Trex (TREX) Tops Q4 EPS by 10c, Revenues Beat

Trex (NYSE: TREX) reported Q4 EPS of $0.61, $0.10 better than the analyst estimate of $0.51. Revenue for the quarter came in at $165 million versus the consensus estimate of $159.37 million.

Fourth Quarter 2019 Highlights

• Consolidated net sales were $165 million, an increase of 18%; Trex Residential net sales were up 25%
• Consolidated gross margin of 43.2%, up 40 basis points
• Consolidated earnings per share of $0.61 per share, up 42%

“Fourth quarter results were in line with our expectations for strong double-digit sales growth and sequential gross margin expansion. Our brand leadership and strong demand for our product line-up resulted in positive comparisons with the similar period in 2018 when sales benefitted from a very strong early buy season. Sequentially, our consolidated gross margin expanded 80 basis points, and Trex Residential gross margin improved by 120 basis points, resulting in operating leverage that was further enhanced by reduced SG&A spend. This enabled us to convert 18% sales growth into a 42% increase in per share earnings,” noted James E. Cline, President and Chief Executive Officer.

Summary and Outlook

“Macro and company-specific factors support our confidence in Trex Company’s growth prospects for 2020. We continue to operate in a strong economic environment, with healthy repair and remodel sentiment, and high consumer confidence. At the same time, demand for Trex Residential Products continues to be robust, indicating that we are capturing conversion from the large wood market.

“To meet this demand, we are executing on the multi-year capital expenditures program we announced in June 2019, which is progressing as planned. To date, we have added two lines in our Nevada facility and an additional line in the Virginia facility. Late in the second quarter of 2020, we will bring online three additional lines at the Nevada facility and an additional line in Virginia, which will support the strong demand that we have seen for our decking products. In October 2019, we broke ground on our new manufacturing building at our existing plant in Virginia, and capacity is expected to start to come online in the first quarter of 2021.

“In the meantime, our efforts to reduce material content and increase throughput on Enhance decking products are progressing well. We expect to achieve the original design target by the end of the third quarter. Due to the production and equipment modifications required, we expect this change to primarily benefit the second half of this year.

“We expect 2020 to be a year of strong double-digit sales growth, building on the momentum we saw in the 2019 fourth quarter. For the first quarter of 2020, we expect consolidated net sales of approximately $200 million, or 11% ahead of the first quarter 2019, with sales growth in the remainder of the year closely tied to the ramp-up of additional capacity detailed above.

“Full year 2020 incremental gross margin is estimated at 50%, and we expect our tax rate to be approximately 25%.

“Capital expenditures for full year 2019 were $67 million. For 2020, we expect capital spending to range from $140 million to $160 million, with the majority earmarked for capital expansion.

“We were pleased to announce today in a separate press release that our Board of Directors has elected Bryan Fairbanks President and Chief Executive Officer upon my retirement from those positions, and that I will move to Chairman of the Board, effective April 29, 2020. This represents a natural transition for the Company and recognizes Bryan’s leadership skills and his commitment to excellent execution that will foster the Company’s continued growth,” Mr. Cline concluded.

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

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