Trex Q2 Earnings Call Highlights

Trex (NYSE: TREX) reported second-quarter net sales of $418 million, up 8% from a year earlier, as demand strengthened through May and June and growth broadened across product categories, distribution channels and price points. President and Chief Executive Officer Adam Zambanini said the company’s sales performance exceeded expectations, supported by strong sell-through activity that continued into the third quarter. He said growth was especially notable in railing and entry-level decking products, including Trex Enhance Basics, which the company views as its primary product line for converting consumers from wood decking.

“Every level’s consumer, good, better, best, is participating at all categories,” Zambanini said during the company’s earnings call. He attributed the return of entry-level demand in part to increased marketing investment, sales programs and a renewed focus on wood conversion.

Second-quarter gross profit totaled $158 million, while gross margin was 37.9%. Chief Financial Officer Prithvi Gandhi said gross margin declined from the first quarter and prior-year level due to product mix, depreciation associated with the Little Rock manufacturing facility and temporary manufacturing inefficiencies. As demand accelerated late in the quarter, Trex increased production to support customers and maintain channel inventories. Gandhi said the pace of the production ramp created higher overtime expense, more line changeovers and other temporary inefficiencies that reduced gross margin by more than 100 basis points during the quarter. However, he said utilization and operating efficiency improved by the end of June, with exit-rate gross margins above the overall quarterly average. Trex expects those improvements to continue through the remainder of the year. GAAP selling, general and administrative expense was $67 million, or 16.1% of sales. The company continues to expect SG&A to represent about 18% of sales for the full year as it invests in marketing, talent, digital transformation and other organizational capabilities. Trex also recorded a $5 million non-cash write-down related to obsolete equipment. The company excluded the charge from adjusted EBITDA, which was $112 million, though it did not exclude the expense from adjusted diluted earnings per share of $0.62. Gandhi said the charge reduced diluted EPS by $0.03.

Trex is accelerating the production ramp at its Little Rock, Arkansas, facility by more than six months, citing stronger ...