Trex Company Reports Fourth Quarter and Full Year 2020 Results
Fourth Quarter 2020 Highlights
– Consolidated net sales increased 39% to $228 million
– Gross margin of 40.5%
– Diluted earnings per share of $0.37
– EBITDA margin of 27.9%
Full Year 2020 Highlights
– Consolidated net sales increased 18% to $881 million; Trex Residential net sales up 19%
– Gross margin of 40.8%; excluding the warranty reserve charge, consolidated gross margin of 41.5%
– Diluted earnings per share of $1.51 per share; excluding the warranty reserve charge, diluted earnings per share of $1.55
– EBITDA margin of 28.6%, excluding the warranty reserve charge, EBITDA margin of 29.3%
Trex Company, Inc. (“Trex”), the world’s #1 brand of composite decking and railing and leader in high-performance, low-maintenance and eco-friendly outdoor living products and a leading national provider of custom-engineered commercial railing systems, today reported financial results for the fourth quarter and full year ended December 31, 2020.
“During one of the most challenging business periods in recent history, 2020 was another record year for Trex as we successfully managed through the rapidly changing COVID-19 pandemic and delivered strong financial results without interruption to our operations. Our performance demonstrates the broad-based appeal of our products, the resilience of our company and the strength of our collaborative culture within our organization and with our dealer, retailer, distributor and contractor partners. These attributes will drive our Company’s future success, and I thank all members of the Trex team for their dedication and extraordinary efforts,” noted Bryan H. Fairbanks, President and Chief Executive Officer.
“We remain on track with our capital expenditure program to increase production capacity at our Trex Residential facilities in Virginia and Nevada. As recently announced, production in our new Virginia facility started in January 2021. When complete by June of this year, these investments will increase production capacity by approximately 70% and will further strengthen the Trex Company’s position as the industry’s leading composite decking manufacturer.
“We were honored to be recognized by both Fortune and Forbes Magazine naming Trex among the fastest-growing companies worldwide and the best mid-sized companies in the U.S, respectively. These accolades are especially meaningful to us because it demonstrates that a company can build a successful business model based on recycled materials, provide market leading products and contribute significantly to the sustainable economy. For more than 25 years, Trex has used 95% recycled content to produce superior, high-quality, sustainable products. This has made us one of the largest recyclers of polyethylene in North America, while having diverted approximately 2.5 billion pounds of polyethylene film from oceans and landfills over the last ten years,” commented Mr. Fairbanks.
Fourth Quarter 2020 Results
Consolidated net sales for the fourth quarter of 2020 were $228 million, 39% ahead of the 2019 fourth quarter. Trex Residential Products net sales increased 40% to $214 million, driven by continued robust demand across all product lines during a quarter that traditionally experiences reduced home improvement and construction activity. Trex Commercial Products contributed $15 million to consolidated fourth quarter sales.
Gross margin for the quarter was 40.5% compared to 43.2% in the year-ago quarter, reflecting COVID-19 management costs of approximately $2 million and the hiring, training and initial startup costs in advance of capacity ramp up at the Virginia facility. Gross margin for Trex Residential Products and Trex Commercial Products was 41.3% and 28%, respectively.
Selling, general and administrative expenses were $34 million, or 15% of net sales, primarily due to an increase in personnel related expenses, including higher incentive compensation, compared to $25 million, or 15.2% of net sales, in last year’s fourth quarter.
Net income for the fourth quarter of 2020 was $43 million, or $0.37 per diluted share, representing increases of 22% and 19%, respectively, from net income of $35 million, or $0.31 per diluted share, reported for last year’s fourth quarter. The increase in net income was driven primarily by volume growth in net sales at Trex Residential. EBITDA increased 28% to $64 million and EBITDA margin was 27.9%. Cash from operations was $175 million.
Recent Developments and Recognitions
– Dennis Schemm, Chief Financial Officer, was promoted to Senior Vice President from Vice President in recognition of his accomplishments since joining Trex Company in April 2020.
– Once again, Trex was honored to be a part of the HGTV Dream Home in 2021. This year’s home, located in Newport, Rhode Island, features multiple outdoor spaces “decked” out with beautiful high-performance, low-maintenance and eco-friendly Trex outdoor living products, including Trex decking, railing, lighting and a Trex Pergola.
– Trex announced an expansion of a successful long-term recycling program which has diverted more than 200 million pounds of recycled plastic film, the equivalent of more than 5,000 truckloads, from landfills to the NexTrex® plastic film recycling program for retailers and consumers.
Full Year 2020 Results
Consolidated net sales in 2020 were $881 million, 18% above the $745 million reported in 2019. Trex Residential Products net sales were up 19% to $828 million, substantially all due to volume growth resulting from strong broad-based demand, positive momentum in the residential repair and remodeling sector, and the wood conversion initiative to expand its addressable market. Trex Commercial Products contributed an additional $53 million to consolidated net sales.
Gross margin was 40.8%. Trex Residential Products gross margin was 41.6% and Trex Commercial Products gross margin was 29.2%. Trex Residential gross margin was impacted by hiring and training costs in advance of capacity ramp up and initial startup costs at its Virginia and Nevada facilities, COVID-19 management costs of approximately $5 million, higher inflation and depreciation due to capital expansion.
Selling, general and administrative expenses were $126 million, or 14.3% of net sales, down from the prior year of 15.9% of net sales.
Net income totaled $176 million, or $1.51 per diluted share, compared to net income of $145 million, or $1.24 per diluted share, for 2019. EBITDA increased 24% to $252 million and EBITDA margin was 28.6%. Cash from operations was a record $187 million and capital expenditures were $173 million for full year 2020.
The Company recognized a charge of $6.5 million during the 2020 third quarter to the Trex Residential warranty reserve related to the legacy surface flaking issue that affected a portion of the products manufactured at the Nevada plant prior to 2007. Excluding the warranty charge, full year 2020 consolidated gross margin was 41.5%. Net income in 2020 was $180 million, or $1.55 per diluted share, up 25% and 26%, respectively, and EBITDA increased 28% to $258 million and EBITDA margin was 29.3%.
Summary and Outlook
Another year of strong double-digit sales growth is expected in 2021. We expect first quarter consolidated net sales to range from $235 million to $245 million, representing year-on-year growth of 20% at the midpoint. We expect growth to expand in the second and third quarters as our capacity increases and as we backfill inventory in the channel. For full year 2021, we anticipate incremental EBITDA margin to be between 35% to 40%, inclusive of startup related expenses which will continue as we ramp up production at our Virginia facility, higher inflation and more normalized selling, general and administrative expenses partially offset by cost savings projects. Our tax rate is anticipated at approximately 25%. Depreciation will range from $35 million to $40 million increasing throughout the year, and we expect full year spending on capital expenditures to be in the range of $130 million to $150 million.
“Demand for Trex Residential products continues to benefit from positive secular trends, including growth in the outdoor living category, renewed focus on the home, the shift in populations from urban to suburban and smaller metropolitan areas, and consumers’ increasing preference for sustainable products. With the strength of outdoor living trends continuing, we expect our brand leadership and new capacity to allow us to drive growth across our product portfolio, including a significant opportunity for conversion from wood to Trex sustainable composite decking and railing. In addition, we expect Trex Commercial to continue to provide innovative solutions in the commercial railing space and maintain focus on operational improvements,” Mr. Fairbanks concluded.
For the full fourth quarter results, click here.
About Trex Company
Trex Company is the world’s largest manufacturer of high-performance, eco-friendly 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 systems for the commercial and multi-family market, including performing arts venues and sports stadiums. For more information, visit trex.com.
Dennis Schemm – Senior Vice President & CFO – (540) 542-6300
Source: Trex Company, Inc.