TREX - Earnings call transcript Q3 2021

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Operator

Good afternoon and welcome to the Trex Company Third Quarter 2021 Earnings Conference Call. All participants will be in 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 Dennis Thank Bryan joining Fairbanks, the Financial and President are Senior Executive President on Schemm, you Vice us and and Chief

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

Bill Gupp

Viktoriia. you, Thank

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

such with discussion see our Form and For as our Act as of Form XX-K a uncertainties, and and most XX-Q, XXXX other XXXX the well risks SEC. filings recent please

Fairbanks. that earnings will our non-GAAP forward-looking press I the publicly Bryan or events of these update any disclaims as call With revise release to comparable this information, trex.com. Additionally, measures whether measures be in the call. over will of introduction, any future at financial a company to obligation be can GAAP statements or otherwise. turn to result in referenced new A expressly found reconciliation financial The measure

Bryan Fairbanks

the brand, expanding share. the Thank our per within of drive to will manufacturing XX% combined from This the Outdoor the $X.XX joining I as unlock a as Trex our Trex team, Company's evening, you with to to Trex another manufacturing decking execute distribution around an well channels the market repair and strong our for of by year over increased growth the capacity, living review along outlook. DIY for great net record long-term $XXX strength quarter Trex the of wood performance this along record contractor Dennis continues coupled for business our and despite with results. and unmatched capacity Bill, everyone. of results was market. fastest our year-over-year to demand of strength and from within to EBITDA Robust potential the a fueled brand possible. both us a Trex our and good reported helping Thank to expanded team with share market performance, remains making all year-to-date But our Trex considerable growth. an Pro you competitive key quarter our Trex. you, period our of growing third and effectively advantages Thank headwinds XX% today sector margin partners want to that, gaining successfully detail million. members, and drive of remodel in more community increase financial long-term strategy one on provide and categories XX% us earnings share prior highlight sales and strong growth our inflationary of

transforms environmentally our to the consumer portfolio We maintenance enhances benefit outdoor living continue friendly increasing and experience. that low from product interest in

Last pandemic. points America. approximately the share the was suggest great wood composites market, our overall XX% X are our it and Meeting in approximately With week, the we where analysis in of channel wood California, for from since date in an the for partners to share pleasure accounting of per face-to-face start from Distributor our converting market our market gains category the in up XX% to at in share percentage market strong gains percentage the Annual X of that in acceleration is from decking with success had be now estimated wood. to point, North from the year, It decking the hosting time volume first momentum

decking poised we conversion distributors the for Our growth. the all that we market. early the business need will and in in in to best the are convert growing Across execute continue universal success was agreement there wood the opportunity board, wood are and growth to to and railing invest are composite and

demand. XX% to third robust of searches track quarter. strength capture account continue Trex of traffic remains and nearly the to Traffic the together levels in for activity dealer high We website websites Outdoor our and website decks.com proven unparalleled category consumer Trex.com and company's consumer in with Living. reflecting to of contractor the indicator a as continue in interest

our installing expansion We driven content, is and within continue facilities, expected Decking our future As Virginia long-term growth. manufacturing incremental our digital and consumer decisions $XXX we service with digital a growth. Having current our remain capacity to ensuring Lines by on recently our Virginia our new channel demand engineering capability. support focused increasingly further are Nevada at the sales to both footprint to partners that and team million will aligned strengthen production facility enhance completed capacity expand is currently

manufacturing five them. coverage of in central site where offers best Rock a pool channel our company's qualified facilities our value of site Little recently labor, will investment and Rock in and customers Central through invest Little strategic ongoing The servicing can our it unmatched they plans the that geographical Residential Trex freight success strong West years future the better in major with to key Trex to hubs a to announced to XXX converted and Coast, as with costs. will materials, future over this for for advantage emerge our and needs Coast provide when primarily proximity generation. of a a access optimize to transportation plans raw growth represents wood When the Trex regions East proximity funded on skilled million new cash strategic need as that a $XXX Products XXXX, the and regions US Arkansas. have acres plan approximately we for partners. based fit Additionally, adjacency approximately third develop opens

early manufacturing processing, offices. in time, a decking a potential With manufacturing include production, the year become the modular slated storage, plastic to wood facility campus Construction railing development Arkansas to largest dedicated and approach and over to and alignment trends. demand with will warehousing film eventually recycling buildings with is calibrated begin next administrative reclaimed

expansion as conversion and XXX to pursue opportunities with share needed continue capture and to capacity we drive XXXX output strength provide in while wood expand providing production the from time will domestically people. of market the to products with incremental additional and as and Trex brand. flex activities by bandwidth Trex to adding initial These expect capacity the over facility demand to begin employ We approximately internationally

and diverting to operations continually plastic remain impact recyclers perform and focused We and We and for capacity advancing polyethylene company third largest of the where organizations planet Trex of by Trex for and we grows even one operating quarter work and now initiatives strive of their details to community-based on support mindful our to communities will the outlook. through our partners and Schemm giving employees, to to Dennis responsibility. the the as of on XXX communities need consistent and future annually. of to for While the of I support business landfills from US performance turn with the in year-to-date back that wood we good programs. and expansion the remain and we respected remain environmental our our of minimize environmental call be empowered pounds our strategic reclaimed million employees best committed at social growth continue opportunities, and the over Dennis? heritage financial

Dennis Schemm

quarter pleased our well Thank Trex' year. report expectations rest you, for I'm third Bryan. and performance results on as the to as of year-to-date the strong

small from XX% to sales inventory our price volume Trex third the growth, sales a aided During experienced $XX XX% $XXX XXXX the and sales total a net XXXX growth September quarter. led net that by strong channel million limited record million million in impressive Trex we recent $XXX results. sales. XX% of from benefit to Commercial Residential contributed Products primarily third increase up increased quarter, to

the to higher but quarter, due deliver higher pressures reserve and ago of offset transportation availability, customers our costs gross service This performance. continued we gross by charge. included shortages, manufacturing was constraints. labor the XX.X%, through the top-line materials, of margin Residential $X.X year was labor labor During and and million compares margin of the impact Trex in quarter, raw XX.X% on third Consolidated constrained which to warranty the manage quarter volumes, were inflationary third sales benefit the able strong to for reflecting

costs gross basis Excluding transportation this and by gross impacted was points XXX quarter. margins quarter XX.X%. Inflation third charge, margin in consolidated XXXX the higher

margin in quarter, gross increase fourth expect We price in our from production and efficiencies. improvement increased recent benefiting the primarily

last Third quarter to on XXXX in compared of million fire year. Trex $XX $XX same that Trex million expense XX%, the proceeds and gross in insurance for at $X.X this quarter SG&A occurred related to were XX.X% third in of was million, gain Commercial the Residential the year. margins respectively. SG&A facility the includes and Virginia period March a

SG&A gain, the XXXX million quarter. this for was Excluding $XX

strong model. quarter continue in SG&A positive sales, excluding EBITDA inherent operating recovery, $X.XX XXXX leverage XXXX operating EBITDA net of to of Bolstered diluted of and as percentage $XX our the to grew or or $XX XXXX even the third $XX increased quarter. business EBITDA quarter amid third significant XX.X% pressures. and margin sales, third-quarter leverage $XXX million the inflationary spending share SG&A by per Strong quarter. third compared to expanded net from $X.XX to sales to million experience disciplined growth million resulted a XX% As in net the XX% growth, insurance was income diluted demonstrating EBITDA the XX.X% in million topline third in of XX.X%, per share income of margin we in

$XX net the quarter million and respectively. Excluding was and $X.XX share EBITDA million charge, XXXX EBITDA or margin and $XX XX.X%, per warranty third income were

as $XXX included our sales Trex driven $XXX Now, Consolidated operational growth last last The EBITDA increased a XX% diluted net our to was in moving million to in increased or $XXX the sales. Higher expansion per million net Trex XXXX. $XXX growth to due and September. and XX% Net to year. small financial in a was same capture $X.XX of period period capacity in us program compared improved same EBITDA to XX% to $X.XX million, growth million $XXX to the to of Trex year. $XXX May, sales margin increased impact XX.X% price million compared increase of fully XX.X%, million year-to-date from to contributed enabling all in $XX year-to-date. sales the additional Commercial in to Residential in performance period during of as or per margin by an net XXXX. volume to compared period net end compared diluted of share forward our Residential sales Residential Trex the primarily same additional increase the EBITDA same sales substantially to realized income million to share, were growth. The EBITDA

or the Excluding million per margin $XXX charge, supporting Year-to-date in $XXX capital and XX.X%, the this warranty and were EBITDA EBITDA the share $XXX majority investment year-to-date were expansion million completed was expenditures million diluted and May. with program income respectively. XXXX net capacity of $X.XX

price repurchase program of stock we outstanding under $XX.XX at XXX,XXX per of year-to-date Trex share. shares repurchased addition, common In average our an stock

We remaining share of same we under the program. repurchased since have third program. been be end Also under have the million quarter, with current repurchases shares the active the X.X to

sales reflecting to million ahead, to to the low range we of year-on-year from representing at strong expect inventories. consolidated consumer and growth $XXX $XXX further following: midpoint channel and XX% demand net fourth Looking the million infill quarter

fourth incremental be the anticipate exclusively and quarter to EBITDA In XX% between addition, XX%. we margin for

decking $XXX existing Our $XX be million full-year range range in which be will XXXX $XXX further is lines $XX to rate production XX%, in tax of to facilities. includes million the our capacity million. additional CapEx from depreciation of boost to the expected will million installation Full-year to approximately on spending

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

Bryan Fairbanks

we Thank our growth on year are to XXXX forward, going double-digit deliver you, and strong revenue into for indications Dennis. the year-to-date on XXXX. performance full and continued for track Based healthy demand

we quarter, focus to improvement identify on our enhance reduction and an continuous last mentioned to we margins. opportunities projects cost As continue

Operator, efficiency campaigns and energy the our product increased processing. take distribution primarily of topline raw conversion. market on and we are same and enhanced our accelerated Specifically, new consumer further and advantages can intend drive innovation now efforts Trex to initiatives material well These on time, questions. brand modernization, profit robust help advantages. centered share development highlighting expand continued over the as focus strengthens a as we to automation, decking our improvements that and wood growth At marketing should

Operator

We Instructions] will Elliott ahead. is now Our begin the with question-and-answer Stifel. Stanley from Please question session. first go [Operator

Stanley Elliott

Curious Thank whatnot. within Bryan, Hey, conversion you in opportunity congratulations. doing could Dennis. conversations the some see on wood conversion channel terms on X% and online been the The guys where kind spectacular. research you Would the for end improvement the hesitate ultimately this the guys and having and the to of opportunity? the that you're you call getting you're that up of has pretty the of think guess in market you taking

Bryan Fairbanks

being for on evening. Yeah, this Stanley. thanks, Thanks

the the of we segment end unlike products. ago, course at consumer to composites opportunity years composites We marketplace level feedback the and have higher know really people lines we There a that with with understanding product the every seven enhance continue and great today. hear five, consumers entry is for of can our product from about more of and

over share. we see definitely when capable XX% we of of to look and the So that those XX% to overall long-term, type the numbers of marketplace, getting out

Stanley Elliott

you Thank and much very best luck. of guys. Great

Bryan Fairbanks

Thanks.

Dennis Schemm

Thanks.

Operator

with The Ryan question William Please next Merkel is ahead. go from Blair.

Ryan Merkel

Hey quarter. guys, nice

Bryan Fairbanks

Thanks. Good evening.

Ryan Merkel

So that then comment impactful in How shortage in Bryan, that making made. labor the can you the is and progress are quarter you XQ? you unpack

Bryan Fairbanks

staff think the good support as be all up last through the we that capacity, I things, that to capacity. and forget this needed Yeah, internally to year. of this of work moving we pretty of about additional to through job of a the adding this able And XX% beginning we we of did year one end into

to shortages with quarter into to start for wouldn't labor to we was I say, days got our to today, improving -- up it's it other some were did things It we third the new And ahead excuse put us want for XX it all did those six catch have second had into incentives, me for definitely had compensation be it we that available were of of higher looks I had where in but stay schemes, point. are on offset make Things quarter. of and bringing of on than stay like we've Some time we because XX better changes capacity. this months to much capacity the and ago. place. bonus that as that at people

Ryan Merkel

it. Got

in Okay. in do much importantly you're And going capturing since gross make it. then to on quarter on the margins gross more to margin. I you missed third then How fourth quarter, did more supply be price? the expect chain hurt progress and

Dennis Schemm

good up at we're so us. we Stanley, was a margin in quarter for XXX from came points. basis perspective, XX.X% Yes, a really gross It

and we is of transportation. points headline XXX raw labor and the think I overcame basis materials inflation and

absorption combination cost there news I pretty then the of that And well bit me SG&A a discipline. did better management through had a that's there as little that's better so and we in and -- some our pricing and real remarkable to and think we

really So, we nice did a job.

Ryan Merkel

XQ gross then to are And you sequentially make just in going on progress margin?

Dennis Schemm

see to of some expect full worth our we progress price have basically increase months' we'll there Yes, a of in three place. because

Ryan Merkel

Thanks. Perfect.

Bryan Fairbanks

a well also have we beginning of have price We -- as in too. increase November a coming

has unfortunately this had not of during we somewhat what we to it through. talked that things quarter point last we quarter, come the abated So, increase months Inflation third didn't. have two soften price will at expected

And price last back we increase than major that with working catch I'm in this increase we've XXXX. still all price we are confident more a the time and taken way was to will. So, up year

Ryan Merkel

guys. color the for Thanks

Bryan Fairbanks

Thanks.

Operator

Matthew Bouley is from go question ahead. Barclays. with next Please The

Matthew Bouley

the Congrats a environment Hey everyone. good results here. evening in dynamic pretty on

Bryan Fairbanks

Thanks.

Matthew Bouley

side. Same on the topic gross margin

of think quarter back talking I gross that early you margins to it said Trex you XXXX, last to. maybe we're kind I were Dennis you to getting think the termed used

recovery Thank margin cadence any here? kind to about Just you. QX how of the think update of on gross beyond

Dennis Schemm

will gross as situation, see at talked about. out based of cost to to we rounding as as opportunities well up do also Year, our to Yes, a -- pricing to I north would into us margins see on you that from sequentially It's the QX going continue the -- step XX%. we QX be expect look think New start pricing Bryan

continue formulations, continuous we'll automation, So, material raw those on improvement, focus to focus that be our will big will help going forward us. areas

Matthew Bouley

part the capacity, is just great. quantification I And guess, if when two from you to part this kind the opportunity curious Thank into or Dennis. And picked in one one. Thank capacity, is on regions any much Wonderful, just I'm ramped? one be this the of get you Little you conversion Rock for I'm the can there curious from area That's for any if is guess I around capacity may you on adding Rock wood composite surrounding as Little there? color how composite fully that number second you.

Bryan Fairbanks

of Sure. excellent the we has can where area Southern convert Trex the more treated to region see marketplace pine composite. pressure Southern We

along So, that around will what location being From essence building able to the in things of some that's here in how the got the those buildings be performance size service a We energizes one about we drawings. is all understand We is. perspective, us way. the like of is we of markets. We've what Winchester. just done. the Engineering to just put build know them

mentioned be comments, I in modular. will it as So, my

long-term this to will ability the buildings capability grow. have the give this We like and to add us multiple

carries it XX out a over next So, specific number we put the organization. the haven't with because it years us on really

Matthew Bouley

it. and Good thanks Bryan thank you Dennis. guys. Well, Got luck

Bryan Fairbanks

Thanks.

Dennis Schemm

you. Thank

Operator

Please Inc. ahead. Stephens from go question Trey with next The is Grooms

Trey Grooms

another Hey done good quarter. great with afternoon everyone and well

Bryan Fairbanks

Trey. Thanks

Trey Grooms

on of this to Little follow-up kind Rock expansion. going I'm

I if address pursue secondly, there to that to were could of new -- the to anything didn't about XX% of out One, going wood was continue possibly years, handle that mentioned? feel you to get composite market expand answer could of your kind say give to another know And if it range have some question XX that where trends on be is was go is the this what XX% as Bryan from seeing, growth Is we opportunities -- kind conversion new of that comment to And long-term could composite demand to Rock that you for that as XX% talking here at or market? you more of far any it? mentioned opportunities. see you conversion transition behind planned like excuse growth you XX% kind outlook Little you about kind you're and type to last You that or do to next this sufficient will to were of XX% there long-term, the range or to that me, getting you this capacity possibly. for closer the -- through

Bryan Fairbanks

I property we numbers beyond able that together the Rock down a a there haven't acquired, also to property to to to have of there yard. There down industrial lot that add of same within be able a demand. we put amount but that those lines of Little service lot significant be is space yet, expand in can we and is

are We've are the talked three think growth a As opportunities, look we there international. at meaningful. them lot about of I that

with appropriate we have build come about onboard, coming continue take discussions, talked programs. really and the We've We And to America. to a the North new than on to little have while announcement those builder these out don't what we've will enough growing time of been agreements. Rock in full-hearted, that starting take next to are we more expect in back capacity I now that Little to growing year. right international bit and the quickly past, are

It's for a our to existing opportunity, more different West product to able starting see few be that And east. come that would are fully been been it's market. type starting are incremental We've people these we a and It's business. been on we a And one but then Coast, is as outside effort. the deck volume people that, to capacity a the we've the homebuilders. with been of popular a that the we but market the that for last the product in and some probably mostly to design look are board. engaging has we're And So on opportunity got time, with we've the through cladding ground add Cladding same in different a cladding. had constraints. national Transcend on sighting of great due that not using the market the their look see

the to that what So try and work sighting more do we'll is it industry, overall to is opportunity sub-segment a of over better time. some quantify

Trey Grooms

an other with like to does issue ahead? could growth have once over out plenty recycled Awesome. there become think point, of follow-up, guys what for a several time, plans for kind with growth we provide these then material rolled see years of of that's Thanks is material has you're in describing strong in products composite long At an and you polyethylene kind as for growth you're the long-term expansion the you're there out you or and growth but the as a for side been the that. and raw scrap availability the talking this game with or things, conversion And the next about clearly, would the outlook the raw that this, cladding. what

Bryan Fairbanks

look every we've And along at to possible. in our every way. capability we've is the short-term. year, up market had year-to-date the what has year higher, excess location we've Normally, growth had growth now, much growing quickly the those with in This is really has in been XX%, XX%. the to this the the amounts add growing some for so much that of teens challenge to this recycle year than there to been been business more sourcing Yes, right able

the be little We've our we bit and onto to marketplace. sourcing able lower. added inventories the and team ability service continue that to Our see people a are growing

Trey Grooms

guys. -- the All the taking right, thanks questions. I appreciate

Bryan Fairbanks

Thanks.

Operator

go ahead. Baird. is from question The Tim Please Wojs with next

Tim Wojs

Good afternoon. guys. Hi

Bryan Fairbanks

good Tim, Hey evening.

Tim Wojs

'XX. growth on to just for start commentary Maybe the

inventory the next 'XX Just channel of look sense for year? and pieces. you might pricing Any trying contribution think normalization maybe at what about kind as be to for

Bryan Fairbanks

it going is, pricing So will there on where is pricing. be as on to still discussions

I on taken. So be may want already pricing how what but we've a be will to basis. much into able on jump to comes Dennis, on don't year-over-year it jump that, meaningful in through

Dennis Schemm

mean with Well, trying the basically to we're philosophy to do pricing inflationary our what I is offset aspects. the

And perspective, seen from perspective, a to for X% sales. we margins raw continue And we a on percent so we're so us is price materials to perspective. look much right From probably from about pretty cost-outs what a year-to-date inflation X%, of our as there the and with there, almost from $X forth. covering then our do help that

Tim Wojs

the from And margin leverage leverage think of here next couple then profit would how about you margin going kind kind the and as of of Okay. forward, composition years? think you about SG&A gross over

Bryan Fairbanks

margin I been will level think the the with to continue we've gross focus pressures continue EBITDA. key to on improve seen here the to we've able EBITDA and be at that even margin

the leverage the the same to both level of as And product our SG&A remember, branding. carry gross doesn't look line margin we'll level So, entry-level at at level. as well

our normalized that the it deck will to probably next sales. of in you X% range more of board to sell of carry type branding doesn't We year be increasing way. basic the enhanced along when an same spending But level X% a spend more, back

still we able see leverage. So, to that opportunity be to

of back again. costs some be coming those year in there next will Now,

the back rest well back travel doing Trex of shows year the team to of to full and Builder those as normalized the the way. from as get Regular sort organization. The like sales of Show. meetings You'll Get things a marketing along overall

Tim Wojs

Okay.

see luck Okay, Good and again. great. you

Bryan Fairbanks

Thanks.

Operator

Loop Jeff question ahead. from Please Stevenson with next is Capital. The go

Jeff Stevenson

the taking my for Thanks on strong and quarter. congrats Hi. today questions

Dennis Schemm

Jeff. Thanks

Jeff Stevenson

closer So, to at my new up and volume is and normalized industry capacity inventory question guidance when us of inventory are how of levels much you currently channel sales expect them might just is can to growth quarter with update channel and where we the your filled first return just running on levels? midpoint the fourth

Bryan Fairbanks

good so about follow-up. Yes, too. that as a Tim well asked

way. number were well the So, see the as Coming the retail of the inventories third in DIY inventory both as level, we build of do fourth quarter inclusive at the built along quarter, channel. pro at out

update number strong extremely an inventory fourth a that of stand that get be the how the call think give year the quarter strong level So, will to right get build don't is build will really at product, us. because the that where you we of inventory-wise market much growth. the from that we a well completely inventory so the look are the as one-time way. come store. depends and can't healthy we of quite dealers bit build get larger to there quarter out way for a This underlying fourth you marketplace into we The now. strength. is is but any the down we inventory market virtually now see in quarter. inventory you now starting still growth If as on that along I were sequentially a all as it back end underlying But fourth can at especially we'll upon DIY the definitely market quite Usually that the see third versus I and see quarter

Jeff Stevenson

to Okay, runway early great. That's of you're in the in doing just about helpful. number past, obviously, level long a those In of of very And then and XXXX. I you're facility beginning ask kind now you're CapEx Rock talked cost-out you've projects Little priorities. wanted and high about a XXXX, of

cost-out progression the think we general? how projects in CapEx and should about year next So, of

Dennis Schemm

question. a That's great

earnings go So, with we'll certainly you for detail when more there you. through cycle have XXXX we the come QX of

$XXX However, XXXX will we this million million capacity $XXX $XXX and XX this XXXX. finalization between I as spending in clearly year million roughly the than mainly think was be expansion. the year, XXXX on less of plan in --

as expansion we pick at XXXX, see and then capacity investment up significantly. between being Rock Little more move to look would Little year because this as I Rock So, XXXX transition in a into you'll start

effective more cost-out really XXXX left in what's efficient. type us of is other make more debottlenecking, So, automation, projects then to

Jeff Stevenson

Okay, that's helpful. Thanks again.

Operator

go is Hughes The with Please Keith next Truist. question from ahead.

Keith Hughes

you. Thank

between EBITDA at there. XX% Obviously, You lot in looks the and period margin of of do a had contribution like the for be time What you the low have contribution fourth over this point? a puts quarter, challenges of you that average margin will the year. longer in said XX% think that kind XXs

Dennis Schemm

Yes.

I we're leverage over on time EBITDA to going the think demonstrate line. clearly

is part but pick not spend to more branding that today brand the and XXXX though same even low, more require does of of up bigger as Bryan and see see mentioned, advertising leverage As over basics in time, spend. SG&A portfolio it we'll there we'll that as a level continue becomes some

not going growing which well. to rate, people adding we're we're addition, at as be the In same

see, I clearly expanding that over So and time. improving EBITDA margin

Keith Hughes

-- as question. catching One your the our be on year? you up the do schedules look was, the still you think about end getting or inventory Okay. you of you beginning talked do inventory of to of or the see finish in by a where other XXXX production channel, The sort that as you're period you'll able

Bryan Fairbanks

I One have at week, always the dealer given as distributor inventory in of inventory still year. we'll that continue we convert share. as need, putting think how we customers of some market to sure in the mentioned channel that going it's product next this so be the first the is to yards that we're the as things today we what partners last the question The able of is channel, our our that have that important the serve make that yards, be of size to much? has I necessary quarter all yard to their well levels and to

Keith Hughes

you. Thank Okay.

Operator

from go Rehaut is question next Michael with JPMorgan. Please The ahead.

Michael Rehaut

questions. everyone my for and taking thanks afternoon, Good Thanks.

sort go of for correctly you a context. about just make back wanted sure I the and right margins moment to hearing to wanted and in I'm gross things just to thinking the Firstly,

that XX%. improvement fourth said would in quarter be you You you're expecting some year that to expect for next sequentially, but the above

type you're quarter we like in presume get get reason, a talking of you reason fourth to getting all back not margin So, in itself. you've can't fully level, means And had did any XX.X% that I you -- the kind would why of above initiatives that given back that the about? talk you different you improvement XX.X% about when XX% yet then that XXXX. XXXX been in XXXX, to Any can't

Dennis Schemm

to we the step looking now that talked the increase the QX we'll again us QX up for are pricing up. take step and full as months impact about well, that's three of going a have Bryan right from to that help additional Well to

continue addition forward to cost-out progress make to our In initiatives, that, as into now move we're to we XXXX. going on

as have to to should so full as, capacity play us. well absorption, we out for see And start as better the well we

us expect we'll XX% to moving forward. of would clarification north So more and be have I

In there looking think continue the more at just line is there. XX% important to no margin reason, I opinion right. EBITDA be that the XX% though, expansion we're see to expansion And on my incrementals to going to makes be at why to that incrementals. is we on that longer see over couldn't sort term. we could up It sense that of line

Michael Rehaut

about something the cost of be least XX% sales with talked you improvement T&E XX% on presuming guess some further maybe percent you to price I that's secondly, terms to SG&A, expect starting topline but increases would of still growth, in rate of expect on normalize. I the in on Okay. of depends the marketing track seems which do of further and at be SG&A, capacity leverage some ratio? those may higher spite you'd on but year-over-year SG&A XXXX in expansion it that. a like campaigns expanding your on growth all Obviously, some appreciate dollar

Dennis Schemm

to going on in we're have a Yes, coming for SG&A more year. you information the lot

trying we're expect that leverage expect to do model. have today get what We we spend our be think very on still disciplined is I a to in SG&A. to across

the going going will been about be be same Bryan we're become yes, has to the overall too. as spending same the greater part requiring branding spend. on going level but more rate see talking We're of adding we're still a which to because portfolio Basics growing not forward, lot of leverage people at So branding going we're a of not to

we're future. margins. to So this a be continue low here us may the for to tick mean so absolute level continue I'm sure that up It to running foreseeable allow going while will not it dollars, expand in at and to pretty

Michael Rehaut

in Just price one on sneak I possible? more Can increases. if

to I of than I to now think three you're little if implement or year. were is right. get that. at mentioned I you trying thought X% sure sales think, I X% was able heard that bit including something just to I'm November. prices, I least wanted make higher a that you raised this to it two What you've times at

of a if increases magnitude right? did hear those of and where are get sense kind you each Just of cumulatively again we trying I of to

Dennis Schemm

correctly. hear did You

And on so those were products. most price our of increases

those. were all they of So on not

price were products. those increases single-digit on mid most So

what giving the a number more you of cumulative is I'm so And now across portfolio.

you -- that's heard correctly at So X%.

Michael Rehaut

Thank Great. you. Okay.

Operator

from Phil go Jefferies. ahead. Please The question Ng is next with

Phil Ng

Hey strong seeing headwinds all guys. Congrats the really given just quarter now. right a on you're

Dennis Schemm

Phil. Thanks

Phil Ng

would at you bandwidth us And new better of want sense to kind on a capacity be to on are Bryan? running get strong double-digit your lines a that Arkansas? It growth? effectively to XXXX in helpful of full the give Just support hand kind until your will currently, how comes constrained

Bryan Fairbanks

Well, continued I see opportunities.

As we quarter, bringing we at the first up. were lines look

we were lines to quarter up. Second bring continuing

So -- full way. market run needs next upon what us can we the at along year with from the those depending capacity

this point. We exactly utilization haven't where is our gotten into at

we we're to projects all of equipment, at get existing that do of do We same we our are point, will where increase did have allow these more quarter, the We which to want that as to to lines replacing this legacy inventory thing to the proven our said lose quarter return for opportunities further last working try off in capacity. quarter. but to fourth we know how out revenue it improvement we of some us the not and are exactly growth the some have fill and be channel we

Phil Ng

And then the incrementals increase disconnect then From you any normalized should November something it to should helpful. horse. the more to price on expect was That's exit beat just you a there up back Okay. with quarter, if And sorry we was cost or is getting -- appreciate? a be all to we got year? caught fully there fully as level fourth else of price in the to inflation a kind standpoint, dead

Bryan Fairbanks

and because expect market investors can aren't market out help important is XX take here price we you Having there expect been to that. behind and be along that that running taking is it XX been getting the our our that right be continued We've up. x% quarter the to I'm able we've and take with second end saw my time we is margins going I'd is same up way, isn't that We drive a price increases to up year. we've going thing in caught the the third continuing the not doesn't able I'm level love intent the that. lot to within of at of to to long, tell the the pricing to at year days, can catch to show the But that all most either. got into marketplace, do days left we it sure important quarter on same just saying, the but can and late of things the get that quarter probably caught At we go to in a we there, confidence numbers up the tomorrow, still either.

relationship channel put we've bit have get in those and put behind we prices us ready prefer through for to So them channel part be. that for we would that's where and given and of enough time to our that our little a is the

Phil Ng

Super. you. Okay. Thank

Operator

from question Please Mamtora go The BMO ahead. is with Capital. next Ketan

Ketan Mamtora

and different another more across side, broad-based product off product curious strong on just the to is Thank Maybe on you growth demand your quarter. the I'm entry-level congrats on seeing strength or if you're start the demand more categories?

Dennis Schemm

portfolio to all where much in demand growth be. of that line Yes, our expected that we with we're pretty and across seeing

So, this having is our to to It really we're pleased base. pricing product large different line customer appealing up with really points.

Ketan Mamtora

helpful. terms much Arkansas of capacity switching final trying facility to is it, a 'XX, and then a too and Got that first envision there to it. how terms is in there in not year. you 'XX in just your to recognize sort That's of way of on But plan I of think And line to long-term about, the kind add put buildup?

Bryan Fairbanks

you keys $XXX the the think over $XXX to I We're five-year million about timeframe. capacity analytically here. XX% cost So, increase equation seeing a million. us I'll about give analytical

paving. There'll do have didn't will to that that, only there be There moving I a plants. we lot of There'll a of for be the lot to think out way. the a utility. build capacity we of infrastructure be existing is that that the along need difference at dirt lot

Ketan Mamtora

luck. I'll helpful. over. very Good That's it. it Got turn

Operator

with ahead. The Benchmark go The Garner Please next question is Reuben from Company.

Reuben Garner

evening and quarter announcement. Good Thanks. and congrats the on Arkansas guys

Bryan Fairbanks

Thanks.

Reuben Garner

you're a when questions I I do my you Most have of the of the one third both longer you being that time capacity of team have to wanted one you're facility, and this guys had to the able but announcements kind kind been sneak as to have answered of for existing to to term effort for stage in lot -- going facility? or the of a have the away focus being out be of couple enough was improvement your building be team where to because guys away your initiatives. envision that by use do in used projects it's spent of Would term that they I from it so going think additions existing team kind from years may to as getting tight continuous with some different take the those is in -- near used to you facilities your do of a in your capacity those taken and some you're

Bryan Fairbanks

what got back is Key the to we to do where it plan getting get there be team a capacity. new want where it engineering do staffing. we need thing support to there We've to We to full the both. can

lines going but plate coming are this point. that do off beef the in last need we and XXX we group capacity both. at Winchester, do is the million of can up course, Of couple The to

Reuben Garner

and guys Thanks congrats Great. again.

Bryan Fairbanks

Thanks.

Operator

Mr. Yinger. The next ahead. Davidson. go from [Operator Please D.A. Yinger is with Kurt question Instructions]

Kurt Yinger

the make of as kind whether conversion trends? points versus in the middle pricing as lumber strong. demand the consumers I And Great. rate of seems curious and you the your of I Thanks, step think DIY lot a recently. the new Dennis. one Bryan and wanted you the optimistic interest what of its conversion just start you've been annually I of might demand just seen high big wood is back on factors moderated like point kind prices from of and year. are commentary sustainable? on guess off pretty past good between mean that toll about and this two the that I have afternoon, sky just there's that around I'm Taking back any of the in guys out in higher the to and play composites come own guess from terms dynamics of it

Bryan Fairbanks

futures lumber. now. I the first pressure think customers chemicals important that is the into does quality it expect point treated out is more which expensive market lumber the And it refer that go builder labor as the all are going buying lumber into that we goes to all

to those of affordable have the products that are part not it's composite we're about down that, that Enhance to able type being the move just is Trex showing there able them line to for. It's buyers back to there much Board, story the and they're give Basics performance is it's those product increase prices you looking of price lumber. strategy in up an some extra So, and again. spectrum permanent come and composite couple dollars selling the the that the that's product important of of for But then hundred could an them aesthetic move more educate a them and a

in see about and started are them. that start pick gone converting started learning against we've at we We unchanged more up. to staying demand We we bout And company XXXX. the people XXXX started strategy that conversion down consumers So the of elevated purchase pandemic Enhance to in launched the directly and back the against home. back the timeframe wood. But today together And path wood, is advertising course those over long-term, enticed through to composites are put XXXX this of XXXX. in

Kurt Yinger

Got it.

market lagging a get there XXXX? being last us into up helpful. the that's mid-teens, trending expecting film I couple recycled in how as about Are on that quarter year-over-year. that's Okay we think just second and relative maybe to talked update then, pricing, quarters. last on my incremental virgin the been you any pressures And cost few maybe months of you you Could by

Bryan Fairbanks

I expect to Yeah that. quarter. the to did call We see do in that third see some continue high-teens pressure expand let's it around cost the into

lag still guess So still And nine up. in those I prices months. about we're to period. And are going they month tend that nine lag by

So we'll continue to bit see that move a little more.

Kurt Yinger

the Bryan. QX Okay. I appreciate color, guys. here in luck Good

Bryan Fairbanks

Thanks.

Dennis Schemm

you. Thank

Operator

is B. Riley. Alex question next with Please from go Rygiel The ahead.

Alex Rygiel

can the try fourth Thank quick are you to you, very here, first, quarter? the that nice couple quarter of quantify questions you capacity gentlemen. adding in A

Bryan Fairbanks

We talked an about there XX%. being improve opportunity to by about

year. XXXX to the that XX% by the bring end would us over XX% that over XXXX from of So levels,

Alex Rygiel

become low-cost it Yeah. facility It's as helpful. Arkansas your when? could this facility? to And the manufacturing if relates And approximately, so, then,

Bryan Fairbanks

the our more optimized materials We of opportunity locations. with some to is Arkansas our than raw proximity other see the

will We the It facility. of Winchester eclipse the will our opportunity scale, some at operations. point have some with

does opportunities which some the have give will there. will our we we cost so running products a better for newest that have be us way. the And technology It scale along

that's to facilities. with I labor a think look mean, Offset, I will So higher our fair think have cost we way across a labor, at we it. all of

opportunity is away don't see I looking also job. we anybody's taking And are So opportunities. at automation this automation

But people plenty run not for employees. out, new With build need will those the we we capacity to growth be existing have, our many Trex as of lines. as we there opportunities that may

Alex Rygiel

you. helpful, thank Very

Bryan Fairbanks

Alex. Great. Thanks

Operator

like question-and-answer I remarks. for over This would closing the any to to back Bryan turn conference session. Fairbanks, concludes our

Bryan Fairbanks

a your you. everybody many look at We conference Thanks and to today's with the during for quarter Thank forward questions other call. speaking Bye. attendance great have you conferences and events. of in evening. And

Operator

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

You disconnect. may now

Trex (TREX) 9 Nov 212021 Q3 Earnings call transcript