Trex (NYSE: TREX) reported Q1 EPS of $0.73, $0.12 better than the analyst estimate of $0.61. Revenue for the quarter came in at $200 million versus the consensus estimate of $197.71 million.

• Consolidated net sales increased 12% to $200 million
• Consolidated gross margin of 44.8%, up 620 basis points
• EBITDA margin was 29.4%, up 570 basis points
• Consolidated earnings per share of $0.73, up 35%

“First quarter 2020 results reflected continued robust demand for Trex residential decking and railing products. We reported strong year-over-year and sequential increases in gross margin due to continuing production improvements and the non-recurrence of prior year new product startup expenses. Additionally, as Trex Residential’s gross margin returned to more normalized levels, Trex Commercial’s gross margin improved considerably, due primarily to the roll-off of prior year lower margin contracts, favorable mix and improved execution.

“Production efficiencies, stable raw material costs and spending controls drove strong operating leverage, resulting in EBITDA growth of 39% and a 35% increase in earnings per diluted share.

“We took immediate measures early in March to respond to the COVID-19 health crisis and prioritize the safety and well-being of our people and the communities in which we operate. Thanks to the efforts of all our employees, we immediately implemented strict sanitary and physical distancing procedures that adhered to or exceeded CDC guidelines. We also implemented emergency response plans at each manufacturing location and have been able to continue production in a safe and effective manner,” said Bryan Fairbanks, President and Chief Executive Officer.

GUIDANCE:

Trex sees Q2 2020 revenue of $180-190 million, versus the consensus of $189.87 million.

Summary and Outlook

“The potential economic impacts of the COVID-19 crisis on our business will largely depend on their duration. Unless current conditions substantially change, we project second quarter sales of $180 million to $190 million. We believe it is prudent to rescind guidance metrics previously provided for full-year 2020 until second-half visibility improves. At this time, we have no significant sourcing issues and maintain inventories of materials sourced from diversified geographies and vendors, allowing us to better tolerate short-term supply chain disruptions, should they occur. Production and sales volumes for April were in-line with our internal plans, but for May we are experiencing lower demand from areas where construction has been deemed non-essential and channel partners are closed.

“Our web traffic and purchase indicators declined towards the end of the first quarter and that continued into the beginning of the second quarter. However, as states begin easing restrictions, we are seeing a rebound in web traffic and retailer searches. Contractor searches continue to lag but are strengthening week-by-week. We believe this reflects positive consumer sentiment for the outdoor living products market, and a general increase in do-it-yourself home improvement spending. The implications of these data points are favorable for Trex, given our position as the market leader, and the strong demand for Trex decking products that we have experienced in the last year. The breadth of our distribution, dealer and retail footprint provides many options for consumers to purchase our products and reduces potential supply disruptions due to local restrictions.

“Trex entered this challenging period in a very strong financial position with minimal debt and a revolving credit facility that provides us with over $220 million of additional liquidity. We have stress tested our financials and believe that our available financial resources and cost-efficient manufacturing will allow us to navigate effectively through the current economic and business environment. Once a recovery sets in, we expect to see significant increases in home improvement spending, particularly in the outdoor living category. With our Trex Enhance products designed to attract the price-conscious consumer, we have considerably expanded the size of our addressable market and our ability to drive further market share gains from wood over the next several years.

“With respect to capital allocation, we are proceeding as planned with our capacity expansion program. The ramp-up of three additional lines at the Nevada facility is scheduled for completion by the end of the second quarter of this year. Construction in Virginia is underway and on-time for production readiness in the first quarter of next year. In the event that market conditions change, we have the flexibility to revise our investment commitments and reduce the number of lines available at startup. We have temporarily suspended share repurchases, but during the first quarter, we repurchased 442,000 shares of our common stock for $39 million,” Mr. Fairbanks concluded.

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