TREX - Earnings call transcript Q3 2017

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Operator

Good day and welcome to the Trex Company third quarter 2017 earnings conference call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Lynn Morgen. Please go ahead.

Lynn Morgen

joining and for you, all you us thank today operator. Thank Financial Jim on Fairbanks, and Chief the us Cline, Vice call and Bryan With and are President Officer, Chief President Officer. Executive

of also company's Bill of close, over is like Gupp, Jim and This and as for containing for press website. The financial as being available well release Bryan management. third Joining members Trex is issued the Senior results page webcast the to be call Relations Secretary, XX the of and Bill? the on XXXX. other available company call on Gupp. President, General to turn Vice now will conference today This website Bill days. Counsel release Investor is a I'd company's after the market

William R. Gupp

Lynn. you, Thank

Before are to of expressed remind let the within results expected that in future this forward-looking from cause could on statements. securities and the federal to and me law. the company's differ actual those statements subject statements call materially conditions certain statements constitute risks regarding performance uncertainties that meaning forward-looking we begin, everyone These

For XX-Qs, and discussion expressly well and most XX-K recent our of Form the SEC. future see any to or and turn filings such With Form please a to uncertainties, events, XXXX over with information, a otherwise. revise will Act update of other publicly or result our any company introduction, Jim disclaims XXXX as the as new obligation risks The call as forward-looking statements, Cline. whether that I

James E. Cline

outlook growth how rate for again was quarter all afternoon all with results railing us and are an of coming XXXX. to function of gain market one market's part revenue is Trex's our increasing the composite of incremental the success it consumers strong story, of proven clear entrenched XXXX this but large sales a trade third gaining to By partners. all projected our well we years composite to accounted in achieved growth all part share market, is with our indication mid-single-digit and outstanding of that for we Bill, rate that ago, Thank engaging above This represents remainder Two a thank this you meaningful America. joining the in organic with virtually growth offensive volume from appeal in sales of from the gain a market. We our XX% launched rest XX%, share ability of the industry the quarter the you, and consumers, We record Trex. discuss and wood for to which believe in wood our the measures, share of review the for only is well gain. reflecting a residential the about North decking in growth and major and for

are influence our been living outdoor In spend our low-maintenance brand. television, XXXX, residential we national paired see products the sales our connection with is reflects changing advertising increasingly print, our to and enhance The to we greater of data Based is to share is brand advertising, the wood, the high-quality campaign This buy a successfully relationships and And consumer to other to converting XXXX. of gained consumers It property. with resale to has to as of as our has has of campaign also are value a continuous well of Principia enhancement Trex dealers of momentum on take increased as of composites. Trex. clear products. Our direct distributors wood conversion after a from demand comprised Trex result their results market to share manufacturers from the considerably strengthen initiated driven XXXX some additional This brand versus consumer with to composites dealers. share that on behaviors, from residential growth composite benefiting other why that direct Trex to industry started market greater with beginning Partners, and the X% wood the manufacturers continuing consumer. to and associated effort composite wood of of from digital their the educate marketing from for alternative market

to addition, consolidated expand fronts. this a $X with was XX%. Commercial organic revenue from us Products. our this contribution for the growth growth, on say both million will we confidence year of give results Along contribution, our our quarter also In two-month the impressive to that Trex Including the includes share third Trex revenue continue the quarter

distraction of and opportunities the the same this accomplished with that, to of detailed are over this team and railing best-in-class, acquisition with turnaround. to enhanced. team Our accomplished The a very with with our accelerate been Projects marketplace. synergies newly margin Much new acquisition expectation. SC Trex are the what management Fairbanks Bryan engineering be to is is engineering us products for that acquisition. into residential to commercial enabling The news initial product required capabilities greatly results. Bryan? significantly to time is third develop our introduce have the our the railing to acquired management is and short the of the team. like in the existing I'd can develop This little is be jointly months. good call a enhancement leverage we have introduced of one period take we year consistent how review able SC would example Revenue for just since Products a team of the collective with completion been Residential will turn several the had in strength expected quarter of time to success this about our and With that what

Bryan Horix Fairbanks

be Products EBITDA. financial Once resulting was to acquisition performance again, will strong our Also, board, record referred purposes accretive which had we Trex the Thank Company, to for financial you, Commercial Jim, of profitability. sales our good statements, record and across afternoon. in as and recent SC in

XXXX benefited cost, gain compared in begin, and months adjusted program, I'm were a Trex adjusted manufacturing up record year's you quarter. million material up revenue remind FASB continued million, I when deduction remodeling lower basis reflecting basis I share to warranty from over was $X September and EBITDA, I prior to factors last improvement the August the adoption for related year's raw Products, of sector. utilization. reported Residential and the XXX $X.X and key earnings effect Also, two compared Trex reflect and market stock Products that the the the cost quarter, of adjusted growth the points. as with year's increased of projected. to gross per volume figures, $XXX XX.X% XX.X% gross robust XXXX a Trex margin XX.X%. gross last new want the margin for This income, last share of three points to margin when of mention XXX sales standard Residential net margins charge of reduction to of months XX% first of quarter to third the to Consolidated increase by million Products the capacity third and performance strong driven and an for was expanded XX.X% quarter Net Before Commercial for excluding contributing compensation. third amounted XX% year, nine

Commercial the in As last further Residential and call, in be will detailed Products Trex both Trex XX-Q. segments the we noted

our amortize to EBITDA quarter EBITDA XX SC of Following months. increased quarter. Residential from million million the $XX the and of in quarter. $X.X intangibles In Company, million. of third recent the quarter XX% increased acquisition quarter third year XX% $XX adjusted Trex to will contributed ago $XXX,XXX year the over up EBITDA was $XX the EBITDA for prior SG&A against million Commercial

the in net income tax rate during share, effective of to $X.XX increased period absolute total to million increased million compared last of benefit, revenue in was XX.X%, – sales recognized year. the expenses. third the third attributable per tax expense to stock in to to the related period XX%, a ahead XXXX, XX The prior point dollar year. compared in the in our or was of of XX.X% restricted SC primarily SG&A or to units improvement. quarter XX% increase a XX.X%, dollar share quarter. with compared and Company last of or income XX.X% income as XX-basis as reported in tax year-to-date same amount On rate with a per in $X.X due to basis, same settlement excess Net of the $XX of reported percentage tax the year quarter amount income declined $X.XX of the quarter, flat a net and percentage year acquisition ahead or relatively full effective diluted The the vesting ago of the in Although the the guidance. SG&A was XX.X% diluted of year mainly higher line branding stock restricted to XXXX the

Third net income of the reserve. after year prior the by removing improved quarter effects XX% warranty

Our third million. quarter $XX.X of shares outstanding number was weighted average

items purposes. taken be for that several reiterate, to should account Just modeling into financial

consolidated in rate as expect year of last for of We to margin tax XX%. line XXXX be XX%. incremental expect the with we to be full the a projected and of year revenue, be percentage is approximately SG&A to in excess full-year

XX% and or an results revenue to emblematic growth stronger are to $X.XX, of ability year products for adjusted turning XX% basis. last demonstrates a of increase EPS a into strong growth year-to-date XX% ahead net sales into in outdoor demand year-to-date earnings, living strong Our Trex leverage our diluted on

$XX for Trex with call the Company generated I'd like Jim? purchase flow, cash $XX.X cash for summary quarter. his Jim we've SC fund comments. to million the allowed turn which to Additionally, that, the With back in million operating to during

James E. Cline

outdoor progress for reflect sales up, speaks our Trex maintenance of over the XXXX, upfront with and to lot This as itself consumer of of offset for to consumers, their stage it that measurable year-to-date in for that annual maintenance ability responsible the they highest full the the minimal the it represent sum path quality growth with with Trex of and this success and life Trex expand projected XX-year our To environmentally an of the choice that repair sets of reduced continued a for compelling support the a We our deliver and products for consumers. living is available, Bryan. the year premium about strength deck. presents and a deck guaranteed underpinning meaningful and quickly proposition business luster retain brand our partners. results for brand, their speak earnings by The the products recognition XXXX. record pay that value to material Thanks continued

from Commercial Trex a up and total fourth million, on strength organic the currently revenue and industry In composites revenue X%, remodeling Product Based confidence on this multiple growth to cross-selling continue Residential latest be strong of quarter, gain I ahead a Trex Trex growth the earlier, which consumer year other XX%. $XX from with have continued contribution be full revenue be underway. the will from trajectory. build seen but to of the that upon Entering a reaching of opportunities introduction momentum Principia we of million, we expect We're organic market we and show report, $XXX Products. wood. we synergies. the to repair our share Looking data product initiatives $XXX approximately XXXX, representing and guidance, has revenue market. believe to XXXX, cross-product analyzing to would development new to develop with for XX% residential in Macro that trends there the expect the and and mentioned see are we example Commercial, number the in

free Feel we're future our call or like open offices Morgen to further now hope facilities to We be on performance Winchester our able our strategies MBS for provide growth Investor for and Operator, at Thursday, questions. the new host detail. of participate. more an Lynn growth. pleased for and to very we'll on short, X, will will both which to In contact markets. able railing and additional up commercial to We color December products, industry residential during data, to provide debuting our we'd Day with prospects be our you date

Operator

will session. We question-and-answer now the begin

The SunTrust. Please first from Hughes question go ahead. comes Keith with

Keith Hughes

you, Thank questions. couple a

you growth best up Could from think specifically First, the the these within went? quarter to organic company? seen so more well What are numbers, outstanding put how Trex. particularly organic we've I the growth ever worked talk

James E. Cline

the I States forward. had Northeast quarter. things of that Demand us. strength by drop we that think see United of that northern delayed numbers. together into demand part we season. in began of for drove came couple a off couple was those driven is, beginning there We what part One a to the was as what things. in we continued see the early were The month it think the We of a start Typically, get August. the strength certainly to believe the the is

In certain in decisions the interest in expenditure a believe Trex deal exercise spends, of discretion made very expenses. real-time certain additional we addition, And of basis they we branding were people on driving and our great to products. in branding effective a expand

Keith Hughes

Okay.

inventory Second see about year significantly up we question, in what talk where over of forward? going were Can levels you rates kind pretty and the are production year. inventory will you

Bryan Horix Fairbanks

a years. have higher bit we the in over during a with saw as you fourth back on we as little been inventories with of third little quarter, guidance the prior figures our So been our pull production. the where did we consistent ahead the quarter, bit running But have sales and

expect to end So we anything I out hand put by inventory get time see on I to that. the really year day's into to wouldn't the to get the would normal us more and a of

Keith Hughes

Will running on you the your there? be quarter if get demand you fourth rates production in

James E. Cline

We'll last ran production year. we be at than what higher level running a

Keith Hughes

right. That's Thank me. you. all Okay, for all

Operator

next Please Stifel. John go ahead. question with Baugh comes Okay. The from

John Allen Baugh

Bryan, Good any center of revenue home pro could and of moved? on Hello. was Jim, curious what just the a may business congrats Did afternoon any increase or – it tell the was buckets sense quarter. you us great how financing see be note, business? you the

James E. Cline

notable saw one consumers. the for versus program markets. was we We was have other. place don't market all a Yeah. There financing higher John, nothing across demand what in widespread,

months we don't these to Typically, to that relative really ago. any were lined So have of information a direct see that. projects number up

established see related place sales XX that basically would have had projects taking to XX days were probably Trex for pros that to about those we ago. So immediate now that been demand

John Allen Baugh

like sounds was volume it then it driven. And thanks. Okay,

through So mix should I read that was relatively over the year? constant year

Bryan Horix Fairbanks

If of the constant. relatively we look areas quarter. for the was Mix benefit during

You've got key three areas.

our cost initiatives. improvement First

those lower Second a be our benefit. accounted for would capacity price and be of each would third polyethylene about of the utilization, third

John Allen Baugh

Okay. And meeting could been guess, Thank decisions your made you next Have and you year then I or teaser, product on with railing us, have us gave a discuss had you plans for yet, year. you distributor not? already you. new and discussed for little next with pricing them the

James E. Cline

on opportunity we month to so occurs meeting distribution our That John. the and in that, of November, talk to haven't had yet partners the

as make them So aware, we you're commitment, a we to talk first.

there preview our Street. be railing a we're to got new You've are meeting and we that talked we've we said to the to Day, talked the Analyst business have By time will that opportunities that – to for presenting going the that have partners.

John Allen Baugh

Thank again. Great. And congrats you.

James E. Cline

John. you. Thank

Operator

ahead. comes question Securities. with Matt next The from Global McCall Please go Seaport

Matt McCall

afternoon, Good Thanks. guys.

James E. Cline

afternoon. Good

Matt McCall

and you Bryan, costs. you buckets, the just mentioned mentioned product lower

perfectly did in I declines China about you post we've think cost the recycled there the we've poly announcement? there you much are know did I the guys, quarter, come as is lower – bantered to that the we've various as what question China saw is poly post reflect that's on they front heard translate XX%? announcement. the but declines on guess based to for the I the going not But heard seen more

Bryan Horix Fairbanks

started that back The seeing something the to of China's are in totality marketplace. be market The in we've away XXXX. XX% quite they'd pulling been been Earlier we've year, in reductions have been not announced that some they hearing time type numbers related pulling beginning at China away accurate seeing been the that XXXX. this now. from you're for

saw we So in XXXX. significant drops

year-over-year quarter, basis. some on first the a we drops saw additional During

that quarter. forward. expect in expected the for the did flat. was to in decreases again there about that during go that And talked the begin saw up we XXXX, do calls, to we the We during not prior we half we pick and do see second The third second of declines gradual back believe as type we the quarter year, to of as we relatively but is opportunity happen see

James E. Cline

Yeah. And, Matt...

Matt McCall

sir. Yes, Okay.

James E. Cline

slowly identify that waste view at of kind on If And at really depends seeing grades material, people that It going first. that the continue it that is it because why down available It's years, it's very would types scrap and in a different at very lower probably to interested to will ...our be reduction. what make move it's that's are of rates. that, will you're Matt, prices. when are there is. of you move next drops, going on XX% multiyear contaminated material material very, three higher sense fewer and for fewer because different

Matt McCall

that that magnitude make So to what expect you opportunity the any trying how experienced just what of declines understand just move you to I quarters? of to as out you an us future the relative the we into idea way to experienced. I'm give compares sure and

James E. Cline

don't what reduction. regard this probably into I year, is But with what of XXXX. happening as you're started end to of year when think to to details get year, next the you you We for for the get model seeing we're seeing material fair this cost

Matt McCall

Okay.

James E. Cline

see we worse, this for you've what next to now, is be you give with an what update. we'll or But guys year we I that year. If expect better think seen consistent getting glad right

Matt McCall

the the would any Could wood higher that I better. if quarter, as mentioned? poly wondering items other any I'm be hurricane, explain your would in hurricane the top virgin fair. post strength prices moved cost just seeing there? more of Are prices point assume of that's the or benefit. help line position gone to the then would the benefit gets higher that and side, on post other just seen some you you you other general. have Okay, then And have specifically you've the in the question, also any Harvey,

James E. Cline

two minus, dramatically. would plus wood main cost It any very polyethylene. With either seen any relative to seen to area unusual ones impact, prices for the we the competitors that make to events. Southeast pressure-treated We affected, prices, really Houston and have that significant the the change. not of would or them mid-season to markets be moving are raising see regard not related The weather we normally from markets, expect haven't

Matt McCall

makes Okay, that sense.

you spot on them would reflect the to change to price that it in be the abnormal occur? pricing? up them price would raise Is middle of the to So said when would see season, guess this be you I next where higher expect abnormal see that, to then raise follow to market with it

James E. Cline

If were that they would term, they believe prices. in that they longer expect increase to going fact we would

we have X% detail recall who the probably what X% did range. I to a being customers year. what that it's that increase Now let our effective the something in announced the competitor that to number until think Adam? Was increase. the Adam you was. quarter, will it third channel They one was, shield price X%., X% first sometime Do it in I'll announced of their their belief but Zambanini distribution the from

Matt McCall

Okay, okay. Jim. Very Thank helpful. you,

James E. Cline

bet. You

Operator

question Please FBR. Alex Rygiel ahead. comes from with go next The

Alex J. Rygiel

Great Thanks, Bryan. Jim and quarter.

James E. Cline

Thanks, Alex.

Alex J. Rygiel

us any give and on other in strategy changes the growth distribution in international a update you Could quick market? international

James E. Cline

thus in is results as we've seen particular, domestic rate We are path higher And internationally, been in we're of happy I mentioned there. we've that Europe behind presence committed and to and anticipate International with effort level is primarily we go our dollars far before down grow the the business our than well it's fair we'll a amount Australia and as market. the putting our expanding continue a consistent at of with as expanding that with that moving been extremely have expectations, consistent coming think, year. – expanding a

Alex J. Rygiel

products, today, or the side But to in right those. you number on spend dollar if And to new look learning Products spending also now, an acquisitions are in that mentioned expand a R&D side I forward you looking interested it Commercial you business? are about had you more extra the of to Commercial on at

James E. Cline

pay did the Trex cash R&D generator is projects; of cash. The as you're to It paid plenty essentially huge We would had a money that. just with acquisition for we on well depend a was aware.

into the would Commercial of any would type we can we side do something acquisition on interested the Residential not with the we So and But the R&D huge the space one think way, in. shape that to both been starve we right in be be expanding occurring is business that last that of our why it's years, of group. to driver several seen or form; the money you've R&D commitment has put margin and a reasons expansion would into continue over

Alex J. Rygiel

Very helpful. you. Thank

James E. Cline

you. Thank

Operator

I session. remarks. question-and-answer to the turn for would our back concludes to management like closing any over This call

James E. Cline

Well, Trex thank you call. in us your and in with participating interest for today's

Investor the and and a to call excited forward the on December. good are and again, during this in prospects about for discussing We Thanks earnings Day with look our you evening. future future have

Operator

attending has today's presentation. The conference Thank now concluded. you for

now may You disconnect.

Trex (TREX) 30 Oct 172017 Q3 Earnings call transcript