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Trex (TREX) Q4 Earnings & Sales Top, Up Y/Y on Strong Demand

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Trex Company, Inc. (TREX - Free Report) reported adjusted earnings of 56 cents per share in fourth-quarter 2017, up 30% year over year. Earnings also outpaced the Zacks Consensus Estimate of 54 cents.

Including one-time tax benefit of 6 cents per share, earnings came in at 62 cents compared to 43 cents recorded in the year-ago quarter.

Operational Update

Trex’s total revenues improved 28% year over year to a record $122 million, surpassing the Zacks Consensus Estimate of $119 million. The increase was driven by 15% improvement in Trex Residential Products’ sales, with Trex Commercial Products sales contributing an additional $12.7 million. Upbeat consumer confidence trends, strong demand for Residential Products, and continued support from the company’s channel partners, drove revenue growth.

Trex Company, Inc. Price, Consensus and EPS Surprise

 

Trex Company, Inc. Price, Consensus and EPS Surprise | Trex Company, Inc. Quote

Cost of sales increased 24.6% year over year to $71 million. Gross profit surged 33.6% to $50.9 million from $38 million reported in the year-ago quarter. Gross margin expanded 170 basis points (bps) to 41.7%. The increase in gross margin was primarily the result of continued raw-material benefits, cost-saving initiatives and increased capacity utilization.

Selling, general and administrative expenses flared up 39.4% year over year to $25.6 million. The company recorded an operating income of $25.3 million in the reported quarter compared to $19.8 million in the year-ago quarter.

2017 Performance

Trex reported earnings per share of $3.22 in 2017, up 40.6% year over year. Earnings also beat the Zacks Consensus Estimate of $3.14.

Revenues in 2017 grew 18% year over year to $565 million from $480 million reported in 2016. The figure, however, missed the Zacks Consensus Estimate of $568 million.

Financial Update

Trex recorded cash and cash equivalents of $30.5 million as of Dec 31, 2017, up from $18.7 million as of Dec 31, 2016. Cash flow from operations came in at $102 million in 2017 compared to $85 million recorded last year.  

Further, Trex’s Board of Directors approved a new share-repurchase program under which the company might repurchase up to 2.9 million shares.

Guidance

Trex estimates sales of $172 million for first-quarter 2018, which comprises approximately $157 million from Trex Residential Products and $15 million from Trex Commercial Products. The sales guidance reflects a year-over-year increase of 18.6%.

Trex projects its effective tax rate to be 25% in 2018, down from the 2017 rate of 33%, and predicts incremental margin to be approximately 45%. The company will continue to benefit from lower input costs, process-improvement initiatives and increased capacity utilization.

Share Price Performance

Over the past year, Trex has outperformed the industry it belongs to. The stock has gained around 69.9%, while the industry has recorded growth of 13.2%.



Zacks Rank & Key Picks

Trex currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector include Boise Cascade Company (BCC - Free Report) , Louisiana-Pacific Corporation (LPX - Free Report) and PotlatchDeltic Corporation (PCH - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade Company has a long-term earnings growth rate of 18.5%. Its shares have gained 53.8%, over the past six months.

Louisiana-Pacific has a long-term earnings growth rate of 5%. The company’s shares have rallied 24% during the same time frame.

PotlatchDeltic has a long-term earnings growth rate of 5%. The stock has gained 17.5% in six months’ time.

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