- Stronger-Than-Expected Sales Performance Demonstrates Resilient
Consumer Demand
- Production Optimization and Cost-Out Programs Driving
Substantial Margin Expansion
- Raising Full-Year EBITDA Margin Guidance to 28% to 29%
Reflecting First Half Performance and Improved Visibility
- Guiding to Third Quarter 2023 Revenues of $280 million to $290
million; Initiating Full Year 2023 Revenue Guidance of $1.04
billion to $1.06 billion
Trex Company, Inc. (NYSE:TREX), the world’s #1 brand of
high-performance, low-maintenance and eco-friendly composite
decking and railing – all proudly manufactured in the U.S.A. – and
a leader in outdoor living products, today reported second quarter
2023 results.
Second Quarter 2023
Highlights
- Net sales of $357 million
- Second quarter gross margin of 43.9%
- Net income of $77 million and diluted earnings per share of
$0.71
- EBITDA of $117 million and EBITDA margin of 32.8%
CEO
Comments
“This was an excellent quarter for the Trex Company, reflecting
resilient consumer demand that resulted in mid-single digit growth
in channel sell through. Sales were 5% below comparable year-ago
residential levels, when the channel was building inventory. Trex
delivered considerable margin expansion driven by production
optimization and fast return cost saving programs. Additionally,
investments in branding programs, and our expanding decking and
railing product portfolio are yielding strong returns,” said Bryan
Fairbanks, President and CEO.
“With production optimizations and successful implementations of
cost-out projects, we delivered an industry-leading gross margin of
43.9% compared to residential gross margin of 41.7% in the 2022
second quarter. While residential gross margin will vary from
quarter-to-quarter, the 220-basis point year-on-year margin
expansion achieved in the second quarter on less-than-full capacity
is indicative of the substantial leverage inherent in the Trex
business model. Our second quarter 2023 EBITDA margin of 32.8% was
180 basis points below residential margin of 34.6% for the
comparable period last year and included spending on branding and
new product launches, which are key drivers of consumer demand and
important contributors to our continued success.
“In the second quarter, our commitment to innovation was
demonstrated again with the launch of the Trex Select® T-Rail
system featuring the beauty and convenience of Trex’s composite and
aluminum railing and a T-shaped design that enables quick, easy
assembly. With this introduction, Trex brings to market a value
priced composite railing that not only rounds out our portfolio to
be more comprehensive, but also allows us – and our channel
partners – to compete more aggressively at the entry level. Trex
Select T-Rail is designed to compete favorably with PVC vinyl
railing, thereby expanding the addressable audience for Trex
railing and, when coupled with existing Trex high-performance,
low-maintenance composite and aluminum railings, supports our
overall strategy to offer products at all price points across our
decking systems.
“Meanwhile, progress continued on the modular construction of
our Arkansas plant, which when completed will support our long-term
growth strategy to convert more wood buyers to Trex decking and
railing. The new facility’s proximity to key growth regions for
wood conversion, major transportation hubs, and essential raw
materials will enable us to better serve our channel partners, both
domestically and abroad.”
Second Quarter 2023
Results
Second quarter 2023 consolidated net sales were $357 million,
compared to $386 million in the prior-year quarter. Trex
Residential net sales in the year ago quarter were $374
million.
Consolidated gross profit as a percentage of net sales, gross
margin, was 43.9% in the second quarter of 2023 compared to
consolidated gross margin of 40.7% in the second quarter of
2022.
Selling, general and administrative expenses were $52 million,
or 14.5% of net sales, compared to $40 million, or 10.2% of net
sales, in the 2022 second quarter. The increase was primarily due
to increases in personnel-related expenses, disposal of certain
equipment, and expenses related to the exit of our prior corporate
headquarters.
Net income for the 2023 second quarter was $77 million, or $0.71
per diluted share, compared to net income of $89 million, or $0.79
per diluted share, reported a year ago. EBITDA was $117 million,
compared to $129 million. EBITDA margin was 32.8%, compared to
33.4%.
Year-to-Date
Results
Year-to-date consolidated net sales were $595 million, compared
to $725 million in the year-ago period. Trex Residential net sales
were $701 million year-to-date 2022. Consolidated gross margin was
42.1%, compared to 40.3% in 2022. Trex Residential gross margin was
41.3% during the same period in the prior year.
Selling, general and administrative expenses were $89 million,
or 15.0% of net sales, compared to $80 million, or 11.0% of net
sales, in the year-ago period.
Net income year-to-date was $118 million, or $1.09 per diluted
share, compared to $160 million, or $1.40 per diluted share, in
2022. EBITDA was $186 million, resulting in an EBITDA margin of
31.2%, compared to EBITDA of $235 million and EBITDA margin of
32.3% in 2022.
Recent Developments
and Recognitions
- Introduced Trex Select® T-Rail, a new style-centric, entry
level composite railing system.
- 16th consecutive year that Trex has earned top honors in the
Composite Decking and Deck Railing categories in the Builder
Magazine’s 2023 Brand Use Study.
- Trex Transcend® Lineage™ named "Sustainable Product of the
Year" by Green Builder Media.
- Trex Signature® Decking was fully commercialized in limited
markets on the east and west coast.
Summary and
Outlook
“We are pleased with our first half performance, which we
believe demonstrates the strength of our team at Trex, the
resilience of the outdoor living category, the appeal of our brand
and product portfolio to a broad consumer base, and our
industry-leading manufacturing proficiency.
“Based on first half results and our improving visibility, we
now are positioned to provide guidance for full year 2023 revenues.
We expect revenues to range from $1.04 billion to $1.06 billion and
anticipate continued sell-through will reduce year-end channel
inventories below 2022 levels. We expect the cadence of the second
half of 2023 to follow historical seasonality. Third quarter
revenues are estimated to be in the range of $280 million to $290
million, with fourth quarter results reflecting both seasonally low
demand and our expectations that year end channel inventories will
be below that of year end 2022.
“Additionally, we are pleased to raise our guidance for full
year EBITDA margin to a range of 28% to 29%, up from 26% to 27%,
which includes our expectation that SG&A spending will be at
the high end of the 15% to 16% guidance range originally
provided.
“Demonstrating our confidence in the long-term outlook for the
Trex Company, we repurchased 264,896 Trex shares in the second
quarter for $16 million,” Mr. Fairbanks concluded.
Second Quarter 2023
Conference Call and Webcast Information
Trex will hold a conference call to discuss its second quarter
2023 results on Monday, July 31, 2023 at 5:00 p.m. ET. To
participate on the day of the call, dial 1-844-792-3734, or
internationally 1-412-317-5126, 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 2Q23
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.
Use of Non-GAAP
Measures
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
(GAAP). To supplement our consolidated financial statements
reported on a GAAP basis, we provide the following non-GAAP
financial measures of earnings before interest, income taxes,
depreciation and amortization (EBITDA) and EBITDA as a percentage
of net sales, EBITDA margin. Management believes these non-GAAP
financial measures provide investors with additional meaningful
financial information that should be considered when assessing our
underlying business performance and trends. Further, management
believes these non-GAAP financial measures also enhance investors’
ability to compare period-to-period financial results. Non-GAAP
financial measures should be viewed in addition to, and not as an
alternative for, the Company’s reported results prepared in
accordance with GAAP and are not meant to be considered superior to
or a substitute for our GAAP results. Our non-GAAP financial
measures do not represent a comprehensive basis of accounting.
Therefore, our non-GAAP financial measures may not be comparable to
similarly titled measures reported by other companies.
Reconciliations of these non-GAAP financial measures to GAAP
information are included below. Management uses these non-GAAP
financial measures in making financial, operating, compensation and
planning decisions and in evaluating the company’s performance.
Disclosing these non-GAAP financial measures allows investors and
management to view our operating results excluding the impact of
items that are not reflective of the underlying operating
performance.
Reconciliation of net income (GAAP) to EBITDA (non-GAAP) is as
follows:
Three Months Ended
Six Months Ended
Trex Company, Inc.
June 30,
June 30,
2023
2022
2023
2022
($ in thousands)
Net Income
$
77,036
$
88,916
$
118,167
$
160,127
Interest expense (income), net
1,305
(116
)
3,289
(104
)
Income tax expense
26,426
29,009
40,258
52,737
Depreciation and amortization
12,283
11,331
24,198
21,805
EBITDA
$
117,050
$
129,140
$
185,912
$
234,565
Net income as a percentage of net sales
21.6
%
23.0
%
19.9
%
22.1
%
EBITDA as a percentage of net sales (EBITDA margin)
32.8
%
33.4
%
31.2
%
32.3
%
About Trex
Company
For more than 30 years, Trex Company [NYSE: TREX] has invented,
reinvented and defined the composite decking category. Today, the
Company is the world’s #1 brand of sustainably made,
wood-alternative decking and deck railing – all proudly
manufactured in the U.S.A. – and a leader in high performance,
low-maintenance outdoor living products. Trex boasts the industry’s
strongest distribution network with products sold through more than
6,700 retail outlets across six continents. Through strategic
licensing agreements, the Company offers a comprehensive outdoor
living portfolio that includes deck drainage, flashing tapes, LED
lighting, outdoor kitchen components, pergolas, spiral stairs,
fencing, lattice, cornhole and outdoor furniture – all marketed
under the Trex® brand. Based in Winchester, Va., Trex is proud to
have been named 2023 America’s Most Trusted® Decking Brand by
Lifestory Research* and one of 2022’s 50 Best U.S. Manufacturers by
Industry Week. For more information, visit Trex.com. You may also
follow Trex on Facebook (trexcompany), Instagram (trexcompany),
Twitter (Trex_Company), LinkedIn (trex-company), TikTok
(trexcompany), Pinterest (trexcompany) and Houzz
(trex-company-inc), or view product and demonstration videos on the
brand’s YouTube channel (TheTrexCo).
*2023 DISCLAIMER: Trex received the highest numerical score in
the proprietary Lifestory Research 2023 America’s Most Trusted®
Outdoor Decking study. Study results are based on experiences and
perceptions of people surveyed. Your experiences may vary. Visit
www.lifestoryresearch.com.
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 current and newly developed 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; increasing inflation in
the macro-economic environment; 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; the impact of
upcoming data privacy laws and the General Data Protection
Regulation and the related actual or potential costs and
consequences; material adverse impacts from global public health
pandemics and global conflicts; and material adverse impacts
related to labor shortages or increases in labor costs. Documents
filed with the U.S. 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.
TREX COMPANY, INC. Condensed Consolidated Statements of
Comprehensive Income (In thousands, except share and per share
data)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
(Unaudited) Net sales
$
356,538
$
386,249
$
595,256
$
725,477
Cost of sales
200,090
228,872
344,380
433,188
Gross profit
156,448
157,377
250,876
292,289
Selling, general and administrative expenses
51,681
39,568
89,162
79,529
Income from operations
104,767
117,809
161,714
212,760
Interest expense (income), net
1,305
(116
)
3,289
(104
)
Income before income taxes
103,462
117,925
158,425
212,864
Provision for income taxes
26,426
29,009
40,258
52,737
Net income
$
77,036
$
88,916
$
118,167
$
160,127
Basic earnings per common share
$
0.71
$
0.79
$
1.09
$
1.41
Basic weighted average common shares outstanding
108,770,204
113,099,561
108,771,077
113,864,741
Diluted earnings per common share
$
0.71
$
0.79
$
1.09
$
1.40
Diluted weighted average common shares outstanding
108,871,440
113,259,514
108,893,848
114,052,447
Comprehensive income
$
77,036
$
88,916
$
118,167
$
160,127
TREX COMPANY, INC. Condensed Consolidated Balance
Sheets (In thousands, except share data) (unaudited)
June 30,
December 31,
2023
2022
ASSETS Current assets: Cash and cash equivalents
$
4,226
$
12,325
Accounts receivable, net
266,808
98,057
Inventories
74,007
141,355
Prepaid expenses and other assets
24,403
35,105
Total current assets
369,444
286,842
Property, plant and equipment, net
645,656
589,892
Operating lease assets
29,099
30,991
Goodwill and other intangible assets, net
18,372
18,582
Other assets
7,244
7,398
Total assets
$
1,069,815
$
933,705
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable
$
32,228
$
19,935
Accrued expenses and other liabilities
79,803
44,064
Accrued warranty
4,766
4,600
Line of credit
206,000
222,000
Total current liabilities
322,797
290,599
Deferred income taxes
68,224
68,224
Operating lease liabilities
21,916
23,974
Non-current accrued warranty
21,793
20,999
Other long-term liabilities
11,560
11,560
Total liabilities
446,290
415,356
Preferred stock, $0.01 par value, 3,000,000 shares
authorized; none issued and outstanding
—
—
Common stock, $0.01 par value, 360,000,000 shares authorized;
140,798,762 and 140,734,753 shares issued and 111,563,381 and
115,148,152 shares outstanding at June 30, 2022 and December 31,
2021, respectively
1,409
1,408
Additional paid-in capital
134,293
131,539
Retained earnings
1,248,841
1,130,674
Treasury stock, at cost, 29,235,381 and 25,586,601 shares at June
30, 2022 and December 31, 2021, respectively
(761,018
)
(745,272
)
Total stockholders’ equity
623,525
518,349
Total liabilities and stockholders’ equity
$
1,069,815
$
933,705
TREX COMPANY, INC. Condensed Consolidated Statements of
Cash Flows (In thousands)
Six Months Ended June
30
2023
2022
(unaudited)
Operating Activities Net income
$
118,167
$
160,127
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
24,198
21,804
Stock-based compensation
4,562
3,282
Loss (gain) on disposal of property, plant and equipment
1,081
(43
)
Other non-cash adjustments
(388
)
(365
)
Changes in operating assets and liabilities: Accounts receivable
(168,751
)
(26,988
)
Inventories
67,348
(17,119
)
Prepaid expenses and other assets
2,046
949
Accounts payable
13,816
32,943
Accrued expenses and other liabilities
20,686
13,175
Income taxes receivable/payable
25,016
2,227
Net cash provided by operating activities
107,781
189,992
Investing Activities Expenditures for property, plant
and equipment
(82,357
)
(66,606
)
Proceeds from sales of property, plant and equipment
-
45
Net cash used in investing activities
(82,357
)
(66,561
)
Financing Activities Borrowings under line of credit
330,000
-
Principal payments under line of credit
(346,000
)
-
Repurchases of common stock
(18,192
)
(247,921
)
Proceeds from employee stock purchase and option plans
639
951
Financing costs
30
(866
)
Net cash used in financing activities
(33,523
)
(247,836
)
Net decrease in cash and cash equivalents
(8,099
)
(124,405
)
Cash and cash equivalents at beginning of period
12,325
141,053
Cash and cash equivalents at end of period
$
4,226
$
16,648
TREX COMPANY, INC. Segment Data (in thousands)
(unaudited)
Three Months EndedJune 30, 2022
TrexConsolidated TrexCommercial
TrexResidential Net sales
$
386,249
$
12,327
$
373,922
Cost of sales
228,872
10,776
218,096
Gross profit
157,377
1,551
155,826
Selling, general and administrative expenses
39,568
2,243
37,325
Income (loss) from operations
117,809
(692
)
118,501
Interest income, net
(116
)
-
(116
)
Income (loss) before income taxes
117,925
(692
)
118,617
Provision (benefit) for income taxes
29,009
(171
)
29,180
Net income (loss)
$
88,916
$
(521
)
$
89,437
EBITDA
$
129,140
$
(410
)
$
129,550
Depreciation and amortization
$
11,331
$
282
$
11,049
Capital expenditures
$
44,318
$
67
$
44,251
Total assets
$
887,294
$
41,182
$
846,112
TREX COMPANY, INC. Segment Data (in thousands)
(unaudited)
Six Months EndedJune 30, 2022
TrexConsolidated TrexCommercial
TrexResidential Net sales
$
725,477
$
24,360
$
701,117
Cost of sales
433,188
21,558
411,630
Gross profit
292,289
2,802
289,487
Selling, general and administrative expenses
79,529
4,833
74,696
Income (loss) from operations
212,760
(2,031
)
214,791
Interest (income) expense, net
(104
)
-
(104
)
Income (loss) before income taxes
212,864
(2,031
)
214,895
Provision (benefit) for income taxes
52,737
(506
)
53,243
Net income (loss)
$
160,127
$
(1,525
)
$
161,652
EBITDA
$
234,565
$
(1,466
)
$
236,031
Depreciation and amortization
$
21,805
$
565
$
21,240
Capital expenditures
$
66,606
$
72
$
66,534
Total assets
$
887,294
$
41,182
$
846,112
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230731458730/en/
Lynn Morgen/Viktoriia Nakhla, ADVISIRY Partners 212-750-5800
lynn.morgen@advisiry.com; vicky.nakhla@advisiry.com
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