Trex Company, Inc. TREX, the world's largest manufacturer of wood-alternative decking and railing products, today announced financial results for the third quarter ended September 30, 2014.
Net sales for the third quarter of 2014 totaled $95.5 million compared to net sales of $72.2 million for the 2013 third quarter, an increase of 32.2%. The Company reported net income of $8.9 million, or $0.28 per diluted share, for the 2014 quarter compared to a net loss of $15.3 million, or $0.45 per diluted share, for the 2013 period. The Company's results for the 2014 quarter reflect a $5.4 million increase in income taxes driven by the return to a normal tax rate after exiting its tax valuation allowance at year-end 2013. The tax increase impacted earnings per share by $0.17 as compared to the prior-year period. During the 2013 third quarter, the Company recognized $22.9 million of charges, which included a $20.0 million increase to its warranty reserve for decking material manufactured at its Nevada plant prior to 2007. Before giving effect to these charges, operating income for the 2013 quarter would have been $7.7 million.
Chairman, President and CEO Ronald W. Kaplan commented, “Our third-quarter and year-to-date financial performance set records for Trex in both sales and earnings per share. These outstanding results were fueled by our four guiding principles for enhancing shareholder value – our best-in-class outdoor living product platform, branding strength, distribution power and low-cost manufacturing advantage. Our strong execution in each of these areas has also put us on track for a record year. In addition, our many strategic initiatives, including international sales, commercial products, steel substructures, landscape and deck lights and licensed products, are contributing to our success.
“The start-up of the first polyethylene pellet manufacturing line for our entry into commercial business applications is proceeding well. Our entry into this market will enable us to leverage our Company's core recycling and extrusion capabilities, adding significant value to our surplus recycled polyethylene film supplies. We sold product from our first line in the third quarter and will begin the build-out of the three additional lines during the first half of 2015.
“For the fourth quarter of 2014, we expect net sales to reach $70 million, representing year-over-year growth of 10%. This will bring our revenue for 2014 to approximately $388 million – the highest sales in the Company's history, breaking the record set last year and reflecting 13% growth from that mark. This progress exemplifies the execution of our market share advancement initiatives. Furthermore, this milestone will be a testament to the talents and dedication of the entire Trex team.”
For the nine months ended September 30, 2014, the Company reported net sales of $317.5 million compared to net sales of $278.7 million for the prior-year period, an increase of 13.9%. The Company reported net income of $36.4 million, or $1.10 per diluted share, for the first nine months of 2014 compared to net income of $19.5 million, or $0.56 per diluted share, for the 2013 period. The Company's results for 2014 reflect a $21.6 million increase in income taxes due to exiting its tax valuation allowance at year-end 2013. The change in tax rate impacted earnings per share by $0.64 as compared to the 2013 period. During the 2013 period, the Company recognized $24.8 million of charges, which included a $20.0 million increase to its warranty reserve. Before giving effect to these charges, operating income for the 2013 period would have been $45.2 million.
Share Repurchase Program
The Company also announced that its Board of Directors has authorized a common stock repurchase program of up to two million of the Company's outstanding common stock. There is no guarantee as to the exact number of shares that will be repurchased under the program, or that there will be any repurchases pursuant to the program. In addition, the stock repurchase program may be suspended, extended or terminated by the Company at any time without prior notice.
Third-Quarter 2014 Conference Call and Webcast Information
Trex will hold a conference call to discuss its third-quarter 2014 results on Monday, October 27, 2014 at 10:00 a.m. ET. To participate in the live call by telephone, please dial 706-634-1218 or 888-803-7638 and reference conference ID #17810668. A live webcast of the conference call will also be available in the Investor Relations section of the Trex Company website at trex.com.
For those who cannot listen to the live broadcast, an audio replay of the earnings 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 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 wood-alternative decking and railing, with more than 20 years of product experience. Stocked in more than 6,700 retail locations throughout the world, 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 trex.com.
| TREX COMPANY, INC. | |||||||||||||
| Condensed Consolidated Statements of Comprehensive Income | |||||||||||||
| (In thousands, except share and per share data) | |||||||||||||
| (Unaudited) | |||||||||||||
|
Three Months Ended |
Nine Months Ended |
||||||||||||
| 2014 | 2013 | 2014 | 2013 | ||||||||||
| Net sales | $ | 95,502 | $ | 72,249 | $ | 317,458 | $ | 278,680 | |||||
| Cost of sales | 65,133 | 72,098 | 203,897 | 199,747 | |||||||||
| Gross profit | 30,369 | 151 | 113,561 | 78,933 | |||||||||
| Selling, general and administrative expenses | 15,902 | 15,375 | 54,468 | 58,609 | |||||||||
| Income (loss) from operations | 14,467 | (15,224 | ) | 59,093 | 20,324 | ||||||||
| Interest expense, net | 167 | 70 | 791 | 531 | |||||||||
| Income (loss) before income taxes | 14,300 | (15,294 | ) | 58,302 | 19,793 | ||||||||
| Provision for income taxes | 5,387 | 4 | 21,934 | 298 | |||||||||
| Net income (loss) | $ | 8,913 | $ | (15,298 | ) | $ | 36,368 | $ | 19,495 | ||||
| Basic earnings (loss) per common share | $ | 0.28 | $ | (0.45 | ) | $ | 1.12 | $ | 0.58 | ||||
| Basic weighted average common shares outstanding | 31,606,264 | 33,660,212 | 32,538,832 | 33,772,710 | |||||||||
| Diluted earnings (loss) per common share | $ | 0.28 | $ | (0.45 | ) | $ | 1.10 | $ | 0.56 | ||||
| Diluted weighted average common shares outstanding | 32,008,781 | 33,660,212 | 32,966,317 | 34,506,910 | |||||||||
| Comprehensive income (loss) | $ | 8,913 | $ | (15,298 | ) | $ | 36,368 | $ | 19,495 | ||||
| TREX COMPANY, INC. | ||||||||
| Condensed Consolidated Balance Sheets | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
|
September 30, |
December 31, |
|||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 3,841 | $ | 3,772 | ||||
| Accounts receivable, net | 44,977 | 37,338 | ||||||
| Inventories | 14,639 | 22,428 | ||||||
| Prepaid expenses and other assets | 3,279 | 3,145 | ||||||
| Deferred income taxes | 9,497 | 9,497 | ||||||
| Total current assets | 76,233 | 76,180 | ||||||
| Property, plant and equipment, net | 98,199 | 100,783 | ||||||
| Goodwill and other intangibles | 10,536 | 10,542 | ||||||
| Other assets | 897 | 652 | ||||||
| Total assets | $ | 185,865 | $ | 188,157 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 12,864 | $ | 14,891 | ||||
| Accrued expenses | 24,275 | 23,295 | ||||||
| Accrued warranty | 8,500 | 9,000 | ||||||
| Line of credit | 3,000 | - | ||||||
| Total current liabilities | 48,639 | 47,186 | ||||||
| Deferred income taxes | 360 | 360 | ||||||
| Non-current accrued warranty | 27,587 | 31,812 | ||||||
| Other long-term liabilities | 2,164 | 2,183 | ||||||
| Total liabilities | 78,750 | 81,541 | ||||||
| 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; 34,783,546 and 34,598,124 shares issued and 32,003,117 and 33,475,614 shares outstanding at September 30, 2014 and December 31, 2013, respectively | 348 | 173 | ||||||
| Additional paid-in capital | 115,623 | 101,667 | ||||||
| Retained earnings | 66,144 | 29,776 | ||||||
| Treasury stock, at cost, 2,780,429 and 1,122,510 shares at September 30, 2014 and December 31, 2013, respectively | (75,000 | ) | (25,000 | ) | ||||
| Total stockholders' equity | 107,115 | 106,616 | ||||||
| Total liabilities and stockholders' equity | $ | 185,865 | $ | 188,157 | ||||
| TREX COMPANY, INC. | ||||||||
| Condensed Consolidated Statements of Cash Flows | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2014 | 2013 | |||||||
| Operating Activities | ||||||||
| Net income | $ | 36,368 | $ | 19,495 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization | 11,449 | 12,444 | ||||||
| Deferred income taxes | - | (2,991 | ) | |||||
| Stock-based compensation | 3,672 | 2,781 | ||||||
| Loss on disposal of property, plant and equipment | 169 | 587 | ||||||
| Excess tax benefits from stock compensation | (12,677 | ) | (2,567 | ) | ||||
| Other non-cash adjustments | (245 | ) | (337 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (7,698 | ) | 2,543 | |||||
| Inventories | 7,789 | 6,343 | ||||||
| Prepaid expenses and other assets | (415 | ) | 447 | |||||
| Accounts payable | (2,027 | ) | (4,488 | ) | ||||
| Accrued expenses and other liabilities | (3,690 | ) | 16,775 | |||||
| Income taxes receivable/payable | 12,630 | 2,633 | ||||||
| Net cash provided by operating activities | 45,325 | 53,665 | ||||||
| Investing Activities | ||||||||
| Expenditures for property, plant and equipment | (8,794 | ) | (8,971 | ) | ||||
| Proceeds from sales of property, plant and equipment | 48 | 176 | ||||||
| Purchase of acquired company, net of cash acquired | (44 | ) | - | |||||
| Notes receivable, net | 59 | 78 | ||||||
| Net cash used in investing activities | (8,731 | ) | (8,717 | ) | ||||
| Financing Activities | ||||||||
| Financing costs | - | (73 | ) | |||||
| Borrowings under line of credit | 139,000 | 74,500 | ||||||
| Principal payments under line of credit | (136,000 | ) | (79,500 | ) | ||||
| Repurchases of common stock | (52,892 | ) | (28,445 | ) | ||||
| Proceeds from employee stock purchase and option plans | 690 | 3,427 | ||||||
| Excess tax benefits from stock compensation | 12,677 | 2,567 | ||||||
| Net cash used in financing activities | (36,525 | ) | (27,524 | ) | ||||
| Net increase in cash and cash equivalents | 69 | 17,424 | ||||||
| Cash and cash equivalents at beginning of period | 3,772 | 2,159 | ||||||
| Cash and cash equivalents at end of period | $ | 3,841 | $ | 19,583 | ||||
| Supplemental Disclosure: | ||||||||
| Cash paid for interest, net of capitalized interest | $ | 498 | $ | 348 | ||||
| Cash paid for income taxes, net | $ | 9,342 | $ | 696 | ||||
Trex Company, Inc.
James Cline, 540-542-6300
SVP & CFO
or
LHA
Harriet
Fried, 212-838-3777
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