Trex Accelerated Sales Growth as Margins Contracted
Gross margin narrowed to 37.9% as railing mix and production inefficiencies raised costs.
Trex Company Inc. (TREX), the composite-decking manufacturer, reported faster second-quarter sales growth as broad-based volume gains outweighed pressure from higher costs.
Net sales rose 8% to $418 million from $388 million, accelerating from 1% growth in the first quarter. Sales increased about 22% sequentially, with volume driving the latest quarter after price and mix had supported growth earlier in the year.
Demand broadened across product categories, price points and channels. Entry-level Trex Enhance decking was particularly strong, marking a shift from the premium-decking strength reported in the first quarter, while a heavier railing mix weighed on profitability.
Gross profit held roughly flat at $158 million despite the sales increase. Margin pressure resulted from the railing mix, higher depreciation at its Arkansas facility and temporary production inefficiencies caused by uneven demand. Operating income fell to $86.2 million from $102.4 million, reducing operating margin to about 20.6% from 26.4%.
Net income declined to $62 million from $76 million, and diluted earnings fell to $0.60 a share from $0.71. Adjusted earnings dropped to $0.62 a share from $0.73, including a $0.03-a-share impact from a $5 million noncash write-down of obsolete equipment.
Trex reaffirmed its recently raised full-year outlook for sales of $1.215 billion to $1.250 billion and adjusted EBITDA of $335 million to $350 million. The company expects third-quarter revenue of $305 million to $320 million, a sequential decline of $98 million to $113 million from the second quarter.
Stronger consumer demand prompted Trex to accelerate the Arkansas decking-production ramp by more than six months, with operations now scheduled to begin in the third quarter and reach 50% of capacity by year-end. Trex also repurchased about $51 million of shares during the quarter and authorized another $150 million for the second half.