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Trex Company Reports First Quarter 2017 Results

- Record Revenue and Net Income -

-- Net Sales increased 10% to $145 Million

-- Gross Margin expanded 120 basis points to 45%

-- Net Income up 18% to $27.9 Million; Diluted EPS was $0.95, up 20%

WINCHESTER, Va.--(BUSINESS WIRE)--May 4, 2017-- 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, today reported financial results for the first quarter ended March 31, 2017.

First Quarter 2017 Results

Net sales for the first quarter of 2017 were $144.8 million, 10% above the $131.7 million reported in last year’s first quarter. Gross margin was 45%, a 120 basis point expansion from the 43.8% reported in the first quarter of 2016. The Company reported net income of $27.9 million, or $0.95 per diluted share, increases of 18% and 20%, respectively. Last year’s first quarter net income of $23.7 million, or $0.79 per diluted share, have been adjusted to reflect our adoption of the new FASB standard related to deduction of stock compensation.

“This was another strong quarter for Trex, with double-digit sales growth, favorable gross margin impacts and relatively stable SG&A as a percent of revenue, resulting in record revenues and earnings,” commented James E. Cline, President and Chief Executive Officer.

“The Trex brand continues to gain substantial consumer and trade recognition leading to a record number of visits to our website and to recent industry awards, which again named Trex the leader in brand familiarity and design. Production efficiencies in the first quarter combined with continued focus on cost reduction initiatives including ongoing success with our revised procurement strategies and increased capacity utilization drove solid gross margin expansion. SG&A for the quarter totaled $23.3 million, an increase of $2.7 million to support strategic investments in new product development and branding.

Recent Recognitions

  • Trex was recognized as the “Greenest Decking” brand in Green Builder Media’s 2017 Reader’s Choice Awards for the seventh consecutive year.
  • Trex was honored with the “Best of Houzz” Design Award for the third consecutive year and designated as an official “Houzz Influencer.”
  • The 2017 Builder Brand Use Study named Trex number one in Brand Familiarity, Brand Used Most and Brand Used in the Past Two Years for the composite decking category. This marked the 10th consecutive year that Trex earned top rankings in all three brand performance areas.
  • Trex Signature aluminum railing was included in the Green Builder Hot 50 Products list.

Summary and Outlook

Industry analysts continue to project that the growth rate for wood-alternative decking and railing will outpace the overall market. With advancements in all-weather materials and furnishings that enable the outdoors to act as an extension of the home, we believe Trex, as the market leader in high-performance, wood-alternative decking, railing and accessories, is very well positioned to benefit from the projected increase in demand for functional outdoor living spaces.

“In 2017, we will expand our successful marketing and advertising campaigns that emphasize the advantages of composite decking over traditional wood as well as the environmental benefits of our products. Continued market share gains and favorable gross margin impacts are expected to benefit full year 2017 results.

“In the second quarter of 2017 we expect to achieve revenues of $160 million. Our expectation for incremental gross margin is now expected to be in excess of 50% for full year 2017,” Mr. Cline concluded.

First Quarter 2017 Conference Call and Webcast Information

Trex will hold a conference call to discuss its first-quarter 2017 results and other corporate matters on Friday, May 5, 2017 at 8:00 a.m. ET. To participate on the day of the call, dial 1-888-349-0106 or internationally, 1-412-902-0131 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 http://investor.trex.com/phoenix.zhtml?c=86979&p=irol-irhome. 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 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 weather-related demand fluctuations on inventory levels in the distribution channel and sales of 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; and the highly competitive markets in which the Company operates. 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.

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. For more information, visit trex.com.

 
TREX COMPANY, INC.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
(Unaudited)
   
 
Three Months Ended March 31,
2017 2016
 
 
Net sales $ 144,806 $ 131,676
 
Cost of sales   79,637   74,049
 
Gross profit 65,169 57,627
 
Selling, general and administrative expenses   23,269   20,612
 
Income from operations 41,900 37,015
 
Interest expense, net   204   572
 
Income before income taxes 41,696 36,443
 
Provision for income taxes   13,747   12,737
 
Net income $ 27,949 $ 23,706
 
Basic earnings per common share $ 0.95 $ 0.80
 
Basic weighted average common shares outstanding   29,363,210   29,697,722
 
Diluted earnings per common share $ 0.95 $ 0.79
 
Diluted weighted average common shares outstanding   29,561,406   29,910,292
 
Comprehensive income $ 27,949 $ 23,706

 
TREX COMPANY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
     
 

March 31,

December 31,

2017

2016

 
ASSETS (Unaudited)
Current assets:
 
Cash and cash equivalents $ 1,767 $ 18,664
Accounts receivable, net 171,288 48,039
Inventories 30,109 28,546
Prepaid expenses and other assets   4,071     10,400  
Total current assets 207,235 105,649
Property, plant and equipment, net 103,608 103,286
Goodwill and other intangibles 10,523 10,523
Other assets   1,940     1,972  
Total assets $ 323,306   $ 221,430  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
Accounts payable $ 13,643 $ 10,767
Accrued expenses and other liabilities 31,108 34,693
Accrued warranty 5,925 5,925
Line of credit   77,000      
Total current liabilities 127,676 51,385
Deferred income taxes 894 894
Non-current accrued warranty 30,757 31,767
Other long-term liabilities   3,045     3,223  
Total liabilities   162,372     87,269  
Stockholders’ equity:
 
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value, 80,000,000 shares authorized; 34,895,162 and 34,894,233 shares issued and 29,401,481 and 29,400,552 shares outstanding at March 31, 2017 and December 31, 2016, respectively 349 349
Additional paid-in capital 118,906 120,082
Retained earnings 215,191 187,242
Treasury stock, at cost, 5,493,681 shares at March 31, 2017 and December 31, 2016   (173,512 )   (173,512 )
Total stockholders’ equity   160,934     134,161  
Total liabilities and stockholders’ equity $ 323,306   $ 221,430  

 
TREX COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
   
 
Three Months Ended March 31,
2017 2016
 
Operating Activities
Net income $ 27,949 $ 23,706
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 3,764 3,829
Stock-based compensation 1,965 1,276
Loss (gain) on disposal of property, plant and equipment 258 (105 )
Changes in operating assets and liabilities:
Accounts receivable (123,249 ) (108,939 )
Inventories (1,563 ) (2,556 )
Prepaid expenses and other assets 2,304 (1,577 )
Accounts payable 2,876 (666 )
Accrued expenses and other liabilities (13,939 ) (11,327 )
Income taxes receivable/payable   13,191     12,239  
 
Net cash used in by operating activities   (86,444 )   (84,120 )
 
Investing Activities
Expenditures for property, plant and equipment (4,312 ) (2,439 )
Proceeds from sales of property, plant and equipment - 4,249
   
Net cash (used in) provided by investing activities   (4,312 )   1,810  
 
Financing Activities
Borrowings under line of credit 93,000 148,500
Principal payments under line of credit (16,000 ) (14,000 )
Repurchases of common stock (3,244 ) (53,968 )
Financing costs - (485 )
Proceeds from employee stock purchase and option plans 103 72
   
Net cash provided by financing activities   73,859     80,119  
 
Net decrease in cash and cash equivalents (16,897 ) (2,191 )
Cash and cash equivalents at beginning of period   18,664     5,995  
 
Cash and cash equivalents at end of period $ 1,767   $ 3,804  
 
Supplemental Disclosure:
Cash paid for interest $ 64 $ 248
Cash paid for income taxes, net $ 556 $ 498

Source: Trex Company, Inc.

Trex Company, Inc.
Bryan Fairbanks
VP & CFO
540-542-6300
or
MBS Value Partners
Lynn Morgen/Viktoriia Nakhla
212-750-5800