. That should play out slight increase maybe in Q3, incremental increase in Q4 and probably playing out fully in Q1.

Got it. That's very helpful, Troy. And then I was wondering if you could update on the M&A pipeline and whether you've seen any improvement in seller expectations for bolt-on strategic acquisition opportunities in key areas such as mill work given ongoing macro uncertainties.

Yes. Good question, Jeff. I would say there is still a reasonable amount of activity that comes our way, things for us to evaluate. Our balance sheet is capable to execute M&A and our interest level remains on that front. So we'll continue our very similar approach to capital allocation and how we want to invest to sustain the company and invest to grow the company if we can find the right opportunity and then obviously not lose track of shareholders. And you can see that our LTM capital allocation is pretty well balanced in terms of how much into the company and how much back to shareholders.

And the next question comes from George Staphos with Bank of America.

Not to be sort of pedantic here, I know at the end of the day, you want to try to guide in a way that is achievable. But I want to make sure your order files, did you say, Jeff, are 3x what they were in August, yet you're seeing some decelerating. So if those are both true statements, help me ultimately understand how that sort of manifests itself in your expectation for a little bit slower outlook and the guide for wood for the third quarter.

Yes, George, this is Troy. It's that carryover from the order -- the growth in the order file prior to the price increase. So we've got that working for us right now. And like I mentioned, believe that it probably has some runway through August. But again, with all the activity or the commentary from the builder side, the interest rate increases, the destocking potential, I think as the quarter plays out, we're just seeing the volume side probably, I think we guided down mid-single digits. So it's probably just playing on that. I mean we might have a little bit more runway with the order file, but that commentary is a big headwind for us.

Okay. So -- and I appreciate you going through that. So if you were in our seat trying to sort of map out the rest of the year and let's say, we're a month from now, what would you, if you were in our seat, be particularly looking at to determine whether, in fact, things did decelerate as you're expecting and would or whether there's a length in season or recovery pickup in activity? What are you most focusing on? What would you -- if you were in our seats, focus on given where we sit on our side of the screen?

Yes. A lot of variables for sure that you and us will be trying to get our head around. I think what will be -- one thing that will be interesting to see, George, is the back half of last year and particularly the fourth quarter, the activity at the builder level was almost near a hard stop. It was very, very abrupt end to the kind of the last half of last year. While we're moderating down a bit here now, it feels like maybe it will be a bit more -- a bit stronger here as we exit 2026 as compared to that hard stop in 2025. So that will be something to be interesting to monitor. In the Wood Products business, always end market demand and supply volatility will influence plywood pricing. That's always a big variable for us that's really hard to predict. And then on the BMD side, it's going to be all about successful supplier transition. And I'm not going to put any finer point on that than what you've already heard today other than that will be a clear focus, and we will have a -- we'll be looking to execute in a successful substance fashion as move forward there.

George, one more thing I would just say in terms of our integrated model and the veneer flow. So the EWP side, yes, we may see some slowing volume-wise, but then we have that flexibility to shift that veneer over to the plywood side. So I just would say whatever your predictions are on future plywood prices, we're able to kind of maintain our capacity at the mill level or production at the mill level by shifting that over there before we got into any real issues around pulling back on production.

That's helpful. And appreciate it. And ultimately, I guess, even if things are slowing, you've got easier comps versus last year. So hopefully, we should be looking at better growth year-on-year, but we'll see how that plays out.

This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Strom for any closing remarks.

Thank you very much. I just want to thank everyone for your continued interest in Boise Cascade. We look forward to talking to you next quarter. Please be well, and please be safe. Thank you, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.