TREX - Earnings call transcript Q3 2019

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Operator

Good afternoon and welcome to the Trex Company Third Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

I would now 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

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

to Bill Gupp. I like would now Bill? over to call turn the

Bill Gupp

Thank you, Viktoriia.

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

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

turn the I over will that With Jim introduction, call to Cline.

Jim Cline

reflecting The living that positive the appealing brand for continues their value as products sector robust proposition aesthetics demand remains remodeling the trajectory and continued remains to quarter. you and we to outlook. to our performance to performance review you that all business a well and conditions strong Residential repair Trex joining market The evening this pleased decking as am third Bill for for in expand. experience outdoor Thank our and our and third on thank call I represents. quarter report

a to and Net sales that performance up be shipment quarters future of customer residential was of positive are achieved output. progress Enhance increased with products Trex on consolidated our third the performance made caused we've commercial produced Start-up terms both financial to orders Basics production and and delays in sales a our XX%. XX% costs We This us. delayed year-on-year expectations. for largely very with our associated below strong orders quarter quarter despite of new behind residential Natural

for at along meet throughput Additionally, manufacturing both to capacity Fernley has added at the improved strong and our with demand Fernley ability Winchester products. facility increased our our

removing have In the new process addition, product we of begun Enhance material line. from our

near-term. improvements in the improved management. as well efficiencies driving Thanks significant able margin to the third While our quarter, increase in operating and that reflecting date, to year-on-year Residential us consolidated third in We to has a combination higher performance XX% additional begun. manufacturing throughput quarter, strong modest pleased were points will in as to improved cost forward I capacity path reduction EPS. leverage production the the XXX of basis This am in provide well design and sales, savings original are growth the as gross residential product cost sequentially modest as Trex achieve cost the diluted a utilization.

strategic year-over-year, semi-custom to quarters. We improvement add into the shift line. of unprofitable product and due contribution some business market to to sequentially products below customer more sales that orders out and to pushed as uneven part was conditions Net both commercial our margin portfolio reflective due of gross from in expectations large nature our products were the part future exiting a saw and an in

captured Ascent Windscreen top this we honors continue the chosen Commercial We or Products are pleased that significant windscreen voters Awards. glass XXXX Product newly by see from year’s was as which capabilities. the engineering the Also, by The acquisition, Best in Hardware to Glass launched Magazine benefits Trex System. added innovative has System

It as Trex unparalleled Transcend the brand a continues aesthetics. its top the professionals remodeler’s for composites. choice of professional expectations XXX This to be to for earned addressable decking remodeler a of reinforces high the exceeded Basics its is professionals. appeal is thanks and recognized not demand expanded and XXXX. products top have spot and recognition quality Trex on list for brand our consumers, trade previously Naturals position have for markets, go-to have Enhance to and considered our Trex who and

Trex a While accurate accelerated that level products third-party we indication of of is continues conversion data there market is sales achieve the an our that from not clear are growth that to wood. confident available, is

quarter the start in a XXXX. keep be facility. that the being In the And In third XXXX we have underway to early at by further constructed Fernley least our in line to XX% facility additional production second will expansion XXXX ramping building efficiencies will multi-year lines and quarter up operations. capacity our pace with we by up fourth Winchester new in bring program XXXX of ramping lines demand, will of One in in operation capacity two and begin production manufacturing the three the additional our at production Winchester installed an latest. the increase order in quarter, will

products XXXX confidence share the greater have All capture for demand in wood ability beyond. the consumer and Trex of of to our market this and we speaks the to in

to third CFO, Fairbanks Now, quarter I'd the review. financial our turn for call Bryan? Bryan over the like to

Bryan Fairbanks

evening Good quarter increased sales Jim. you, the Thank XX% for million. $XXX Consolidated net to year-over-year everyone.

for While growth was robust, below expectations consolidated performance reasons. was our two

Products Products from contribution to to our shipment of expected quarters into performance decking the delayed increased pushing net by sales orders Residential than Trex due year. shipments completed year-over-year to to orders October. for the Trex first pushed lower week had Residential in continued This and Trex million. supply of driven $XXX and strong earlier due constrained products demand XX% was future customers out Commercial we First,

the quarter, margin mainly large consolidated Residential ago future year Adjusted fewer in Products to projects points quarters. planned XXX and $XX $XX gross to Trex margin several basis third quarter XXX expanded to basis million to being due Commercial the third in shifted gross XX.X%. million contributed points to compared projects Trex XX.X%. the net expanded for to sales to quarter

However, margin quarter and Residential residential in net the please sales negatively in keep XXX mind margin Trex year gross points startup charge expanded as by expanded behind to comparable in costs Sequentially, million us. related were last stocking gross that $X positions are impacted sales basis channels. a product

Enhance absorb to maintain costs, needed a for throughput We material continue to levels increased our products. presently higher

and reduced expect this begun next reduce we to will product have XX to third XXXX. of SG&A benefits to gross year-over-year the we management in throughput quarter XX.X% were over products realized. XX the to rolled $XX related expanded legacy continue impact from to $XX the off improved project points of material reported million the While and Commercial XX basis compared Products was generate months. as increased costs, margin adverse million to

As XX.X%. The a related expenses. was related of decrease personnel net percentage year-over-year sales, SG&A to was

the Products million we to year. XX% Our a and XX.X% million, compared Adjusted Trex our XX% consolidated share. respectively $XXX tax in performance share year’s for third rate sales $X increase quarter $X.XX up up income charge, increasing or last $XX Net net diluted year-to-date, quarter the amounted to to share, was quarter. or $XXX per $XXX comparable million XX% year income $X.XX per from and last consolidated to per in earnings briefly X% ago were sales net sum increased reported Residential million XX%. XX% To diluted was million.

$XX cash flows were year-to-date million. Our operating

throughput $XX compared in million capital our million to expenditures spending and due announced mainly period to expansion. in were improved $XX investments capacity Our year to ago related a our

quarter, approximately program $XX to a outstanding stock under date, million. we outlay repurchased XXX,XXX of XXX,XXX of shares This common Under approximately the repurchased stock total we've approximately our repurchase shares. for our program

left have We shares for repurchase available program. X our million under approximately

following the For from XXXX second XX%. financial modeling expectations million. payments $XX margin guidance We our full of incremental project. related our expenditure our to for reaffirmed consolidated prior year half decrease purposes, $XX capital our items. approximately expansion We is to compared $XX due please capacity of gross provided estimate to million million of timing million cash actual to note to $XX The

closing turn for will to I Now, back his the Jim call remarks.

Jim Cline

continue Trex from key benefit Trex. for expanding lineup strong Market and market The the product continues demand you. advantages. for to for strong positions double-digit conditions to be Trex positive Thank competitive growth addressable residential Bryan. XXXX. in

are industry leading in the and share with We XX% approximately our brand the market of leader clear composites.

major We in and have dealer bestseller are improvement business best the home at retailers. and the network a the distribution

building tools websites continues to consumer investments ongoing design and Traffic through deck entire in that process. guide to expand making we are the our the and nicely

cost major our of products, derived In is fact are addition a sustainability material of XX% to our from the the input materials recycled appeal that advantage.

a in gross and underpin the to XXXX. heading to improvement regard that our We attributes expect into expansion continue these have record of quarters. driving coming track in confidence drive Taking together, margin

has businesses their growth a XXXX partners for support XXXX. is greatly appreciated work like challenging in and hard channel XXXX and for has our effort well I and our been support Their to year. and continued in thank positioned would beyond. collective strong

quarter. placed December strong demand December another million certain and term, announced program, the September partially to was fourth sales to margin. in early of with for our will and products quite compared year's by approximately from delayed due will residential products. orders double-digit near last buy quarter This sales gross we This $XXX advance be year. shipments to sales growth expansion expanded of of be sales dealers XXXX continued in a increase of be sequential the under lower consumer by strong an demand consolidated buy fourth period expect driven offset net price In distributors early on as this and of in sold modest, residential In the

from into for quarter early buy We the December of expect first the to move XXXX. sales

delays similar will demand sales customer and due the to down software be Commercial quarter. third year-over-year to

pressure both guidance fourth and quarter to During margin Bryan quarter. provided. This experience certain throughput down related will the the will and we downtime enable and our incremental has to Nevada in projects margin reduce Virginia the which been sales during modifications planned this will in expansion infrastructure included fourth

now to for call like open Operator I’d the up questions.

Operator

go begin come of Stifel. will our [Operator And first We the session. Instructions] will question-and-answer ahead. John from now Please question Baugh

John Baugh

performed I evening. in here, if has that’s be be Thank to probably in free any off how Jim in feel lead to throw Transcend on XXXX Few and questions pricing there The you it want. provide could fully calculation. units you you. shipments may and of in December color recognize and year-to-date should is there Good kind

Jim Cline

sales Yes John, were price significant in – there fourth of increase quarter avoid amount to mentioned I'm sorry, of shipped earlier. a XXXX the that XXXX Transcend I was the that

our of of suffered product in small a product, early quite on cannibalization produce a to entire tell amount the seen bit that but it's ability little our have our availability marketplace to to the product We due because frankly, offering.

products. full we As we all get our of struggled right a the get to were mix to channels, on across the representation trying product

So guidance. give you we say at to than point believe I had I that would think I can it's what we don't further anticipated. And approximately this be going further

John Baugh

Okay. line And on then maybe a these additions. clarification all

and there coming is three So Winchester additional you in at lines XXXX, those would in two add QX QX you Fernley, here more Fernley. to lines an in line then then in on I added assume be expect and

Jim Cline

and to correct. we'll start existing Winchester. the one take new We one in way at it XXXX. will line up were and found it a quarter a a full that lines line, second That the additional facility. not in. those of a throughput to in Those be on additional Fernley into Really is will performance our three line The It as shoe insert but be I us appreciate. we know end, able to it will from standpoint but our our partners business strong had give as will get ramping

John Baugh

but that it then this did anything of year versus goes? new defer we should that's enough for steady anything XXXX And lastly and look Okay. others, and or as we past to in meeting, XXXX I'll kind distributor it's

Jim Cline

business. the are primarily the in railing nothing There in they of but were significance decking new side few category, products; of the very

John Baugh

Anything changes? with distribution

Jim Cline

significance. out did minor in Denver the We distribution market. of changes have No distribution change in any a

Trex. We Competitors a distributor. West think existing But by word the of took that Ore modify are distributor couple up I move have picked that's place. out that to is another publicly existing change a for the of name relationship Coast Fibercon the changes an And We did and distributor. only Pac. that

John Baugh

it. Thanks. Great. Appreciate

Jim Cline

bet. You

Operator

from come will Please question next Blair. the ahead. And William Merkel of Ryan go

Ryan Merkel

couple Hey, questions. of thanks a

satisfying up? First line, off expect close the are on when to caught fully and do Enhance how to you be channel fully you demand

Jim Cline

guess normalized channel with be month will that would And early in inventory We having October. in close demand. November going to the a caught September; to late be be make in very sometime will lot say inventory would I I we of the made up a we're November. place significant we would more October, in progress

Bill Gupp

to for over inventory point tends low of the the the November year. distributor be course

we So line November. we'll present actively plans be get the inventory with end their expect active normalized in with they our back shipping of roughly for and

Ryan Merkel

Got it. hear. Good to

you for commercial next, in both can Okay. quantify residential? push the chance any sales quarter And then and to

Jim Cline

the million. Yes, guidance the our year division. available to of amount had it $X so shares remainder The to we to available to of look commercial at would last to had that ship we compared be ship, we what that XXX XXX versus that increased provided last million of related about year, million shipments by we

Ryan Merkel

is a big sustainable? year-over-year. What and just then this is improvement lastly, And XX.X% drove in it SG&A Okay.

Bryan Fairbanks

A because of into in normally the we deferred quarter. and the higher that in second lower quarter demand third demand inventories see the would channel the the much than were leading

So was quarter it seasonally you normally would from a that speaking, really it perspective. have. drove much percentage than a And what larger

Ryan Merkel

Thanks. it on. it. I’ll Got pass

Operator

from question go Davidson. The of will come D.A. Kurt Please next Yinger ahead.

Kurt Yinger

Thanks Good Bryan. taking afternoon questions. great. and for my Jim Yes,

quarter the I reason there be typical different abnormal XXXX this years, revenue quarterly of to first that back as to or If we should has half. of has of expect, in think last of cadence? come First XX% a call XX% cadence. in bit all, couple kind Is it would year as look a been we far the guess, sales in the any

Jim Cline

busy next I into would typical you of the season a get the year, expect part change more of What can off. as look back is that out we timing to kicking cadence. the of

Sometimes April. of second of the that could be the March, end week sometimes it's

I timeframe, to our expect sales don't but you'll the you revenue that from actually next would a versus seasonality year normalized can move into you know but much out more that see until saw year. this You get what it quarter-to-quarter, type

Kurt Yinger

provide or And Okay, of costs helpful. additional the you anything a thinking little that’s additional then labor, about fixed appreciate for associated costs absorption, you training, lower could potential like or timeline with the or I bit around how capacity, are thought that?

Bryan Fairbanks

discussed we've bring headwinds lines in up. we calls, we Yes will I think prior are the on labor some before as actually ramped

our for maintenance hand, back will labor staffing as individuals, get improving move those mostly bit into taken project headwinds so will customers. it's our cost need We necessary to we we've will year next some to before production. a need the we product saving year, as to to for this train focused on that have on of Offsetting a available pause throughput there we've on be on programs that, bringing more absolutely

headwinds. that next year, to into to projects get we are that will available us we there's number see those a help offset labor As of that

Kurt Yinger

to far decking top or your Great. isn't priority, perhaps rate sales? Thanks Bryan. as increase the out the worth as And calling opportunities there growth railing attach know is then with just accelerate maybe residential but there anything lastly, growth I

Bryan Fairbanks

then have commercializing engineering railing division using with expertise market desired to to We engineering commercial and that cooperation launched lines using has have commercial and our continue rapidly to it been good profiles our marketing We've with the got division now total come residential. time. capability for our us some a that of their product within three allow of new team to

fill of hitting lines. we additional our be to So to that product were see areas opportunity with able existing today not market the

Kurt Yinger

Great. much. turn I'll it Thank you over. very

Operator

Securities. Please of Our will Matt next McCall from go Seaport question come Global ahead.

Matt McCall

guys. afternoon, Good Thanks.

Jim Cline

afternoon. Good

Matt McCall

maybe all wouldn't at I So year. last

those you and as XXXX, idea give on pressures Bryan, material a what there has we've I maintenance delayed margin an about, some of reduce mean could is way increased guess on impact downtime, what XXXX? kind perspective? got maybe I gross then gross kind opportunity just move contribution all of what And from been that to as Is think, the you’ve And to importantly, new throughput, margin combine savings. is the talked total. and some of the some we've costs, from be cost lines, got drag of then So more subside to of expected any us that or

Bryan Fairbanks

the out as be out yet focused the improve But on headwinds additional not recognized guidance have able on margin. see we providing a We margin capacity the We cost there we way. to with and that’s are coming are also on. and to provided management improvement. saving continuous as along very other margin But we of our plants the programs those team, the that opportunities within and efficiencies to have XXXX

Jim Cline

The primarily pretty Matt, don’t drag a One drag. was on of and horrific quarter. see to that had expect a we Yes. thing of first to repeat we remember, related kind year-over-year, startup that

we’re to definition, start a by operation going standpoint. from out little an bit stronger So

Matt McCall

is delayed And said about a early to do that you the What correctly. that I early – QX? more was you I at expected I much, if Okay. in say a say impact buy there. in show I number you X on right. What quantified Did All QX, the basis from don’t not resi shipments to think the the the – up did how million think of you in buy impact I of think going heard the that’s recur? early that year-over-year it hear

Bryan Fairbanks

buy early the Yes, typically doesn’t December. portion occur that the of in

the more a for example, This December normal quarter. For in being didn’t we’ll January product March. a December normal what in where ordered back cadence through what’s more first that year you year, go out have remained to appear last buy, we in to shipped early

Matt McCall

it? can was what that – the quantify abnormal last the And dollars abnormal year, you

Bryan Fairbanks

time. down get to to that going not at we’re but this can, I level

Matt McCall

unprofitable there impact revenue? Was any something there gross on impact you margin? or gross I margin line product deal? Was Last move kind there a I impact had, on in Okay. about forward you Was of was said on commercial. an it question as exiting thought small any any

Jim Cline

to into determined business, it gross piece better manner that was over it the they It fully made a impactful something be We two as it, we years got them believed offering last customized the we a market. was which It’s but offered was of not quite profit. their approach us. smaller would a alternatives, on an that for adverse sense in product the

a love is, So we’re direct little way. The going the probably it’s a out to be it new important it’s you’d began replacement, exit to but one, a different market strategy bit you and as reason certain not.

a about is for new that there business we the a So will portion half as lose building of products products place. in that year a and putting start and their new the

saw down this substantially demand year, what albeit a we saw product demand the what profit higher years So is ago this of be category, ramping than is. we old product two lower it’ll new the is than for

Matt McCall

Okay. Jim. All you, Thank right.

Jim Cline

You bet.

Operator

Berenberg. of Our will go from Maroccia next come ahead. question Please Alex

Alex Maroccia

for Hey, afternoon good questions. guys. taking Thanks my

been polyethylene it drastically and you So pricing. how on this up it the for was you’re some month. pretty was why material Based mitigating know looks recently, is industry raw QX? like first one Do this on reading recycled data I’ve

Bryan Fairbanks

We haven’t experienced an in increase in price polyethylene. raw increases

We bit we slightly that a been have down. far as relates little buy, in an fiber polyethylene, increase but it to it’s as the seen wood of flat,

Alex Maroccia

and international quarters, those just bit about starting how And newer but on couple of one you’ve a seeing some like you’re enough. of the spoken the about doesn’t discuss look the shift can it you to to good geographies? the demand there strategy. past Okay, you’re little in products the It then is second

Jim Cline

Europe. focused the North those in we locations, are The new are some heavily now, like new certainly Right attractive specifically products. of on America. products They international

commercial consumer as shipments side into point. expanding focused to the the this Europe particular are in at the opposed primarily of business We on

XXXX, and latter point that out into little part of we’ll really a further start service demand for at bit and the we open As entire a roll see XXXX growth nice the door We opportunity. the that. as that

we the to support going see point, demand. to But the So American our this we’re throughput we see market. at focus interest, North of most the

Alex Maroccia

it. a lot. Got Okay. Thanks

Jim Cline

Thanks.

Bryan Fairbanks

you. Thank

Operator

ahead. next of Ng Jefferies. from The go question come Please will Phil

Phil Ng

guys. Hey

you resi You little buy it drove a mentioned your little have shipments. because do that anything delay? of that like weaker Can with a what car was to delayed production Did ability?

Jim Cline

Yes, that. order and having of in at ended month. them of get end shipments basically really And would days been year, fairly I later XX able the timing up time of the of got nothing of had large the on September was out. this virtually were the we week They completions October. all And the amount a a than in we’re that all released that And that Trex. orders get of pull first it’s of out didn’t together it typically those more in to got them say basically complicated out,

Phil Ng

fourth sales impact profitability. to resi that How impact down And pressure much there have quarter you I And in some any that, fourth have the on mentioned then take you on for year-over-year? Okay. think does you’re on the Is mentioned an to margins planning could of downtime. quarter? gross enough your that

Bryan Fairbanks

No.

we being don’t been required the understand see the any that impact six guidance, We just but sure reasonable we margin. I lines we our have. that past that that hard the sales our running quarter, do which quarter. people implies and within wanted do fourth in the everything about talked the appropriate we running is fourth on will have on months. upgrades the So taking make do, the in guidance we over increased We lines to steps maintenance our are to

managing the where know more this about our extremely how of operations of levels. period market let Just utilization running we’re high going at we’re a time

Phil Ng

manageable. Got it. pretty It sounds

Jim Cline

There certain the able to we up. have to and shutdowns support halls to production new production that lines are are do plant going Yes. be

So to several to shutdown. days each needs plant take

numbers we example, in electrical means just less put that, Winchester. we that that do projection included have will earlier. incremental all we for and be the as It’s Bryan lines in sales can new that across site provided And new where production. provided margin So building that that the they it

Phil Ng

it. Got

newer business for one most is And one Okay. obviously for us. last me. The just of commercial

comps out. the obviously tough But business of at pushed some some suggest the bit. some market and when look this we indicators macro a of slowing got laughing commercial You’re

your and Just at you up look shaping that year-over-year? grow with out expect when are curious conversations do XXXX, you business to how your customers

Jim Cline

I as were all be major two business things have need you year very of a think Last along projects this we stadium/arena high Yes, year. there’s this basically in gear. We to had that will did two said lumpy. remember, that we not repeat

So that With yes, by but is a expansion. other itself The year-over-year drag. is do to the we to see answer expansion? regard sales expect question, not a dramatic sales

Phil Ng

Okay. Thank color. the you. Appreciate

Jim Cline

You bet.

Operator

next And Hughes ahead. SunTrust. the question will from of go Please Keith come

Keith Hughes

Thank you.

the fourth. gross half, consolidated the on get would be margin the On margin up in I XX% above trying some that applying below that gross the comments it in just guidance, reconcile of with the XX% second in is year-over-year to am I’m residential. your third. in that

missing numbers that some go Can I you think here. I’m over just one time? more

Bryan Fairbanks

just on XX% back basis, consolidated residential not year of the that’s incremental, So that’s the and basis. half a a for the

Keith Hughes

Right.

Okay.

that than I going so margins moved imply would on is good down consolidated with assume would lower sequentially that basis? that be So before, at assume to a margins

Bryan Fairbanks

on looking On adjusted basis. at consolidated, list a an it

million to third of that we adjust quarter XXXX. So in the you have the for $X third had quarter in

Keith Hughes

asking. Okay. That’s what I’m

Okay.

adjusted the $X for that’s So million.

have looking season? look the first by November have as start distributor you but it. think I a to inventory bit, the want That as answers particularly to a for inventory Enhance, you ready you the get specifically quarter you little about as levels talked – do of Enhance at Okay. And guess you buying for the at level,

Jim Cline

start will did Yes. We are full allocation you inventory There in they their allocation we And the We’ve September an ability to we aware, for of example. up look do the West we were We season. example, particular that supply the between West both basically on in improvement were on for we our distribution at Coast in beginning ramping at month the build an for shape the seen when take in gaps Coast. filling think in have. see as that the the distributors the not be good and at inventory should up production of locations. inventory you’re

Keith Hughes

Thank you. Okay.

Jim Cline

Next?

Operator

Please question Rygiel B. next of from will Our ahead. go come Riley Alex FBR.

Alex Rygiel

the were Bryan, items quarter? Thank in you. there SG&A impacted third any that one-time

Bryan Fairbanks

The that earlier year had variance No. spending lower the lower only that the of and seasonality because we quarter last that’s that’s the high it. the had nature the in purely of little would about of see was normally XXXX. percentage largest we why than just thing bit personnel of We had what we a you really is talked third

Alex Rygiel

And you in quantify the cost could business? residential pressure the quarter any within chance third the

Bryan Fairbanks

or but We’ve additional some had kept We’ve a that way those into material line. that the this along we’ve not margin is been level, opportunities within we’ve product the as able at provided to other higher on guidance that as cost usage including offset impact their the point. not it costs we’ve well of gotten to what exact material

Alex Rygiel

let probably way, answer, try. different a get question the the but ask me same can I Maybe

have what that margin it headwinds pressure overall at from You’ve you’ll is How what’s that maybe about point should your target standpoint referenced year-end your, is cost call pressure that in I guess XXXX. time? think your until we some or

Bryan Fairbanks

the year are our opportunities got on margin lines our improve see that mentioned lines here. are at XXXX cost further organization. we throughput to we’ll be coming facility, the mentioned able earlier, labor very so have. We being support focused advance the in that on for I lines a Nevada the those we to that three Virginia will on bringing come and in lines on we’ve facility Jim labor of later at reduction,

what focus on improvement this after. is will continued management margin be team So going

Alex Rygiel

much. very you Thank

Bryan Fairbanks

Thank you.

Operator

go Our next question of will Please come ahead. from Trey Grooms Stephens.

Trey Grooms

Hi, good afternoon.

Jim Cline

Trey. afternoon, Good

Trey Grooms

me. for left few a just So

of kind XQ? don’t look I’m in absolute see any usually much into Here case Is to that a reason we it at standpoint. wouldn’t XQ of the looking be as dollar when on an year SG&A, you going XQ change this XQ from there from

Jim Cline

at that’s Generally Not way probably it. to good a look significant difference. a

Trey Grooms

Yes.

Okay.

try the So that way or in that on quite this And commercial Is I be direction quantify there having the that mentioned should we pretty that take year-over-year It would sales on maybe had year-over-year bit on place thinking seems swing volume us can unique down you’re nothing and any and/or the top-line then give sales kind you around. we margins can will a margins like that situation, business. guess unusual in good down given year. that some you division? about side, of XQ. be And the to commercial how where in

Jim Cline

Yes, expect a I difference significant margin quarter-over-quarter. wouldn’t

think I of the in third. ballpark the it’s

that I contracts have exited. And So year, significant half first with think much pretty of us the we we’ve line pretty some had now. – all that that associated in expenses we the were we product of behind that underwater

I up contract minor drag I October wrapped in there’s forward. think guess longer that that we’ll of no have kind was that one going

Trey Grooms

you. Got

Okay. helpful. mentioned guidance you delayed with that would there that and was the well there – up kind then look it was business in it that doesn’t pick XQ. of the like That’s sticking at some least doesn’t commercial, from And

would that So next to pushed – when into is back that projects, year that when delayed that you? maybe be does does come something XQ usually of or

Jim Cline

quarter times can or out be two that business one with a see normally multiple tight. lead because you the are usually pushed pretty Trex not it’s but Yes, our quarters, actually quarter quarters. not These

out pushed been have projects these months. six longer of Some than

them pick projects. eventually, So see those going we up any to of are but we’ll

work as had recorded projects fourth planned, those in been would of some quarter. was that And that the have sales

into that until next in the to that year. pushing going back late out they’re sometime don’t we also come because expect hopper We’re

Trey Grooms

it. Got

of next growth kind to trying Okay. And the about mentioned and in is from underlying the you and into double-digit the and level, your more of share pace I strong XXXX. where of as a – and what just business one outlook composite you past, kind from the and know you you’ve talk just and for today last the for little forth look I guys Jim, year far market growth rest poor growth your but capacity market, mentioned market mentioned in you high gains of think as as expecting the the market, you’ve come would me, expectation Can back are versus then this maybe type for in increases?

Jim Cline

seen a we’ve last market. back the have growth Trex mid-to-upper is single-digit decking higher and overall Historically, in we if the railing years, unfortunate railing you and decking participated and level. much of go in couple

deliver back last that competitors under I nicely. that closer average of guess very XXXX XX% we incremental unable would were see had their year you’d to sales. customers and we was is sales growth If years, In to five you low-single disclosed digit. the something we those XX% because their go grew should or growth to four have two their product compound expanded in Last some

think I is that first for time guidance I the on mentioned the fact noteworthy. growth, top-line any The

that demand said this lot I expect we have that we couldn’t it growth double-digit and demand even continuing got what deliver demand and think through is planned of we in XXXX. to a we’ve our that strong, we though to able I we’ll The see be is very solid was what year, branding drive activities.

product branding and marketplace that can ability past pretty of this we’re it’s strong-double drive having digit lot desired seen we to growth. we that as do. is a what continue comfortable a that product the demand that as a we see year So believe we’ve And in companies consumer other

Trey Grooms

a Well work. lot thanks the for the up color. right. It’s All Keep encouraging. good

Bryan Fairbanks

Thanks.

Jim Cline

it, Appreciate Thanks. Trey.

Operator

[Operator Please ahead. Exane come go Bromehead Paribas. Instructions] from BNP Yves will with Our question next

Yves Bromehead

Good I two may. I if evening, gentlemen. questions, have

you The out us not then the in XX first line the Enhance material expect more and can whether color wanting product other you which down magnitude this XX come Just next months to on comments this we’re products? some said could that to understand costs, to new what give your months? about to or your roll talking regarding and one, you you

Jim Cline

our seen the a or we we’ve core waste The over several of is things, the wood polyethylene waste that fibers. reduction waste polyethylene two other of in fact sources of waste product – cost either last primarily are been made our underlying products cheaper. offering which years due to able to have the polyethylene that market polyethylene find all and was of – down going decking Well, has been market the

much aggregate is which primarily reduction be cost In that material. slowed and on me transportation slow to seen structure the on to becomes that you we bigger when increasing an significance lower hand has go has XXXX a our Wood need, reduction, that that further product cost fiber combine we get the quantities due cost. the all reduction basically fact part means cost the year past not to expect very to of a other again of flat looks of like it to have year-over-year. you those, This

Operator

Pardon me, Bromehead? Mr.

Yves Bromehead

Yes.

conventional So market composite and probably second of decks the the I’d share so to tiles ceramic versus interested is question, Europe in and what the wood? addressable be markets do an you have materials, of understand idea in

Jim Cline

is We America, more here It America. for markets. in Yes, North move some markets in challenging the in size of Addressable into good Yves. of XX% gets we We’ve fairly overseas marketplaces. overseas about market it XX% a is as it. very the level, North got high complicated estimates believe in

of a economies is the something very a nicely go of for about. some that small market, one large in with All a a share for of to said, we’re larger growing Trex the being there opportunity larger overall so that albeit market after excited GDP,

within As the we studying against marketplaces. composite meaningful share players additional against is understand well we’ll those more spending where in and wood exactly opportunity share conversion the time those become markets, as our be the in as some

Yves Bromehead

Great. Thank answers. much for your very you

Jim Cline

Thank you.

Operator

I for ahead. go to conference session. would our concludes Please Cline This question-and-answer back to closing over turn any the like Jim remarks.

Jim Cline

detail for interested bit website to Yes, spend I’d more a in getting for their those you. and encourage little to company, into Have our to thank conferences. interest anyone Thank like time to follow to a evening. everyone conferences upcoming look We Trex. more forward our good related

Operator

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

disconnect. now may You

Trex (TREX) 28 Oct 192019 Q3 Earnings call transcript