Trex Company Reports Fourth Quarter and Full Year 2022 Results

Trex Company, Inc. (“Trex”), the world’s #1 brand of high-performance, low-maintenance and eco-friendly composite decking, railing and outdoor living products, today reported fourth quarter and full year 2022 results.

Fourth Quarter and Full Year 2022 Highlights

• Quarterly net sales of $192 million; Full year net sales of $1.1 billion
• Fourth quarter gross margin of 34.1%, up 960 bps sequentially from third quarter 2022
• Quarterly net income of $10 million and diluted earnings per share of $0.09; Full year net income of $185 million and diluted earnings per share of $1.65
• Adjusted quarterly net income of $25 million; Adjusted quarterly EPS of $0.23, excluding one-time non-cash loss on the sale of Trex Commercial and non-executive retention compensation
• Adjusted fourth quarter EBITDA of $46 million; Adjusted fourth quarter EBITDA margin of 24.1%, excluding aforementioned adjustments

CEO Comments

“Our fourth quarter operating results exceeded our expectations, driven by a strong sequential recovery in both gross margin and adjusted EBITDA margin amid channel inventory recalibration,” said Bryan Fairbanks, President and CEO. ”Our underlying consumer demand remained steady, reflecting the strength of the Trex brand, our comprehensive product line designed for today’s living spaces and lifestyles, and the resilience of the outdoor living category. With long-standing relationships with best-in-class channel partners, Trex is the most widely available and purchased composite brand in North America and around the world. In recent months, we expanded our distribution network in Texas, Oklahoma and other southern states enabling us to better service many of the fastest growing markets in the U.S.

“Driving the sequential margin improvement was the full quarter benefit from the measures we took early in the third quarter to better align our cost structure with demand by decreasing production levels, right sizing our employee base, and focusing on cost efficiency programs. Further improvements are expected as we move through 2023 with the ongoing implementation of continuous improvement programs that will provide margin expansion opportunities.

“On December 30, 2022, we completed the sale of the Trex Commercial Products subsidiary and reportable segment. The divestiture reflects our decision to focus on driving the most profitable growth strategy for the Company and its shareholders through the execution of our outdoor living strategy. With the sale complete, we will dedicate all our resources to accelerating conversion to composites from wood and further strengthening our industry leadership position.

“Our confidence in the performance of our people, products, and distribution is demonstrated by our aggressive share buyback program. In the fourth quarter, we returned approximately $50 million to shareholders through the repurchase of 1.2 million shares of our outstanding common stock,” said Fairbanks.

Fourth Quarter 2022 Results

Fourth quarter 2022 consolidated net sales were $192 million, compared to $304 million in the prior-year quarter. Trex Residential net sales were $181 million compared to $288 million in the 2021 fourth quarter. Trex Commercial contributed $11 million to consolidated net sales.

Consolidated gross profit as a percentage of net sales, gross margin, was 34.1% in the fourth quarter of 2022 compared to 38.9% in the same quarter last year. Excluding net adjustments related to the sale of Trex Commercial of $0.9 million, consolidated gross margin was 34.5%.

The divestiture of Trex Commercial resulted in a $15.4 million non-cash loss. Selling, general and administrative expenses were $35.4 million, or 18.5% of net sales, in the fourth quarter. This compares to selling, general, and administrative expenses of $36.7 million, or 12.1% of net sales, in the 2021 fourth quarter. Excluding $4.3 million of other expenses related to the sale of Trex Commercial and non-executive retention compensation, selling, general and administrative expenses were $31.2 million, or 16.2% of net sales.

Net income for the fourth quarter 2022 was $10 million, or $0.09 per diluted share, compared to $25 million, or $0.22 per diluted share, in the year ago quarter. Excluding the loss on sale and other expenses related to the divestiture of Trex Commercial, and non-executive retention compensation, adjusted net income was $25 million, or $0.23 per diluted share. Adjusted EBITDA was $46 million, or 24.1% of net sales.

Full Year 2022 Results

Full year consolidated net sales were $1.1 billion compared to $1.2 billion in 2021. Trex Residential net sales were $1.1 billion with Trex Commercial contributing $47 million. Consolidated gross margin was 36.5% and Trex Residential gross margin was 37.7% compared to 38.5% and 39.3%, respectively, in 2021.

Selling, general and administrative expenses were $142 million, or 12.8% of net sales, compared to $140 million, or 11.7% of net sales, in 2021. Excluding $5.5 million related to the loss on sale and other expenses related to the divestiture of Trex Commercial, non-executive retention compensation and third quarter severance charges, selling, general and administrative expenses in 2022 were $136 million, or 12.3% of net sales.

Full year 2022 net income was $185 million, or $1.65 per diluted share, compared to $209 million, or $1.80 per diluted share, in 2021. Excluding the loss on sale and other related expenses, and the non-executive retention compensation, adjusted net income in 2022 was $201 million, or $1.80 per diluted share. Adjusted EBITDA was $313 million, resulting in an adjusted EBITDA margin of 28.3%, compared to adjusted EBITDA of $357 million and adjusted EBITDA margin of 29.8% in 2021.

During 2022, we returned approximately $395 million to shareholders through the repurchase of 6.5 million shares of our outstanding common stock.

Summary and Outlook

“With channel inventory recalibration completed by year-end 2022, we began 2023 strategically focused on our residential business, where we intend to drive accelerated wood conversion, reinforce our market leadership position, and continue to educate customers on the many advantages of the full range of Trex sustainable, high-performance, low-maintenance outdoor living products. To support these initiatives, we will continue to invest in the Trex brand and commercialize new products that broaden our market opportunity.

“Innovation remains a key competitive advantage for Trex. We recently announced the regional launch of our premium Trex Signature^® decking product, which raises the bar for beauty, performance and sustainability with a whole new level of realism for wood plastic composite decking and is complemented by the full range of Trex Signature railing. We also doubled the number of color options available for our recently launched Trex Transcend^® Lineage^™ product line, which incorporates heat-mitigating technology. In addition, we introduced a tiered warranty structure for Trex decking that underscores the value of our good/better/best decking lineup. Our line-up for 2023 offers products at every price point designed to resonate with consumers seeking to optimize their outdoor living experience.

“Trex innovation also extends to our sourcing efforts. Through the NexTrex^® Retail Recycling Program, companies such as Rent the Runway, LL Bean and Urban Outfitters have found a solution to transform their single-use plastic waste into beautiful and sustainable Trex^® decking and outdoor products.

“With the highest production efficiency in the composite industry and a product portfolio with broad-based consumer appeal, Trex is positioned to effectively navigate uncertain economic conditions and emerge as an even stronger company. We anticipate first quarter 2023 net sales to be in the range of $230 million to $240 million.

“We expect full year 2023 EBITDA margin to be in the 26% to 27% range. In the first two months of the 2023 first quarter, our plants were building to an annual revenue rate of one billion dollars. However, if demand is different than expected, we have the ability to quickly flex our production level. Capital expenditures for 2023 are anticipated to be in the $130 million to $140 million range, primarily related to the modular build out of our Arkansas facility calibrated to demand trends,” Fairbanks concluded.

For the full fourth quarter results, click here.

About Trex Company

For more than 30 years, Trex Company [NYSE: TREX] has invented, reinvented and defined the composite decking category. Today, the Company is the world’s #1 brand of sustainably made, wood-alternative decking and deck railing – all proudly manufactured in the U.S.A. – and a leader in high performance, low-maintenance outdoor living products. Trex boasts the industry’s strongest distribution network with products sold through more than 6,700 retail outlets across six continents. Through strategic licensing agreements, the Company offers a comprehensive outdoor living portfolio that includes deck drainage, flashing tapes, LED lighting, outdoor kitchen components, pergolas, spiral stairs, fencing, lattice, cornhole and outdoor furniture – all marketed under the Trex^® brand. Based in Winchester, Va., Trex is proud to have been named 2023 America’s Most Trusted^® Composite Decking Brand by Lifestory Research and one of 2022’s 50 Best U.S. Manufacturers by Industry Week. For more information, visit Trex.com. You may also follow Trex on Facebook (trexcompany), Instagram (trexcompany), Twitter (Trex_Company), LinkedIn (trex-company), TikTok (trexcompany), Pinterest (trexcompany) and Houzz (trex-company-inc), or view product and demonstration videos on the brand’s YouTube channel (TheTrexCo).

Contact:

Dennis C. Schemm – Senior Vice President and Chief Financial Officer – (540) 542-6300

Source: Trex Company, Inc.