TREX - Earnings call transcript Q3 2018

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Operator

Good evening, and welcome to the Trex Company Third Quarter 2018 Earnings Conference Call. All participants will be listen-only mode. [Operator Instructions]. Please note, today’ event is being recorded. And with that, I’d like to turn the conference over to Viktoriia Nakhla. ahead. go Please

Viktoriia Nakhla

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

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

Bill Gupp

Viktoriia. you, Thank

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

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

Jim Cline

and review call participating for all our you today’s thank And outlook. Bill. third performance quarter business you, to our Thank in

gain excluding growth $X the residential a which strong in strong Trex. Sales to another disproportionately the quarter reflects growth. residential double charge to of and the favorable digit seen, quarter and brand and both you’ve our leadership, was this is segments. commercial in solid continue a reflecting products very share economic In enables environment sector the a demand we one-time growth As consumer million us see macro for greater XX%

branding spent. Board wood business our We Conference growth. drive from in in in Price part and rebalancing data and Index Transcend of we to September. that the X.X. trends to see continue repair in the further and industry in reduction Consumer partners drive also In announced due inventory October remodeling and to to Latest the that August focus introduction their product growth on a benefited September demand believe indicates has remodeling in additional distributor conversion new the and our did improved related campaign continues increased Positive from of

differentiated channel also professional repair checks for consumer is confirmed to America and experience demand throughout marketplace in development double-digit by our North October. have the and the ongoing product Trex strong remodeling that growth in continued customers investments. has Our

positions in region. continue product residential We We portion new related quarter to and release further is this in today's to offering million all of existing to distribution stocking strengthening charge reach. in expand our announced charge an the third our the our $X noted that market revenue introducing will earnings focus market the products our improving that on both to expansion channels. the in sales tied central of of footprint was A to

not not did if beginning incur sales related to multiyear believe we’re magnitude it and sales XXXX. a strong we charge growth today in While further in this providing benefit expected earnings. that not of to detail carried a would We

expand significant our a In our opportunity business to see this relationships is partners. residential with we addition,

discuss third several to XXXX. few quarter an growth the profit. in operating is our expect to second model. Bryan and minutes. even strong convert We were performance from realized We sales these of greater the part growth will relationships expanded Trex a business Operating Thanks in residential begin to in of a key being able to leverage factors quarter that

invest on Based with that continue strong line our addition our enhancement X XXXX. X accelerate by in X will phase increase facility in cost improvement manufacturing the that we have in projects we first to to enhancements, our results to related lead project seen we our lines investment have throughput project. example savings. Phase to trials that of in production throughput In and is to over Winchester operating A the Phase XX% Phase of great decided

we to our earnings As on progress $XX February expanding XXXX million be call. our to a our capital spent in provide million. will details result $XX further in We’ll

quarter a Turning on the products; over up a months. commercial in positive the with year-over-year over second basis products design improved the team that introduced the windscreen year-to-date the forma our glass the substantial XXX a profitability Gross had accomplished our This points trend has exterior reflect that to To of very nine results demonstrate continue Revenue XX%. was is pro half results new third use. improved basis XX.X%. commercial for to by Ascent, commercial growth. quarter positive XXXX product, sum margin to line up, improvements second expectations also underpin we commercial underlying Trex it post-supported results. for last

the for per on call you the diluted XX%, point, year, increased compared our taxes up charge CFO, XXXX with basis nine-month this If and earnings to before quarter's Fairbanks of like up financial all the this revenue was exclude same one-time a and Bryan? the earnings share XX% consolidated review. turn prior Bryan I’d XX% representing excellent an to over At to to was $X.XX showing.

Bryan Fairbanks

everyone. evening Good Jim. you, Thank

financial quarter across of please strong review components performance. are quarter metrics and We record many third our to major key another report

we’re amounted sales $X consolidated growth, or growth year-over-year expanding it volumes. XX% excluding sales the XX% included one-time a strong in million to organic Residential would've and commercial XX% million. Trex were which by the Trex net with last mentioned seeing gross would've just million gross for XX.X% Consolidated to sales in third $XXX $X expanded superior basis to points over margin points decking the XXX unfavorable XXX since excluding I the by of channels. XXXX. XXXX Company million demonstrating would've products. stocking one performance quarter representing the quarter residential net $XXX third $XX charge XXX increase $XXX in Without XX.X%, net the basis products driven contributed points of sales expanded our been reflecting were we gross higher year’s our This from that increase third million residential railing to quarter Trex basis that entered the residential ahead million sales XX.X% XX, $XXX the quarter to acquisition charge of of represented demand an related one-time Third margin the Products impact XXXX. Commercial XX.X%. million charge the the reported residential consolidated positions for market July Products strongest on SC margin time quarter

second rate in material raw the by margin and showed higher a benefits benefit cost line with saving initiatives, third polyethylene expectations. the and points improvement. cost. increased for of ongoing improvement from the XXX these Trex continue recycled We our basis in compared more increase manufacturing costs. continued to than to XX.X% commercial quarter input expanding gross offset third These to of utilization Each accounts lower approximately quarter products benefits sequential

roll improves million We in quarter project contracts were increased margin margin the continue total branding and trend expenses. to primarily third related to SG&A The to $XX personnel related of the legacy off. higher by gross expect to in lower continue million. dollar fourth this $X expenses execution amount XXXX quarter and as due

SC to acquisition related a the the impact not and will has forward. intangible reminder, expense going As fully amortized been SG&A

the Approximately our our a was to XX.X% SG&A from $X.XX with consisting our growth. primarily in Net million per per were million per XX.X% the first two-thirds and quarter was the diluted the $X.XX lower contributing third $XX production million per of XX% $XXX $XX rate. share XXXX. of the diluted revenue commercial income $XX of improvements XX% up of diluted ago XX% income for related year million To earnings capital representing on As from up a remainder consolidated to-date a we comparable for on plant $X.XX diluted organic to for in $XX the up diluted investments. $X.XX expenditures XXXX compared year share cost million million reported growth sales, a and or this in with reported percentage sum nine tax of general our certain $X.XX period. XXXX, and year million Year share, other was Without performance strong revenue Net million. performance up to Internet both business was was million year XX% $XXX operating EPS or $XX or share, months $XXX net attributable domain in $X briefly totaling initiatives year charge quarter. due reduction

the remain Our the funding and shares. business, acquisition in capital opportunities allocation repurchasing priorities reinvesting same,

the remaining As a by of reminder under the Board buyback February shares of Directors we XXXX. in program have $X.X million authorized

[financial expectation For the of full sales gross of XX% approximately to following expected XXXX items. full approximately We please SG&A our for purposes XX%. margin for reaffirm year. XX.X% note modeling] consolidated incremental year the is

spending We expected between and we XXXX XXXX pull year of manufacturing in $XX to and $XX reflecting certain XX% million investments. tax rate now million and be investments to expect ahead additional full be capital approximately

Now to closing his Jim I'll for the remarks. back call turn

Jim Cline

us on achievement year track so this Year in Bryan, record put have you, positioned of Thank far XXXX, for another year have us year to-date results strong XXXX. results for in another

with residential for months historically residential expect correlated a We strong year XXXX and for remodeling consumer segment first which growth. be XX% accounts sales, sector confidence the of to another nine has the

favorable our some same the XXXX, At be XXXX and greater going lineal we from the in commercial should additional our With significant exciting week developments of products much our and market, a driving gain. on X% business. for railing provide we and business that company we America, cost approximately in clearly market. of the growth our development a railing share benefit plan wood has strategically we projects we expectations after manufacturing The As After are runway a savings for next greater continued time the of of our throughput, a continued of to sales increased will share in growth. clearly gains Trex environment portion additional as focus sold will color market. the for feet expect North accelerate meeting distributor the and decking decking residential position and

of look continue and our initiatives. to As of a the number see take an invest we also to to advantage XXXX reduction business we as to expand opportunity margins cost in meaningful personnel we

for this the million and Over million $XX products. for residential consolidated fourth year's comprised Trex near-term, commercial is for million $XXX quarter our net sales for of Trex of guidance $XXX

fourth ensure the Excluding bring distributors XX%. in first and participants, have sales I’d sales growth dealers to stocking quarter to million full of to to spring on the quarter and the open consolidated shipments. the $X XXXX and appropriate now I’d support growth available the year one-time quarters winter are and call product residential breaks questions. for this level to the like would that remind like XX% Operator, charge, the to early the hand are weather

Operator

question-and-answer will Rygiel our We’ll now Today's begin go the Please B. FBR. ahead. session. Instructions] be with from question Alex Riley [Operator first

Alex Rygiel

Good evening nice you. gentlemen, Thank quarter.

Jim Cline

you. Thank

Alex Rygiel

the Could to into in detail we regards come that? a you back on go Can and bit with September little October? to comment quite the activity

Jim Cline

of there. interest of things things Two or three Certainly. maybe interest

reduction products, introduced it anticipated old people that monochromatic a inbound and December, point. moving relate Buy of the new demand requirements certain for It out -- we we orders Programs products a demand Transcend product be did First we introduced place did of Transcend the that X.X. for would we in in because in have called at Early anticipate we the see and as replaces all,

was and slowdown accounts see demand. said being as distributor aggregate, the where focus where occurring also We light a the we there repair done the heavy looked consumers strong net product, on was that, on their channel were maybe others, marketplace rebalancing professionals product remodeling. on at that we are those buying on and continued it Having the did but demand that they one double-digit believe distribution little little within in from

Alex Rygiel

light particular? affecting products being vast that sort you And channel, and the of few over the home markets slowdown your last in in And with on majority the clearly it market? you’ve can you if regards or months. any months you it next over the your could on seen if don’t new you. business of just reflect construction, months comment the think understanding few the through I how comment of Thank weakness numbers broader how macro it of to see business that sold that could the over but R&R six last

Jim Cline

Yes.

As you little mentioned on very that. remodeling We segment we’re business. of about impact XX% in the residential and see repair the

we by home that. some have construction them are However did that we do new being and by see primarily impacted accounts driven

a remodeling the people As consumer should continue in is opportunity that segment. confidence for their plus that remains for period see long stay extended as We as elevated. homes an net longer an repair of and time

have it could impact does segment by it affects New not but home if as business direct our business. impact an construction that slow have starts on to confidence itself, our consumer on

Alex Rygiel

Thank Helpful. Great. you.

Operator

Today’s next question John go be ahead. Please from with Stifel. Baugh will

John Baugh

the is Thanks and just what that million for or want taking us But what place I there? don’t also the $X and what's to hit? just you I going tell the require my the on physically wondering discuss is accounting was great would central earnings physically could questions on congratulations or taking know was revenue quarter. division you

Bryan Fairbanks

announce there second is then will to Last that within quarter that central certain of the other see there that change through revenue required to we are we in we reduction did starting in distribution week portion channel recognize in So, of for the territory. the that benefits are line change. in revenue XXXX. changes a the a the related And the

John Baugh

you I for a profit ways Bryan, impact guess, So ship to And one so to revenue one of reversing with. you, kind guess that's parting whom revenue distributor the or…? your product I

Bryan Fairbanks

through. just changes line charge, cost directly. million good million no flows flows the sold There's $X X The yes, through top directly it with which on impact that just of

John Baugh

right. All Okay.

Bryan Fairbanks

$X much well retail John, clear, a as not as channel. just in million both we the be It just two-step the as the distribution. related broader Midwest class did relate of to customers distribution the to mentioned channel to --

John Baugh

to the then that exclude we’re impressive. consolidated does just in And XX improvement one the again company. XX million two, clear, Help XXX include the us that’s Okay. basis so gross the point $X And margin, charge? or that's

Bryan Fairbanks

charge. $X million That excludes the

John Baugh

across Okay. it’s the And company?

Bryan Fairbanks

basis in that been much key consolidated may driving bit have polyethylene And and three prior on about to material performance. was Is into material. negotiation cost the initiatives, saw of with consistent a talked of costs saving what’s utilization a side, reduce we that polyethylene. the key and performance the finding on the this little stream quarters not necessarily in pure we our type items to last just as our quarter. systems. our It's technology recycling able priced of and different it not going and It's that from out be lower of know-how sources be introduce through the The

John Baugh

projects. in those Okay. something, Is get some costs they up there’s a of the the And that's mentioned obviously I'm you’re but benefit, where incremental of of assume you then guiding short-term to And long-term the this picked good. is things accelerating for maybe year? the going sure cost one lot or are

acceleration dramatically? So I really through the assume the that flow change won’t

Jim Cline

own go running this be lines line, we’ll provided through we certainly number will the be past additional phase was the Well, its And line in was there like will X. Each expenses as just bringing trials on incremental of as a there series associated began we we see on. of believe individual guidance bring each year that that XXXX. occurring we’d that margins line in included But I up trials.

John Baugh

to that past reaction of do of private then have other Brands, had? an had any that And at centers -- a you. other you just was Fortune prospects in Jim acquisition that color if you Thank label to changed Fiberon if with I you home perhaps more and things curious on lastly that? transaction the any if the of you all of about curious among Okay. know so on opportunity the by the I talked

Jim Cline

one had is make relationship in deep disruptive I that would Fiberon a The change there a time. long absent major imagine It’s Sure. a retailer been a with relationship. relationship. that would change they that

change to and So be we make change we our Trex, make in the certainly that retailer would a that. cause product if and a figure interested to out and job commitments can more that disruptive move to could

of all them engaged to and them customers to a with of Trex. greater our try are and bring array that product We with expand relationship to encourage major

John Baugh

Thank Great. luck. Good you.

Jim Cline

Thanks.

Operator

be from Seaport Securities. Please Matt question McCall Next with Global will ahead. go

Matt McCall

afternoon, guys. Thanks. Good

Jim Cline

afternoon. Good

Matt McCall

the I I to listen all you tried maybe gave. let’s wanted sure and of QX, kind with – to start just So, make takes puts that

that and the You period. of QX QX said are the kind stocking

something going X% You that to relative had around projected on that kind else growth in there December, know term in not the about in something growth assumption easy, Early before.. I on projected the there yet comps of the need you've had comps there, necessarily QX? impact of up we of Is but the around tough Buy rebalancing going we in think the only else rate residential. Is

Bryan Fairbanks

view fourth inventory back of quarter from strong director is really just We make timing part not is they this distribution would that we up the And not the a Yes. latter dealer it's the first timing. quarter. therefore down, takes to matter point fourth fourth demand the we come a part expect play dealers that of Certainly The at anticipate in reduced quarter distribution typically when in and the quarter of the third as a quarter load as will that element. opposed place that exceptionally to at in normally their pulled we point.

Matt McCall

Any and out the of quantification of kind delays gets what QX? pushed in

Bryan Fairbanks

out I that estimate be Transcend would would the be monochromatic X.X would pushed new products The product.

Matt McCall

again year. The that that is going next leverage more of in come savings? anything mind. Is for capacity opportunity? Phase be assumption that Is out will third cost we to to about the another QX? change look is saving, is what talk the growth. as tied X or and the that to Okay. And that the Or there third in benefits the the and Bryan from in roll you third And then mix

Matt McCall

inclusive has come try down The this not provided. break from exactly we’re as been each the improvement categories. we’re fairly through don’t year it guide we the at expecting nine trying consistent of guidance the to course the year, but that they the months the to of year. which categories of over It full into a look first of rest as of is We incremental one

ball to where look its investments this market as we’re year going; team making, it we that management on relates is the see that keep the into As next the with we a gross margin. eye

We opportunity expect there. additional there’ll be

Matt McCall

it you're trying I'm Phase to different serve the up just savings open out you're to very and in or to this project, new to Or, on X, X Phase Phase is what growth? So, to figure X you Phase year? it's X future grow recognized similar the to how some is and maybe some doing trying capacity going are similar

Jim Cline

Phase X. Phase XX%. we X to with did similar Phase X us is gave what initially

We’re still X. working through on opportunities Phase

of some Phase have the With on long X, equipment. that we lead-times

the rolling So, it get in come we earlier. on will year, later to it in needed but

ready several us put Phase do in from gives in product us that really place, we've first and to those will the make twofold. importantly put the seen about, better and that gives we're We’re lines It's will more with us. based changes. quarter X to It initial running be but pretty is we've it what reduce cost, on going lines got throughput what it and We’ve excited additional up a for in,

Matt McCall

And that you in better of to central will charge, residential both sure, just want that tied to you up the opportunity, residential guess week? mechanics those QX asked the I was sure, both John of show question announcement also last And that you to make the the had. I make wins just region growth? that then that in And you. Thank Okay. the made think last the was

Jim Cline

as in growth. up just It to distribution of the show not the channels, all related QX It channel. will better

Matt McCall

Okay. guys. All Thank you, right.

Jim Cline

Thank you.

Operator

question go Next be Please ahead. from Keith SunTrust. will Hughes with

Keith Hughes

I this assume, Thank buying points Midwest hate understand How charge. distribution keep sale. would to on on then?? to the does that you. about asking thing, reversing effectively I back other same that relate but you're inventory I

Bryan Fairbanks

From the other points? distribution

Keith Hughes

Yes. that? be they included Why in would

Jim Cline

recognize year. but from we’re There affect this will perspective, those that the taking the And are revenue, exactly at next of a specific what activities statutory into change we’re time. in not that market required we’re changes details to that are getting

Keith Hughes

no the is that come issues Okay. product? that But of correct?? out there quality Is

Jim Cline

No, no.

Keith Hughes

of second dealer stuff, some guess which big sort any sort of is not at they business, but in there 'XX year I of your And housing that of you the about looking things your new Any a part question. given and as But how your dealers, meeting of know of think have soon. coming stance are I nature? the Okay. up change thinking of business, and dealers inventory businesses. about they’re the other stance

Bryan Fairbanks

And significant levels, continue confidence coming mentioned. of So at as consumer right a all affect things so that will moving high a Jim a change that see a strong to through into could in the is there’s now off indicators year. We more But dealers are flow consumer that see we If are our there optimism high strong. continues confident housing XXXX. channel. of level

Keith Hughes

you. Okay. Thank

Operator

Trey Grooms [Operator ahead. go be from Instructions] will question with Stephens. Next Please

Trey Grooms

afternoon. good Hey,

Jim Cline

Hi, Trey.

Trey Grooms

kind you in to mentioned still year, So, say for we opinion?? in lumber know, hit you continue are this you an But your then this clearly update, prices longer as to of after your I also a looking to your a earlier were big we we term, of And some to it. you point you thinking impact there, of guess in that missed similar that, come conversion, go the that at percentage have are -- for in kind expect know price rate bump lumber kind or July, down will outlook I all conversion in if year? opinion, this a change Is XXXX. expect But it track targeting on on I and I wood year? next one back sorry this as just was guys

Jim Cline

pricing Yes. we in to. treated lumber. on one at couple treated retail There's for lumber, the look pressure things pressure the a change didn’t see Number significant a

good And prices, or we such Coast, prices the commodities run-up think those very little of up. wood They therefore and people changing. a the in cedar don't on at move direction. relatively I benefits see associated the like West they impact with reduced market that products So, as find for versus and and We remained somewhat there products as that those saw part you’d maintenance rundown. to the alternative in looked due our elevated. that went voted that Other redwood, the is Trex,

In we an believe as that to see conversion a have place. to time. little going we wood think to but It's wood with year bit bit able in customers step it's fact, little we a that open acceleration will penetrate each jump, stronger from of be are alternative over not going to a we get solutions further the we're

Trey Grooms

Thank housekeeping showing kind Got Okay. the business gross quarter. margins on it. here more good just this And quite commercial the a you. on of

commercial as go at to are the for a incremental just a there business? the you the is specifically one on I there? from side, business without history margins there on kind significant expect seasonal looking overall, on is Just -- should just much mean, for we next seasonality how that the on margin that – reiterated of to based know I change but quarter

Bryan Fairbanks

we’ve the certain later major talked with year the as biggest lumpiness And is There’s of some gross perspective. is in driver the There on growth quarter in get from so margin pure with extent gross, And from more to to you when will percentage. the much the dollars, margin necessarily is gross as the in these past, lumpiness that recognized, you perspective about revenue that. move figures from growth, will in to have revenue a quarter projects. the a business not see seasonality we the a projects lumpy they the especially that

Trey Grooms

Understood.

not And to rolled you. out Thank Okay. discussion Transcend new just might X.X. this but product for right for be trying the really sense this this guys you and a lastly then get

can some Just anything dialing us purchasing kind significant on really if back back how must of that. ahead And differs? changes that you of be give folks and are there

that? us color where lie? of in any anything differences kind And just give can changes the like on warranty So that? Any or you

Jim Cline

product you Transcend It substitutable aesthetic. what old for not with that improved Basically see an is monochromatic. the is

be So interchanged. they can't

that they believe really bringing people all down out why the quickly that new to exit as they but start want is So improved and it material aesthetic. we as their inventories they run before run can, in will --

Trey Grooms

week. All a me. right. Okay. to forward next you Look it from Thanks guys seeing lot. That’s

Jim Cline

Thank you.

Bryan Fairbanks

Thanks.

Operator

question will Hughes a be SunTrust. question with next follow-up Keith from The

Keith Hughes

Yes.

where in Just on the Transcend in fall quick are X.X, that versus the of products Transcend? a price-wise that does -- spectrum replaced

Jim Cline

It’s same price same point, as at point, priced Yes. priced exactly it’s was. one the price the the today old so

Keith Hughes

you. Thank

Jim Cline

You bet.

Operator

like question At the this back answer today’s to conclude Jim closing and this will for time any turn session. I’d remarks. conference to over Cline

Jim Cline

and for Company. and and interest support relationships thank you believe our to Well of the your business that the Trex closer the customers expanded be development Trex. of We partnerships will beneficial to both

our be significant forward on to years growth relationships. with and look conferences at subsequent and customers distributor the expanded earnings our and meeting stocking you. as continue to week. we meet we’ll that to also investors our next sales and on continue upcoming We we the wood Thank and expect expand realize will impact XXXX focus sales for seeing analysts For our

Operator

attending is for The may you thank want to conference this today's now And presentation. concluded. time you now We at disconnect.

Trex (TREX) 29 Oct 182018 Q3 Earnings call transcript