Trex (TREX) Tops Q3 EPS by 3c, Revenues Beat; Offers 4Q Revenue Guidance Above Consensus

Trex (NYSE: TREX) reported Q3 EPS of $0.41, $0.03 better than the analyst estimate of $0.38. Revenue for the quarter came in at $232 million versus the consensus estimate of $222.11 million.

Third Quarter Highlights

• Consolidated net sales increased 19% to $232 million
• Consolidated gross margin of 36.7%; excluding the warranty reserve charge, consolidated gross margin of 39.5%
• Consolidated diluted earnings per share of $0.37; excluding the warranty charge, diluted earnings per share of $0.41
• Consolidated EBITDA margin of 26.6%; excluding the warranty charge, consolidated EBITDA margin of 29.4%

“Trex brand leadership continues to position us at the forefront of strong secular trends for the composite decking and railing industry. Demand for Trex products continues to outpace supply reflecting consumer preferences for the superior aesthetics and high performance of our products and continued strength in the repair and remodel sector. Together with the compelling value proposition of our Enhance product line, these attributes are enabling Trex to accelerate conversion from the dominant wood decking market.

“Third quarter profitability, exclusive of the warranty charge, demonstrated the successful execution of our low-cost, highly-efficient operating model, which more than offset the anticipated increased labor and depreciation costs related to capacity expansion and COVID-19 management.” noted Bryan H. Fairbanks, President and Chief Executive Officer.

GUIDANCE:

Trex sees Q4 2020 revenue of $210-220 million, versus the consensus of $184.42 million.

Summary and Outlook

“Year-to-date results demonstrate sustained demand for Trex composite decking and railings, which appeal to today’s consumer on several levels— aesthetics, performance, value and sustainability. Increasingly, the 95% recycled content in Trex Residential decking products plays an appealing and valuable role in consumer buying decisions. Feedback from our channel partners coupled with record web traffic to our “Trex.com” and “Decks.com” websites support expectations of strong future demand for our products.

“Our capacity expansion program is well underway. Three new production lines in Nevada are operational and the initial production lines at our new Virginia facility will begin start up in the first quarter of 2021, with additional production ramping through the second quarter.

“For the 2020 fourth quarter, we expect consolidated net sales of approximately $210 million to $220 million, representing 30% growth at the midpoint of the range. For full year 2020, we expect incremental gross margin to be at the low end of the 45% to 50% range, excluding the warranty charge, and reflecting COVID-19 related expenses, inflation and logistics costs associated with startup expenses as we approach our Virginia facility coming online. We expect SG&A as a percentage of net sales to improve by approximately 150 basis points for the full year compared to the prior year, driven by reduced brand spend and lower travel and entertainment costs.

“Based on current visibility, we expect 2021 to deliver another year of strong double-digit sales growth. Recently announced price increases on certain products that will go into effect at the beginning of the new year, combined with disciplined cost management and continuous improvement efforts, are expected to more than offset increased costs related to the new capacity ramp-up and expected inflation for raw materials. As a result of our improved visibility and a more stable economic backdrop, the Trex Board of Directors has reinstated our share buyback program,” Mr. Fairbanks concluded.

For earnings history and earnings-related data on Trex (TREX) click here.

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