Trex Company Reports First Quarter 2020 Results

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, 2020.

First Quarter 2020 Results

Consolidated net sales for the first quarter of 2020 were $200 million, 12% ahead of the comparable period in 2019. Trex Residential Products net sales increased 13% to $187 million, and Trex Commercial Products contributed an additional $14 million. Consolidated gross margin expanded by 620 basis points to 44.8%, representing gross margins of 45.6% and 33.6%, respectively, for Trex Residential Products and Trex Commercial Products. SG&A was $35 million, or 17.3% of net sales. EBITDA margin expanded to 29.4% from 23.7%. Net income for the first quarter of 2020 was $42 million, or $0.73 per diluted share, compared to $32 million, or $0.54 per diluted share reported for last year’s first quarter.

“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.

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.

First Quarter 2020 Conference Call and Webcast Information

Trex will hold a conference call to discuss its first quarter 2020 results and other corporate matters on Monday, May 4, 2020 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 1Q20 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; and material adverse impacts from global public health pandemics, including the strain of coronavirus known as COVID-19. 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.

Use of Non-GAAP Measures

In addition to the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), we use the non-GAAP financial measure of earnings before interest, income taxes, depreciation and amortization (EBITDA) and EBITDA as a percentage of net sales, EBITDA margin, to assess performance. We consider EBITDA to be an important supplemental indicator of our core operating performance because it eliminates many differences among companies in capitalization and tax structures, capital investment cycles and ages of related assets. EBITDA should not be considered as an alternative to net income, as calculated in accordance with GAAP, and is not meant to be considered superior to or a substitute for our GAAP results. Reconciliation of net income (GAAP) to EBITDA (non-GAAP) is as follows:

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 trex.com.

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