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TREX CO INC (TREX)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered a strong beat versus company guidance: revenue $373.6M (+57% YoY), gross margin 45.4% (+580 bps YoY), EBITDA margin 35.6%, and diluted EPS $0.82; management noted sales came in above the high end of guidance, driven by normalized early buy and premium product demand .
  • Premium product sell-through rose double digits, while total sell-through increased mid-single digits; channel inventories were rebuilt to “appropriate” levels to serve peak season, with utilization elevated early and set to taper through H2 as normal seasonality resumes .
  • Guidance: Q2 revenue $380–$390M; FY 2024 revenue $1.215–$1.235B and EBITDA margin 30.0–30.5% reaffirmed; FY SG&A expected to provide 20–30 bps leverage and tax rate ~25–26% .
  • Consensus estimates from S&P Global were unavailable at time of request; context uses company guidance as the benchmark. Potential stock catalysts: outsized margin expansion, premium mix strength, reaffirmed FY guide, and visibility on adjacencies (fasteners, premium rail) .

What Went Well and What Went Wrong

What Went Well

  • Premium mix strength and demand: “Sell-through for premium products was at double-digit levels… expanded portfolio drove strong end-market demand” (CEO) .
  • Gross margin expansion: 45.4% gross margin (+580 bps YoY) on higher utilization, production efficiencies, and cost-out projects; profitability outpaced sales growth (CFO/CEO) .
  • Adjacent product expansion: Launch of Trex-branded fasteners; orders began in Q1 with shipments in Q2, positioning Trex as a one-stop supplier for decking, railing, and accessories (CEO) .

What Went Wrong

  • SG&A dollars increased with branding and new product development; while leveraged to 13.5% of sales, spend was elevated to support launches and the season .
  • Margin cadence to moderate in H2: Management expects top gross margin in H1 with declines in Q3/Q4 as factory utilization is pulled back; implied FY gross margin ~41.5–42% (CFO confirmation) .
  • Back-half revenue trajectory conservative as channel inventory normalizes and drawdowns occur; lower-end consumer more “squishy,” with strength concentrated in higher-end projects (CEO) .

Financial Results

Multi-Quarter Comparison (oldest → newest)

MetricQ3 2023Q4 2023Q1 2024
Revenue ($USD Millions)$303.836 $195.745 $373.635
Diluted EPS ($USD)$0.60 $0.20 $0.82
Gross Margin %43.1% 36.1% 45.4%
EBITDA ($USD Millions)$99.359 $41.123 $133.166
EBITDA Margin %32.7% 21.0% 35.6%
Net Income Margin %21.5% 11.2% 23.8%

Year-over-Year (Q1 2024 vs Q1 2023)

MetricQ1 2023Q1 2024
Revenue ($USD Millions)$238.718 $373.635
Diluted EPS ($USD)$0.38 $0.82
Gross Margin %39.6% 45.4%
EBITDA ($USD Millions)$68.862 $133.166
EBITDA Margin %28.8% 35.6%

Actual vs Company Guidance (Estimates unavailable)

MetricPeriodCompany GuidanceActualResult
Revenue ($USD Millions)Q1 2024$360–$370 $373.635 Above high end; management confirmed beat
Revenue ($USD Millions)Q2 2024$380–$390 N/AGuide reiterated
Revenue ($USD Billions)FY 2024$1.215–$1.235 N/AReaffirmed
EBITDA Margin %FY 202430.0–30.5 N/AReaffirmed

Segment breakdown: Not provided in Q1 2024 materials; prior 2023 releases reflected Trex Residential and disposition-related items, but no Q1 2024 segment detail .

KPIs and Operating Indicators (trend)

KPI / IndicatorQ3 2023Q4 2023Q1 2024
Total sell-through YoYMid-single-digit Mid-single-digit Mid-single-digit
Premium product sell-throughPositive traction (Lineage, Signature) Gaining traction Double-digit
Channel inventoriesNormalizing; expect year-end below 2022 Ended year historically low “Appropriate levels” to serve season
Capacity utilizationImproved utilization supported margins N/AElevated early; to decrease in H2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)Q2 2024N/A$380–$390 New Q2 guide
Revenue ($USD Billions)FY 2024$1.215–$1.235 $1.215–$1.235 (reaffirmed) Maintained
EBITDA Margin %FY 202430.0–30.5 30.0–30.5 (reaffirmed) Maintained
SG&A leverage (bps)FY 2024N/A20–30 bps leverage New disclosure
Effective tax rate %FY 2024N/A~25–26% New disclosure
Capex ($USD Millions)FY 2024~$220 (Arkansas) ~$220 (unchanged) Maintained
Revenue ($USD Millions)Q1 2024$360–$370 (incl. $60–$80 early buy) $373.635 Beat

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3/Q4)Current Period (Q1 2024)Trend
Premium product adoptionLineage & Signature gaining traction Double-digit sell-through; high-end demand strong Improving mix toward premium
Sell-through & inventoryMid-single-digit sell-through; year-end inventories below 2022 Mid-single-digit sell-through; inventories “appropriate” and normalized Normalization; steady demand
Gross margin driversIncreased utilization; cost-out; efficiencies 45.4% margin on utilization, efficiencies; H2 moderation expected Strong H1; planned H2 taper
Adjacent productsFasteners tool & online planner (2023) Launch of Trex-branded fasteners; premium rail X Series shipping Expanding addressable market
Capacity & Arkansas facilityN/AArkansas timeline: plastics mid-2025; decking early 2026; startup costs to be transparent Capacity build underway
Channel/shelf spaceRegaining shelf space; home center/pro focus Increased exclusivity in pro locations; added home center stocking Share recapture continues

Management Commentary

  • “This was an exceptionally strong quarter… Sell-through for premium products was at double-digit levels… our channel partners took advantage of our Early Buy program” — Bryan Fairbanks, CEO .
  • “Gross margin was 45.4%… increased capacity utilization, production efficiencies and continued cost-out programs were the key drivers… we do not expect to replicate this margin level in subsequent quarters” — Brenda Lovcik, CFO .
  • “We began accepting orders for Trex-branded deck fasteners… engineered to make installation easier… position Trex as a one-stop supplier” — CEO .
  • “We estimate wood-to-composite conversion occurring at a long-term average of 150 to 200 basis points per year” — CEO .

Q&A Highlights

  • Margin cadence: Gross margin highest in H1; will decline in H2 with lower utilization; implied FY gross margin around 41.5–42% was acknowledged as within range (CFO) .
  • Inventory dynamics: Plan embeds mid-single-digit sell-through and normalized inventory build early with drawdown through Q2–Q3; Q1 sales above guide aided by ~$75M early buy shift (CEO/CFO) .
  • Consumer mix: Stronger engagement from higher-end households driving larger decks and premium products; lower-end consumer more sensitive to macro pressures (CEO) .
  • SG&A leverage: Expect 20–30 bps leverage for FY despite elevated branding and marketing spend in Q2–Q3 (CFO) .
  • Capacity build: Arkansas plastics startup mid-2025; decking early 2026; transparency on startup costs planned (CEO) .
  • Shelf space & channel: Regained pro exclusivity and added home center stocking; no major negative shelf space events anticipated (CEO) .

Estimates Context

  • S&P Global consensus data were unavailable due to provider limits at time of request; as a proxy, Q1 revenue exceeded the company’s guidance range and management explicitly stated the quarter came in above the high end .
  • Implications: Street models may need to reflect stronger H1 margins with moderation in H2, reaffirmed FY revenue/EBITDA margin ranges, and premium mix tailwinds; FY tax rate and SG&A leverage disclosures should be incorporated .

Key Takeaways for Investors

  • Q1 beat underscores premium mix strength and operating leverage: 45.4% GM and 35.6% EBITDA margin provide upside to near-term profitability; anticipate H2 normalization in margin cadence .
  • Reaffirmed FY guide and Q2 revenue outlook support demand durability; mid-single-digit sell-through and normalized inventory behavior reduce execution risk .
  • Premium product momentum (Lineage, Signature) and new adjacencies (fasteners, premium rail) expand the addressable market and should aid mix and attachment rates over time .
  • SG&A investment is strategic; despite higher dollars, FY leverage of 20–30 bps and effective tax rate ~25–26% provide visibility to operating model assumptions .
  • Watch H2 drivers: utilization pullback, DIY seasonality, and inventory drawdown cadence; higher-end consumer remains resilient while entry-level demand is more macro-sensitive .
  • Medium term: Arkansas capacity adds optionality beginning 2025–2026; management plans transparency on startup costs—monitor impact on reported margins and trajectory .
  • Near-term trading setup: Strong Q1 beat and mix tailwinds are positives; consensus unavailable, but reaffirmed FY ranges and explicit margin cadence commentary help frame expectations into Q2/H2 .