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Trex Company Announces Fourth Quarter and Calendar Year 2016 Results

— Record Revenues and Net Income Achieved for the Year —

— 2017 Results Expected to Benefit from Continued Market Share Gains and Favorable Gross Margin Impacts —

Fourth Quarter Highlights

  • Net sales increased 7% to $95 million
  • Gross margin expanded 420 bps to 40%
  • EPS was $0.43, up 65%

Calendar Year 2016 Highlights

  • Net sales increased 9% to $480 million
  • Gross margin was 39%, up 390 bps
  • EPS increased 51%
  • Operating cash flow totaled $85 million, a 36% year-on-year increase

WINCHESTER, Va.--(BUSINESS WIRE)--Feb. 21, 2017-- Trex Company, Inc. (NYSE:TREX), the world’s number-one brand of decking and railing and leader in high-performance, low-maintenance outdoor living products, today reported financial results for the fourth quarter and full year ended December 31, 2016.

Fourth Quarter 2016 Results

Net sales for the fourth quarter of 2016 were $95.3 million, 7% above the $89.2 million reported last year. Net income for the fourth quarter in 2016 was $12.6 million, or $0.43 per diluted share, up 56% and 65%, respectively, from the net income of $8.1 million, or $0.26 per diluted share reported for last year’s fourth quarter. Gross profit as a percentage of net sales, gross margin, was 40%, 420 basis points ahead of the prior year driven by lower raw material costs, manufacturing efficiencies and higher capacity utilization.

“Fourth quarter sales performance was above our guidance and represented broad based, year-on-year growth across our product lines and geographies. The high single-digit sales growth achieved in the fourth quarter is noteworthy given the difficult comparisons to last year’s record fourth quarter, when unusually warm weather contributed to a 20% year-on-year sales increase. Gross margin expansion and cost discipline resulted in operating income as a percentage of net sales, operating income margin, of over 20%, substantially ahead of the 15% reported in the prior year,” said James E. Cline, President and Chief Executive Officer.

Fiscal Year 2016 Results

For calendar year 2016, net sales were $479.6 million, 9% above the $440.8 million reported for the comparable period in 2015. Gross margin was 39.0%, a 390 basis points year-over-year increase from 35.1%. Net income totaled $68 million, or $2.29 per diluted share, up 41% and 51%, respectively, from 2015. Excluding legacy warranty reserve charges of $9.8 million in 2016 and $5.4 million in 2015, gross margin was 41.1%, an expansion of 470 basis points, and earnings were $2.51 per diluted share for 2016, up 54%.

“This was another record year for Trex, reflecting the success of our branding campaigns and market share initiatives which included a heightened focus on wood market conversion. We continued to expand our brand reach and strengthened our global distribution network in 2016, resulting in a double-digit increase in domestic and international sales of decking and railing products. At the same time, lower input costs and manufacturing cost savings generated significant operating leverage, enabling us to achieve income growth that significantly outpaced revenue growth,” Mr. Cline noted.

Summary and Outlook

“Trex’s strong 2016 performance and the product development and branding initiatives we have undertaken to date have laid the foundation for continued positive momentum in 2017. We expect revenue to benefit from favorable macroeconomic conditions, specifically the positive outlook for repair and remodeling spending and high consumer confidence levels. At the same time, we believe we will see further expansion of Trex’s market share position and the progressive benefits of our marketing programs to capture share of the large wood decking market.

“In the first quarter 2017, we expect net sales to be approximately $144 million, representing over 9% year-on-year growth, and gross margin is projected to continue to benefit from our focus on manufacturing efficiencies, cost reduction initiatives and higher capacity utilization. Incremental gross margin for full year 2017 is expected to return to a more normalized level of 45-50%,” Mr. Cline concluded.

The Company’s Board of Directors approved a new share repurchase program under which the Company may repurchase up to 2.96 million shares. There is no guarantee as to the exact number of shares that will be repurchased under the Company’s program, or that there will be any repurchases pursuant to the program. In addition, the stock repurchase program may be suspended, or terminated by the Company at any time without prior notice.

Early Adoption of FASB ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.”

In the 2016 fourth quarter, the Company elected to early adopt this FASB pronouncement, which had a $1.7 million favorable impact on full year 2016 income tax and net income, or $0.05 per share. The Company applied this guidance prospectively as of January 1, 2016 which will result in a retrospective application of the guidance to the first three quarters of 2016. The change resulted in a $1.6 million income benefit spread over the first three quarters.

Fourth Quarter 2016 Conference Call and Webcast Information

Trex will hold a conference call to discuss its fourth quarter and full year 2016 results and other corporate matters on Tuesday, February 21st, 2017 at 8:30 a.m. ET. To participate on the day of the call, dial 1-844-792-3734, or internationally 1-412-317-5126, approximately ten minutes before the call and tell the operator you wish to join the Trex Company Conference Call.

A live webcast of the conference call will be available in the Investor Relations section of the Trex Company website at For those who cannot listen to the live broadcast, an audio replay of the conference call will be available on the Trex website for 30 days.

Forward-Looking Statements

The statements in this press release regarding the Company's expected future performance and condition constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are subject to risks and uncertainties that could cause the Company's actual operating results to differ materially. Such risks and uncertainties include the extent of market acceptance of the Company's products; the costs associated with the development and launch of new products and the market acceptance of such new products; the sensitivity of the Company's business to general economic conditions; the impact of weather-related demand fluctuations on inventory levels in the distribution channel and sales of the Company’s products; the Company's ability to obtain raw materials at acceptable prices; the Company's ability to maintain product quality and product performance at an acceptable cost; the level of expenses associated with product replacement and consumer relations expenses related to product quality; and the highly competitive markets in which the Company operates. Documents filed with the U.S. Securities and Exchange Commission by the Company, including in particular its latest annual report on Form 10-K and quarterly reports on Form 10-Q, discuss some of the important factors that could cause the Company's actual results to differ materially from those expressed or implied in these forward-looking statements. The Company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

About Trex Company

Trex Company is the world’s largest manufacturer of high performance wood-alternative decking and railing, with more than 25 years of product experience. Stocked in more than 6,700 retail locations worldwide, Trex outdoor living products offer a wide range of style options with fewer ongoing maintenance requirements than wood, as well as a truly environmentally responsible choice. For more information, visit

Condensed Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
  Year Ended December 31,
2016   2015   2014
Net sales $ 479,616 $ 440,804 $ 391,660
Cost of sales   292,521   285,935   251,464
Gross profit 187,095 154,869 140,196
Selling, general and administrative expenses   83,140   77,463   72,370
Income from operations 103,955 77,406 67,826
Interest expense, net   1,125   619   878
Income before income taxes 102,830 76,787 66,948
Provision for income taxes   34,983   28,689   25,427
Net income $ 67,847 $ 48,098 $ 41,521
Basic earnings per common share $ 2.31 $ 1.53 $ 1.28
Basic weighted average common shares outstanding   29,394,559   31,350,542   32,319,649
Diluted earnings per common share $ 2.29 $ 1.52 $ 1.27
Diluted weighted average common shares outstanding   29,612,669   31,682,509   32,751,074
Comprehensive income $ 67,847 $ 48,098 $ 41,521

Condensed Consolidated Balance Sheets
(In thousands, except share data)
  December 31,
2016   2015
Current assets:
Cash and cash equivalents $ 18,664 $ 5,995
Accounts receivable, net 48,039 47,386
Inventories 28,546 23,104
Prepaid expenses and other assets 10,400 13,409
Deferred income taxes   9,136  
Total current assets 105,649 99,030
Property, plant and equipment, net 103,286 100,924
Goodwill and other intangibles 10,523 10,526
Other assets   1,972     1,518  
Total assets $ 221,430   $ 211,998  
Current liabilities:
Accounts payable $ 10,767 $ 17,733
Accrued expenses 34,693 28,891
Accrued warranty 5,925 6,825
Line of credit       7,000  
Total current liabilities 51,385 60,449
Deferred income taxes 894 4,597
Non-current accrued warranty 31,767 26,698
Other long-term liabilities   3,223     3,791  
Total liabilities   87,269     95,535  
Stockholders’ equity:
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding
Common stock, $0.01 par value, 80,000,000 shares authorized; 34,894,233 and 34,819,259 shares issued and 29,400,552 and 30,904,530 shares outstanding at December 31, 2016 and 2015, respectively 349 348
Additional paid-in capital 120,082 116,947
Retained earnings 187,242 119,395
Treasury stock, at cost, 5,493,681 and 3,914,729 shares at December 31, 2016 and 2015, respectively   (173,512 )   (120,227 )
Total stockholders’ equity   134,161     116,463  
Total liabilities and stockholders’ equity $ 221,430   $ 211,998  

Condensed Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2016 2015 2014
Operating Activities
Net income $ 67,847 $ 48,098 $ 41,521

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,498 14,384 15,204
Deferred income taxes 5,433 1,024 3,574
Stock-based compensation 4,788 4,861 4,807
(Gain) Loss on disposal of property, plant and equipment (185 ) 649 158
Excess tax benefits from stock compensation (3,147 ) (12,898 )
Other non-cash adjustments (284 ) (271 ) (245 )
Changes in operating assets and liabilities:
Accounts receivable (653 ) (10,995 ) 867
Inventories (5,442 ) 643 (1,319 )
Prepaid expenses and other assets (4,256 ) 905 (624 )
Accounts payable (6,966 ) (2,317 ) 5,159
Accrued expenses and other liabilities 9,403 7,554 (7,535 )
Income taxes receivable/payable   1,110     1,246     9,973  
Net cash provided by operating activities   85,293     62,634     58,642  
Investing Activities
Expenditures for property, plant and equipment (14,551 ) (23,333 ) (12,974 )
Proceeds from sales of property, plant and equipment 4,349 35 66
Purchase of acquired company, net of cash acquired (31 ) (44 )
Notes receivable, net           79  
Net cash used in investing activities   (10,202 )   (23,329 )   (12,873 )
Financing Activities
Financing costs (485 ) (3 ) (453 )
Borrowings under line of credit 242,700 225,500 143,000
Principal payments under line of credit (249,700 ) (218,500 ) (143,000 )
Repurchases of common stock (55,216 ) (53,313 ) (53,189 )
Proceeds from employee stock purchase and option plans 279 315 747
Excess tax benefits from stock compensation   3,147     12,898  
Net cash used in financing activities   (62,422 )   (42,854 )   (39,997 )
Net increase (decrease) in cash and cash equivalents 12,669 (3,549 ) 5,772
Cash and cash equivalents at beginning of period   5,995     9,544     3,772  
Cash and cash equivalents at end of period $ 18,664   $ 5,995   $ 9,544  
Supplemental Disclosure:
Cash paid for interest $ 852 $ 625 $ 520
Cash paid for income taxes, net $ 28,626 $ 26,327 $ 11,919

Source: Trex Company, Inc.

Trex Company, Inc.
Bryan Fairbanks
MBS Value Partners
Lynn Morgen/Viktoriia Nakhla