Trex Company Reports Second Quarter 2020 Results
Trex Company, Inc. (“Trex” or “we”), the world’s number-one brand of composite decking and railing and leader in high-performance, low-maintenance outdoor living products, and a leading national provider of custom-engineered commercial railing systems, reported financial results for the second quarter ended June 30, 2020.
Second Quarter 2020 Results
Consolidated net sales for the second quarter of 2020 were $221 million, 7% ahead of the comparable period in 2019. Trex Residential Products sales increased 8% year-over-year to $209 million, with Trex Commercial Products contributing $12 million. Consolidated gross margin expanded by 150 basis points to 41.9%, representing gross margins of 42.5% and 30.7% for Trex Residential Products and Trex Commercial Products, respectively. SG&A was $29 million, or 13.2% of sales, compared to 17.3% of sales in the year ago quarter. EBITDA increased 32% to $67.5 million, and EBITDA margin expanded to 30.6% from 24.8% in the second quarter of 2019.
Net income for the second quarter of 2020 was $47 million, or $0.81 per diluted share, 32% and 33% respectively, ahead of the $36 million, or $0.61 per diluted share, reported in last year’s second quarter.
“Before commenting on our results, we want to recognize the tremendous efforts of the Trex team in ensuring that we were able to remain fully operational in a safe and effective manner and drive high single-digit sales growth during these challenging times. Our team demonstrated exceptional resilience, and we thank them for their hard work and dedication. We would also like to thank our channel partners, who worked tirelessly to serve their customers and keep their employees safe, and whose extraordinary efforts contributed to our success.
“Strong second quarter results demonstrated continued broad-based demand for Trex decking and railing products reinforcing our leadership position in outdoor living. Trex Enhance® Basics and Naturals decking has significantly expanded the size of our addressable market and has accelerated our ability to take share from wood, while Trex Transcend® and Trex Select® decking continued to gain market share.
“Our gross margin performance reflected improvements in both Trex Residential and Trex Commercial. The 80-basis point expansion in Trex Residential gross margin was primarily due to improved throughput and reduced material costs in our Enhance product line, partially offset by startup costs for the new capacity in Nevada. Trex Commercial gross margin reflected quarter-specific project mix, as well as improvements in overall execution and manufacturing cost savings.
“Production efficiencies, stable raw material costs and disciplined SG&A spending drove strong operating leverage in the quarter, resulting in a 580 basis-point expansion in EBITDA margin and 33% growth in earnings per share in the second quarter,” noted Bryan Fairbanks, President and Chief Executive Officer.
First Half 2020 Results
Net sales for the first half of 2020 were $421 million, 9% above the $386 million reported for the comparable period in 2019. Trex Residential Products sales were up 10% to $396 million, with Trex Commercial Products contributing an additional $25 million. First half 2020 consolidated gross margin was 43.3%, compared to 39.6% in 2019. Trex Residential Products gross margin was 44%, compared to 41% in the first half of 2019. Trex Commercial Products gross margin expanded to 32.3% from 21%. SG&A was $64 million, or 15.1% of net sales, compared to $66 million, or 17.1% of net sales, in the first half of 2019. EBITDA increased 34.9% to $126 million, and EBITDA margin expanded 570 basis points year-over-year to 30%.
Net income was $90 million, or $1.54 per diluted share, for the first half of 2020, compared to net income of $67 million, or $1.14 per diluted share, for the first half of 2019.
– For the 13th consecutive year, Trex was ranked No. 1 by trade professionals for “brand familiarity,” “brand used in the past two years,” “brand quality,” and “brand used most” in the Builder Magazine Brand Use Study.
– In an unprecedented 10-year streak, Green Builder Media Readers’ Choice Awards named Trex as the “greenest” decking brand. Trex is the only composite decking manufacturer to have held this title since the program’s inception in 2009.
– In addition, Trex brand received the best Brand Index score for the decking category – a new addition to the Green Builder program for 2020.
Summary and Outlook
“First half results give us confidence that 2020 will be another year of strong growth for Trex. Additionally, market leadership, brand recognition and strong channel partnerships have enabled Trex to gain share from the large wood market as consumers increasingly recognize the benefits of Trex composite products. This gain has accelerated with the launch of Enhance decking products that have narrowed the price gap between composites and wood.
“Our $200 million capital expansion program is progressing on schedule and will enable us to meet continued demand growth. We started three new production lines in our Nevada facility late in the second quarter and will continue to deploy our strong operating cash flow to build out our new Virginia facility, which is scheduled to start coming online early in the first quarter of 2021.
“For the third quarter of 2020, we expect consolidated net sales of approximately $215 million to $225 million, representing 13% year-over-year growth at the midpoint. With improved clarity in the market, we are again able to provide full year financial guidance. We expect full year 2020 incremental gross margin to be 45% to 50% inclusive of additional COVID-19 related expenses, full year SG&A as a percentage of sales to improve by 80 to 100 basis points compared to the prior year, a full year tax rate of approximately 25% and full year capital spending of $150 million to $170 million.
“Reflecting our continued positive outlook, the Trex Board of Directors has approved a 2-for-1 stock split of the Company’s common shares. The stock split will be in the form of a stock dividend to be distributed on September 14, 2020 to shareholders of record at the close of business on August 19, 2020,” Mr. Fairbanks concluded.
For the full second quarter results, click here.
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.
Dennis C. Schemm – Vice President & CFO – (540) 542-6300
Source: Trex Company, Inc.