Trex Company Reports First Quarter 2019 Results

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    – Strong Demand for Trex Decking and Railing Continues –

    – Product Mix in Line with Expectations –

    – Consolidated and Residential Gross Margins Reflect New Product
    Start-up Costs; Progressive Gross Margin Improvement Expected Throughout
    2019 –

    First Quarter Highlights

    • Consolidated net sales increased 5% to $180 million
    • New product start-up costs and related manufacturing inefficiencies of
      approximately $10 million in the quarter
    • Consolidated gross margin of 38.6%, inclusive of new product start-up
      impact of approximately 560 bps
    • Consolidated earnings per share of $0.54

    WINCHESTER, Va.–(BUSINESS WIRE)–Trex Company, Inc. (NYSE: TREX), the world’s number-one brand of decking
    and railing and leader in high-performance, low-maintenance outdoor
    living products, and a leading national provider of custom-engineered
    railing systems, today reported financial results for the first quarter
    ended March 31, 2019.

    First Quarter 2019 Results

    Consolidated net sales for the first quarter of 2019 were $180 million,
    reflecting a 5% year-over-year increase. Trex Residential Products net
    sales increased 7% to $165 million. Trex Commercial Products contributed
    an additional $14 million, compared to $16 million in the year
    ago-quarter. Consolidated gross margin was 38.6%, representing gross
    margins of 40.2% and 20.5%, respectively, from Trex Residential and Trex
    Commercial. SG&A was $30 million, or 16.8% of sales.

    Net income for the first quarter of 2019 was $32 million, or $0.54 per
    diluted share, compared to $37 million, or $0.63 per diluted share
    reported for last year’s first quarter.

    “First quarter revenue growth was supported by strong demand for both
    our legacy and new residential decking and railing products, resulting
    in a product mix that was in line with our expectations. Startup costs
    and related manufacturing inefficiencies associated with production of
    our new Enhance Naturals and Basics decking unfavorably impacted
    residential gross profit by approximately $10 million and significantly
    reduced our throughput during the quarter. In March, we made a profile
    change to our Trex Enhance decking board to increase throughput and
    began to see substantially improved production rates at the end of the
    quarter. Our capacity was also constrained by two equipment failures at
    our Nevada facility during the first quarter which resulted in the loss
    of two production lines for over thirty days each. We will experience
    reduced throughput in Nevada during the second quarter as well, but we
    expect the reduced throughput and related expenses to be behind us by
    the end of June.

    “Trex Commercial revenue was consistent with plan, and gross margin
    showed year-over-year and sequential expansion of 280 and 210 basis
    points, respectively, thanks to operational and organizational changes
    that increased efficiencies, and the continued run-off of older
    contracts,” noted James E. Cline, President and Chief Executive Officer.

    Recent Recognitions

    • For the 12th consecutive year, Trex was named number one in “brand
      familiarity,” “brand used most” and “brand used most in the past two
      years” for the composite/PVC decking category in the 2019 Builder
      magazine’s annual Brand Use Study.
    • Trex Company was honored with Green Builder Media’s 2019 Readers’
      Choice Award for manufacturing “greenest” decking.
    • According to the recent PRODUCTS Brand Use Survey, Trex®
      has been named the most preferred decking product among trade
      professionals, outranking the traditional pressure-treated lumber.

    Summary and Outlook

    “Market conditions continue to be favorable, demand for Trex decking and
    railing products remains very strong, and early data indicate that
    interest in our new Enhance products is robust and broad-based. This
    supports our expectation that the re-engineered and expanded line of
    Trex Enhance composite decking has significantly increased the size of
    our addressable market and will accelerate the conversion from wood. We
    are focused on increasing production capabilities as we move through
    2019, but as we have said previously, Trex Residential margin
    performance for the first half of 2019 will continue to reflect start-up
    costs associated with the new product production. We expect gross margin
    to progressively increase throughout this year, although due to our
    first quarter results and continued startup costs in the second quarter,
    we are revising our incremental margin guidance to approximately 40% for
    full year 2019. Second quarter consolidated gross margin is expected to
    improve sequentially by approximately 300 basis points.

    “Trex continued to execute on its long-term capital allocation
    priorities in the first quarter and repurchased 125,000 shares for $8.7
    million as part of the share buyback program approved by the Board of
    Directors in February 2018.

    “For the second quarter of 2019, we expect consolidated net sales in the
    range of $195 million to $205 million, as we work toward meeting strong
    market demand,” Mr. Cline concluded.

    First Quarter 2019 Conference Call and Webcast Information

    Trex will hold a conference call to discuss its first quarter 2019
    results and other corporate matters on Monday, April 29, 2019 at 5:00
    p.m. EDT. To participate on the day of the call, dial 1-877-270-2148, or
    internationally 1-412-902-6510, approximately ten minutes before the
    call and tell the operator you wish to join the Trex Company Conference
    Call. A live webcast of the conference call will be available in the
    Investor Relations section of the Trex Company website at 1Q19
    Earnings Webcast
    . For those who cannot listen to the live broadcast,
    an audio replay of the conference call will be available on the Trex
    website for 30 days.

    Forward-Looking Statements

    The statements in this press release regarding the Company’s expected
    future performance and condition constitute “forward-looking statements”
    within the meaning of Section 27A of the Securities Act of 1933 and
    Section 21E of the Securities Exchange Act of 1934. These statements are
    subject to risks and uncertainties that could cause the Company’s actual
    operating results to differ materially. Such risks and uncertainties
    include, but are not limited to, the extent of market acceptance of the
    Company’s products; the costs associated with the development and launch
    of new products and the market acceptance of such new products; the
    sensitivity of the Company’s business to general economic conditions;
    the impact of seasonal and weather-related demand fluctuations on
    inventory levels in the distribution channel and sales of the Company’s
    products; the availability and cost of third-party transportation
    services for the Company’s products; the Company’s ability to obtain raw
    materials at acceptable prices; the Company’s ability to maintain
    product quality and product performance at an acceptable cost; the level
    of expenses associated with product replacement and consumer relations
    expenses related to product quality; the highly competitive markets in
    which the Company operates; cyber-attacks, security breaches, or other
    security vulnerabilities; and the impact of upcoming data privacy laws
    and the EU General Data Protection Regulation and the related actual or
    potential costs and consequences. Documents filed with the Securities
    and Exchange Commission by the Company, including in particular its
    latest annual report on Form 10-K and quarterly reports on Form 10-Q,
    discuss some of the important factors that could cause the Company’s
    actual results to differ materially from those expressed or implied in
    these forward-looking statements. The Company expressly disclaims any
    obligation to update or revise publicly any forward-looking statements,
    whether as a result of new information, future events or otherwise.

    About Trex Company

    Trex Company is the world’s largest manufacturer of high performance
    wood-alternative decking and railing, with more than 25 years of product
    experience. Stocked in more than 6,700 retail locations worldwide, Trex
    outdoor living products offer a wide range of style options with fewer
    ongoing maintenance requirements than wood, as well as a truly
    environmentally responsible choice. Also, Trex is a leading national
    provider of custom-engineered railing and staging systems for the
    commercial and multi-family market, including performing arts venues and
    sports stadiums. For more information, visit

    Condensed Consolidated Statements of Comprehensive Income
    (In thousands, except share and per share data)
    Three Months Ended

    March 31,

    2019 2018
    Net sales $ 179,571 $ 171,207
    Cost of sales   110,206     94,494
    Gross profit 69,365 76,713
    Selling, general and administrative expenses   30,166     28,959
    Income from operations 39,199 47,754
    Interest (income) expense, net   (56 )   229
    Income before income taxes 39,255 47,525
    Provision for income taxes   7,700     10,415
    Net income $ 31,555   $ 37,110
    Basic earnings per common share $ 0.54   $ 0.63
    Basic weighted average common shares outstanding   58,543,478     58,855,156
    Diluted earnings per common share $ 0.54   $ 0.63
    Diluted weighted average common shares outstanding   58,829,177     59,199,622
    Comprehensive income $ 31,555   $ 37,110
    Condensed Consolidated Balance Sheets
    (In thousands, except share data)

    March 31,

    December 31,
    2019 2018
    ASSETS (Unaudited)
    Current assets:
    Cash and cash equivalents $ 7,907 $ 105,699
    Accounts receivable, net 219,345 91,163
    Inventories 50,156 57,801
    Prepaid expenses and other assets   13,877     15,562  
    Total current assets 291,285 270,225
    Property, plant and equipment, net 122,492 117,144
    Goodwill and other intangibles 74,399 74,503
    Operating lease assets 44,251
    Other assets   3,218     3,250  
    Total assets $ 535,645   $ 465,122  
    Current liabilities:
    Accounts payable $ 23,528 $ 31,084
    Accrued expenses and other liabilities 42,647 56,291
    Accrued warranty 5,400 5,400
    Line of credit   35,000      
    Total current liabilities 106,575 92,775
    Operating lease liabilities 38,764
    Deferred income taxes 2,125 2,125
    Non-current accrued warranty 24,934 25,354
    Other long-term liabilities   90     1,905  
    Total liabilities   172,488     122,159  
    Preferred stock, $0.01 par value, 3,000,000 shares authorized; none
    issued and outstanding
    Common stock, $0.01 par value, 120,000,000 shares authorized;
    70,109,157 and 69,998,336 shares issued and 58,537,485 and
    58,551,653 shares outstanding at March 31, 2019 and December 31,
    2018, respectively
    701 700
    Additional paid-in capital 121,592 124,224
    Retained earnings 448,497 416,942
    Treasury stock, at cost, 11,571,672 and 11,446,683 shares at March
    31, 2019 and December 31, 2018, respectively
      (207,633 )   (198,903 )
    Total stockholders’ equity   363,157     342,963  
    Total liabilities and stockholders’ equity $ 535,645   $ 465,122  
    Condensed Consolidated Statements of Cash Flows
    (In thousands)
    Three Months Ended

    March 31,

    2019 2018
    Operating Activities
    Net income $ 31,555 $ 37,110

    Adjustments to reconcile net income to net cash used in operating

    Depreciation and amortization 3,425 4,765
    Stock-based compensation 2,793 2,295
    Loss (gain) on disposal of property, plant and equipment 10 (22 )
    Changes in operating assets and liabilities:
    Accounts receivable (128,182 ) (139,643 )
    Inventories 7,645 (7,928 )
    Prepaid expenses and other assets 1,214 118
    Accounts payable (7,556 ) 13,770
    Accrued expenses and other liabilities (27,332 ) (18,972 )
    Income taxes receivable/payable   6,438     10,399  
    Net cash used in operating activities   (109,990 )   (98,108 )
    Investing Activities
    Expenditures for property, plant and equipment (8,647 ) (5,435 )
    Proceeds from sales of property, plant and equipment       24  
    Net cash used in investing activities   (8,647 )   (5,411 )
    Financing Activities
    Borrowings under line of credit 35,000 92,500
    Principal payments under line of credit (8,000 )
    Repurchases of common stock (14,457 ) (8,993 )
    Proceeds from employee stock purchase and option plans   302     197  
    Net cash provided by financing activities   20,845     75,704  
    Net decrease in cash and cash equivalents (97,792 ) (27,815 )
    Cash and cash equivalents at beginning of period   105,699     30,514  
    Cash and cash equivalents at end of period $ 7,907   $ 2,699  


    Bryan Fairbanks
    Exec. Vice President and CFO

    Lynn Morgen/Viktoriia Nakhla