Trex Co. Inc.
) gained 27% since it reported improved third-quarter 2013
earnings on Oct 25. Adjusted earnings per share increased 25%
year over year to 45 cents from 36 cents. The results also
surpassed the Zacks Consensus Estimate of 34 cents.
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During third-quarter 2013, Trex recognized non-operating charges
of $22.9 million. In the prior year quarter, Trex incurred
charges of $20 million due to an increase in warranty reserve and
a $0.5 million related tax charge. Including these charges, the
company recorded a loss per share of 91 cents in the reported
quarter compared to the loss per share of 86 cents a year ago.
Total revenue improved 5% year over year to an adjusted $74
million, ahead of the Zacks Consensus Estimate of $73 million as
well as the management guidance of $72 million. The improvement
was driven by a shift in sales mix to high-performance decking
and railing products, partly offset by decrease in sales volume
and charge related to market share expansion.
Adjusted cost of sales increased 7% year over year to $52
million. Adjusted gross profit declined 0.9% to $21.9 million.
Gross margin contracted 100 basis points (bps) to 30%.
Adjusted selling, general and administrative expenses declined
10% to $14.2 million from $15.8 million in the year-ago quarter.
Adjusted operating income was $7.7 million in the reported
quarter, up 22% from $6.3 million in the year-ago quarter.
Operating margin expanded 200 basis points to 10% in the quarter.
Including special items (charge to warranty reserve, corporate
office sublet charge and a provision for the mold class action)
Trex posted an operating loss of $15 million compared with $13.7
million in the year-ago quarter.
As of Sep 30, 2013, cash and cash equivalents were $19.6 million,
a significant improvement from $2.1 million as of Dec 31, 2012.
Cash flow from operating activities for the first nine-month
period was $56 million, down from $60 million in the comparable
period a year ago. The company repurchased 561,255 shares in the
reported quarter to close its $25 million share repurchase
program. The company again declared a stock repurchase program.
As per the program, Trex will buy back shares of up to $30
million over a four-month period.
Trex generated $44 million of free cash flow for the first
nine-month period of 2013 compared to $55 million in 2012. The
reduction was due to increased capital expenditures and lesser
reduction in inventory, partially offset by the favorable timing
of accounts receivable collections. The company has no debt on
its balance sheet.
For the fourth quarter of 2013, Trex expects sales of $50
million, indicating an increase of 9% from 2012. SG&A
spending is expected to lower by around $2 million from the
prior-year quarter primarily due to reduced incentive
Trex's strategy of offering a full line-up of best-in-class,
high-performance decking and railing products this year has been
effective so far. These products offer a higher level of fade,
scratch and stain resistance. Moreover, with growing
high-performing platforms, the company will be able to attract
Trex is also expanding internationally. The company recently
announced the inclusion of Babcock Lumber Company to its
distribution network. Not only will Babcock Lumber make Trex's
presence in the Mid-Atlantic region a strong one, it will also
help in offering optimum level of service to dealers. The company
is likely to gain from its share repurchase program and strong
Winchester, Va.-based Trex Company manufactures and distributes
wood/plastic composite products and related accessories,
primarily for residential and commercial decking and railing
applications in the United States.
Trex retains a Zacks Rank #3 (Hold).
) also belongs to the building and construction industry and
holds a Zacks Rank #2 (Buy).
Among Trex's peers,
Armstrong World Industries, Inc.
) reported third-quarter 2013 adjusted earnings of 87 cents per
share, down 11% from 98 cents a share in the year-ago period. The
results beat the Zacks Consensus Estimate by a penny. Another
CaesarStone Sdot-Yam Ltd.
), is yet to announce its third-quarter results.