TREX Trex Company Inc

Continued Strength in Consumer Demand for Premium Products

New Railing Product Introductions to Accelerate Market Share Gains

Provides Update on New Arkansas Facility

Reaffirms Full Year 2024 Sales Guidance and Expects to Achieve High End of EBITDA Guidance Range

Trex Company, Inc. (NYSE:TREX), the world’s largest manufacturer of wood-alternative decking and railing, and a leader in high-performance, low-maintenance outdoor living products, today announced financial results for the third quarter of 2024.

Third Quarter Financial 2024 Highlights

• Net sales of $234 million
• Gross margin of 39.9%
• Net income of $41 million and diluted earnings per share of $0.37
• EBITDA of $68 million and EBITDA margin of 29.1%
• Trex repurchased 1.6 million shares year-to-date for $100 million

CEO Comments

“Our third quarter results were ahead of our expectations led by sustained consumer demand for our premium-priced products, for which we estimate sell-through increased by high-single digits year-on-year and contractor lead time continued to average 6 to 8 weeks. As anticipated, sell-through of our lower-priced products was below last year’s levels, consistent with a pullback in spending by consumers in this segment, although the decline was sequentially stable and less pronounced than we had expected. During the third quarter, our channel partners reduced their inventory levels by approximately $70 million, in line with our expectations and seasonal demand trends. Our strong EBITDA margin in the third quarter reflected the benefits of our continuous cost-out programs, which partially offset the impact of lower utilization rates, as well as lower SG&A expenses,” said Bryan Fairbanks, President and CEO.

“New product development remains a strategic priority and a key driver of future double-digit growth for Trex. In the nine months ended September 30th, products launched within the last 36 months accounted for approximately 18% of our year-to-date net revenues of $984 million, demonstrating how well aligned our products are with consumer preferences. Among the latest Trex railing additions are new steel, mesh and aluminum railing systems, cable and glass systems, and enhancements to the Trex Select® and Trex Enhance® composite railing systems that are designed to provide an alternative to vinyl railing. Together, these offerings expand our railing portfolio to cover broader audience segments and are essential components to our goal of doubling Trex’s share of the railing market over the next five years. Additionally, we introduced two new colors with our proprietary heat-mitigating technology* to the Trex Enhance® decking line and are adding two new colors to our successful Trex Transcend® Lineage™ collection, which pioneered the use of this technology. These, and other advances on the drawing board, further the appeal and differentiation of Trex products.

“With respect to adjacencies, our recently introduced line of Trex®-branded deck fasteners continue to garner positive customer demand given their ease of installation and the cohesive aesthetic they provide to contractors and consumers. These launches, from railing to decking to fasteners, give our channel partners a competitive edge by allowing them to deliver end-to-end solutions from one supplier—Trex—and enabling them to compete more effectively at all price points while making Trex available to a wider range of homeowners,” Mr. Fairbanks noted.

* Although Trex decking products with heat-mitigating technology are designed to be cooler than most other composite decking products of a similar color, on a hot sunny day, it will get hot. On hot days, care should be taken to avoid extended contact between exposed skin and the deck surface, especially with young children and those with special needs.

Third Quarter 2024 Results

Third quarter 2024 net sales were $234 million, a decrease of 23% compared to $304 million reported in the prior-year quarter. Third quarter sales reflected an approximately $70 million channel inventory reduction.

Gross profit was $93 million and gross margin was 39.9%. Excluding the special warranty benefit recognized in last year’s third quarter, this compares to an adjusted gross profit of $127 million and adjusted gross margin of 41.8% in the similar 2023 period. Continued benefits from ongoing cost-out initiatives partially offset the impact of lower utilization.

Selling, general and administrative expenses were $39 million, or 16.6% of net sales, compared to $45 million, or 14.7% of net sales, in the 2023 third quarter, with the decline primarily resulting from reduced incentive compensation.

Net income for the 2024 third quarter was $41 million, or $0.37 per diluted share, a decrease of 38% from $65 million, or $0.60 per diluted share, reported in the 2023 third quarter. EBITDA decreased 32% to $68 million from $99 million, and EBITDA margin contracted 360 basis points to 29.1% from 32.7% in the prior year period. Excluding the warranty benefit, third quarter 2023 net income was $62 million, or $0.57 per diluted share, EBITDA was $96 million, and EBITDA margin was 31.5%.

Year-to-Date Results

Year-to-date net sales increased 9% to $984 million from $899 million in the year-ago period. Gross profit was $431 million and gross margin was 43.8%, up 13% and 130 basis points, respectively, from the $382 million and 42.5% during the same period in 2023.

Selling, general and administrative expenses were $141 million, or 14.3% of net sales, compared to $134 million, or 14.9% of net sales, in the year-ago period.

Net income year-to-date was $217 million, or $1.99 per share, representing 18% growth from the $183 million, or $1.69 per share, reported in the first nine months of 2023. EBITDA was $331 million, up 16% from $285 million in the prior year. EBITDA margin expanded by 200 basis points to 33.7% from 31.7% in 2023.

Recent Developments & Recognitions

• Trex added two new colors to the brand’s popular Trex Enhance® decking line.

• Trex introduced All-In-One Post Kits for its Trex Select® and Trex Enhance® railing. Designed to simplify the railing purchase and installation process, these budget-friendly kits come complete with a composite post sleeve, post cap and post skirt, all packaged together.

• Trex continues to demonstrate its commitment to tackling America’s plastic waste problem through the NexTrex® Grassroots Movement, which promotes responsible disposal of polyethylene plastic waste and gives it new life as beautiful, durable and environmentally friendly Trex® composite decking. Since launching in August of 2022, this collaborative recycling initiative has experienced tremendous growth with an impressive 227% increase in participation from eco-minded businesses, municipalities, educational institutions and other organizations across the country.

Update on New Arkansas Facility

We are providing the following additional details on our new Arkansas facility, which represent our best estimates of related costs and the current timetable. We continue to adopt a modular approach to the development of the Arkansas campus, bringing on production lines in line with demand. Once completed, Arkansas will be our most efficient production site, incorporating our latest proprietary equipment and technology and situated to support long-term growth. With the completion of the plant, Trex’s total manufacturing capacity will be in excess of $2 billion per year.

• Recycled plastic processing at the Company’s new Arkansas facility will begin in early 2025. We anticipate that the associated one-time start-up costs will total approximately $5 million beginning in the first quarter of 2025 and the associated annualized depreciation of $10 million beginning in the second quarter of 2025. We expect these operations will be running at target utilization rates by the third quarter of 2025.

• Decking manufacturing production efficiencies at our existing manufacturing facilities have yielded increased capacity that will allow us to meet the projected demand through 2026. Therefore, the Company plans to commence decking board production at its new Arkansas campus in the first half of 2027. We expect the one-time start-up costs to be approximately $12 million beginning in the first half of 2027, with associated annualized depreciation of $20 million beginning at the same time. We expect these operations will be running at target utilization rates by the end of 2027.

• Capital expenditures for the Arkansas facility are expected to be approximately $550 million, of which $340 million have already been disbursed. The increase from the Company’s prior guidance for the project primarily reflects management’s decision to build redundancies to mitigate potential production constraints within our existing manufacturing facilities as well as inflationary pressures on installation and building material costs. Upon completion of the project, total Company capital expenditures are expected to return to substantially lower levels, resulting in significant free cash flow generation.

Summary and Outlook

“Based on our year-to-date results and our channel visibility, we are pleased to reaffirm net sales guidance at the midpoint of our range, $1.14 billion and we expect EBITDA margin to reach the high end of our guidance, 30.5%.

“Looking ahead to 2025, we will be working closely with our channel partners to maximize the benefits of our expanded railing line, and we anticipate that several of our exclusive decking distributors will adopt exclusivity for Trex® railing as well. This is expected to significantly increase our penetration of the $3.3 billion railing market and to have a multiplier effect on both our decking and railing sales. We anticipate the initial cost to Trex of this transition to be approximately $5 million and occur almost exclusively in 2025. Thanks to the continued success of our ongoing cost-out programs, we expect our underlying EBITDA margin in 2025, adjusted for the one-time Arkansas start-up costs and railing transition expense, to exceed 31%.

“As the market leader, with the greatest brand awareness in the category, the largest and most trusted network of distributors, dealers and home centers in North America, and the most robust product portfolio across decking and railing, Trex is positioned to capture the greatest share of the industry’s growth opportunities. Demonstrating our confidence in the long-term outlook for the Trex Company, we returned $100 million to our shareholders through the repurchase of 1.6 million shares of our outstanding common stock in the third quarter and fourth quarter to-date,” Mr. Fairbanks concluded.

Third Quarter 2024 Conference Call and Webcast Information

Trex will hold a conference call to discuss its third quarter 2024 results on Monday, October 28, 2024, 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 3Q24 Earnings Webcast. For those who cannot listen to the live broadcast, an audio replay of the conference call will be available within 24 hours of the call on the Trex website. The audio replay will be available 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 adjusted gross profit, adjusted gross margin, adjusted net income and adjusted diluted earnings per share, earnings before interest, income taxes, depreciation and amortization (EBITDA) and EBITDA as a percentage of net sales, EBITDA margin, and adjusted EBITDA and adjusted 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 gross profit (GAAP) to adjusted gross profit (non-GAAP) is as follows:

Three Months Ended Nine Months Ended September 30, September 30, Trex Company, Inc.

2024

2023

2024

2023

($ in thousands) ($ in thousands) Net sales

$

233,717

 

$

303,836

 

$

983,822

 

$

899,092

 

Cost of sales

 

140,512

 

 

172,941

 

 

552,896

 

 

517,321

 

Gross profit

$

93,205

 

$

130,895

 

$

430,926

 

$

381,771

 

Warranty adjustment

 

-

 

 

(3,800

)

 

-

 

 

(3,800

)

Adjusted Gross Profit

$

93,205

 

$

127,095

 

$

430,926

 

$

377,971

 

Gross margin

 

39.9

%

 

43.1

%

 

43.8

%

 

42.5

%

Adjusted Gross Margin

 

39.9

%

 

41.8

%

 

43.8

%

 

42.0

%

Reconciliation of net income (GAAP) to adjusted net income (non-GAAP) is as follows:

Three Months Ended Nine Months Ended September 30, September 30, Trex Company, Inc.

2024

2023

2024

2023

($ in thousands) ($ in thousands) Net Income

$

40,553

$

65,266

 

$

216,620

$

183,433

 

Warranty adjustment

 

-

 

(3,800

)

 

-

 

(3,800

)

Income tax effect *

 

-

 

969

 

 

-

 

969

 

Adjusted Net Income

$

40,553

$

62,435

 

$

216,620

$

180,602

 

  Diluted earnings per share

$

0.37

$

0.60

 

$

1.99

$

1.69

 

Adjusted diluted earnings per share

$

0.37

$

0.57

 

$

1.99

$

1.66

 

  *Income tax effect calculated using the effective tax rate for the applicable period of 25.5%.

Reconciliation of net income (GAAP) to EBITDA and adjusted EBITDA (non-GAAP) is as follows:

Three Months Ended Nine Months Ended September 30, September 30, Trex Company, Inc.

2024

2023

2024

2023

($ in thousands) ($ in thousands) Net Income

$

40,553

 

$

65,266

 

$

216,620

 

$

183,433

 

Interest income (expense), net

 

(5

)

 

(734

)

 

(11

)

 

2,555

 

Income tax expense

 

13,756

 

 

21,831

 

 

73,609

 

 

62,089

 

Depreciation and amortization

 

13,611

 

 

12,996

 

 

41,218

 

 

37,194

 

EBITDA

$

67,915

 

$

99,359

 

$

331,436

 

$

285,271

 

Warranty Adjustment

$

-

 

$

(3,800

)

$

-

 

$

(3,800

)

Adjusted EBITDA

$

67,915

 

$

95,559

 

$

331,436

 

$

281,471

 

Net income as a percentage of net sales

 

17.3

%

 

21.5

%

 

22.0

%

 

20.4

%

EBITDA as a percentage of net sales (EBITDA margin)

 

29.1

%

 

32.7

%

 

33.7

%

 

31.7

%

Adjusted EBITDA as a percentage of net sales (EBITDA margin)

 

29.1

%

 

31.5

%

 

33.7

%

 

31.3

%

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, and a leader in high performance, low-maintenance outdoor living products. The undisputed global leader, 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 America’s Most Trusted® Outdoor Decking** four years in a row (2021-2024). The Company was also recently included on Barron’s list of the 100 Most Sustainable U.S. Companies 2024, named one of America’s Most Responsible Companies 2024 by Newsweek and ranked as one of the 100 Best ESG Companies for 2023 by Investor’s Business Daily. For more information, visit Trex.com. You may also follow Trex on Facebook (trexcompany), Instagram (trexcompany), X (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).

**Trex received the highest numerical score in the proprietary Lifestory Research 2021-2024 America’s Most Trusted® Outdoor Decking studies. 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 and raw materials; the Company’s ability to obtain raw materials, including scrap polyethylene, wood fiber, and other materials used in making our products, 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 Company’s ability to increase throughput and capacity to adequately match supply with demand; the level of expenses associated with warranty claims, 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 current and upcoming data privacy laws and the EU General Data Protection Regulation and the related actual or potential costs and consequences; material adverse impacts from global public health pandemics and geopolitical 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 EndedSeptember 30, Nine Months EndedSeptember 30,

2024

2023

2024

2023

(Unaudited) (Unaudited) Net sales

$

233,717

 

$

303,836

 

$

983,822

 

$

899,092

Cost of sales

 

140,512

 

 

172,941

 

 

552,896

 

 

517,321

Gross profit

 

93,205

 

 

130,895

 

 

430,926

 

 

381,771

Selling, general and administrative expenses

 

38,901

 

 

44,532

 

 

140,708

 

 

133,694

Income from operations

 

54,304

 

 

86,363

 

 

290,218

 

 

248,077

Interest income (expense), net

 

(5

)

 

(734

)

 

(11

)

 

2,555

Income before income taxes

 

54,309

 

 

87,097

 

 

290,229

 

 

245,522

Provision for income taxes

 

13,756

 

 

21,831

 

 

73,609

 

 

62,089

Net income

$

40,553

 

$

65,266

 

$

216,620

 

$

183,433

Basic earnings per common share

$

0.37

 

$

0.60

 

$

2.00

 

$

1.69

Basic weighted average common shares outstanding

 

108,258,401

 

 

108,583,009

 

 

108,529,825

 

 

108,707,699

Diluted earnings per common share

$

0.37

 

$

0.60

 

$

1.99

 

$

1.69

Diluted weighted average common shares outstanding

 

108,379,416

 

 

108,702,495

 

 

108,659,118

 

 

108,829,374

Comprehensive income

$

40,553

 

$

65,266

 

$

216,620

 

$

183,433

TREX COMPANY, INC.

 

Condensed Consolidated Balance Sheets (In thousands, except share data) (unaudited)   September 30, December 31,

2024

2023

ASSETS Current assets: Cash and cash equivalents

$

12,838

 

$

1,959

 

Accounts receivable, net

 

140,060

 

 

41,136

 

Inventories

 

187,935

 

 

107,089

 

Prepaid expenses and other assets

 

11,885

 

 

22,070

 

Total current assets

 

352,718

 

 

172,254

 

Property, plant and equipment, net

 

852,912

 

 

709,402

 

Operating lease assets

 

36,110

 

 

26,233

 

Goodwill and other intangible assets, net

 

19,386

 

 

18,163

 

Other assets

 

6,094

 

 

6,833

 

Total assets

$

1,267,220

 

$

932,885

 

  LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable

$

61,480

 

$

23,963

 

Accrued expenses and other liabilities

 

113,634

 

 

56,734

 

Accrued warranty

 

6,104

 

 

4,865

 

Line of credit

 

70,000

 

 

5,500

 

Total current liabilities

 

251,218

 

 

91,062

 

Deferred income taxes

 

67,226

 

 

72,439

 

Operating lease liabilities

 

26,782

 

 

18,840

 

Non-current accrued warranty

 

17,530

 

 

17,313

 

Other long-term liabilities

 

16,560

 

 

16,560

 

Total liabilities

 

379,316

 

 

216,214

 

  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; 141,087,688 and 140,974,843 shares issued and 107,901,982 and 108,611,537 shares outstanding at September 30, 2024 and December 31, 2023, respectively

 

1,411

 

 

1,410

 

Additional paid-in capital

 

145,198

 

 

140,157

 

Retained earnings

 

1,552,679

 

 

1,336,058

 

Treasury stock, at cost, 33,185,706 and 32,363,306 shares at September 30, 2024 and December 31, 2023, respectively

 

(811,384

)

 

(760,954

)

Total stockholders’ equity

 

887,904

 

 

716,671

 

Total liabilities and stockholders’ equity

$

1,267,220

 

$

932,885

 

TREX COMPANY, INC.

 

Condensed Consolidated Statements of Cash Flows (In thousands)   Nine Months EndedSeptember 30,

2024

2023

(unaudited) Operating Activities Net income

$

216,620

 

$

183,433

 

Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization

 

41,218

 

 

37,194

 

Deferred Income Taxes

 

(5,212

)

 

-

 

Stock-based compensation

 

9,663

 

 

7,384

 

Loss on disposal of property, plant and equipment

 

2,262

 

 

1,081

 

Other non-cash adjustments

 

46

 

 

(169

)

Changes in operating assets and liabilities: Accounts receivable

 

(98,924

)

 

(102,852

)

Inventories

 

(80,847

)

 

80,971

 

Prepaid expenses and other assets

 

1,266

 

 

4,376

 

Accounts payable

 

681

 

 

10,678

 

Accrued expenses and other liabilities

 

52,125

 

 

39,039

 

Income taxes receivable/payable

 

13,504

 

 

27,090

 

  Net cash provided by operating activities

 

152,402

 

 

288,225

 

  Investing Activities Expenditures for property, plant and equipment

 

(151,481

)

 

(112,920

)

Proceeds from sales of property, plant and equipment

 

106

 

 

-

 

  Net cash used in investing activities

 

(151,375

)

 

(112,920

)

  Financing Activities Borrowings under line of credit

 

608,300

 

 

509,500

 

Principal payments under line of credit

 

(543,800

)

 

(675,000

)

Repurchases of common stock

 

(55,655

)

 

(18,441

)

Proceeds from employee stock purchase and option plans

 

1,007

 

 

925

 

Financing costs

 

-

 

 

30

 

  Net cash provided by (used in) financing activities

 

9,852

 

 

(182,986

)

  Net increase (decrease) in cash and cash equivalents

 

10,879

 

 

(7,681

)

Cash and cash equivalents at beginning of period

 

1,959

 

 

12,325

 

  Cash and cash equivalents at end of period

$

12,838

 

$

4,644

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241028672313/en/

Brenda K. Lovcik Senior Vice President and CFO 540-542-6300

Lynn Morgen Casey Kotary ADVISIRY Partners 212-750-5800 lynn.morgen@advisiry.com casey.kotary@advisiry.com