Trex Sees Bad Miss in Biggest Quarter

NEW YORK ( TheStreet) -- Trex ( TREX) shares tumbled on Tuesday after the Winchester, Va.-based maker of wood-alternative decking products made a deep cut to its revenue outlook.

The company now sees revenue of $78 million for its fiscal second quarter ended in June, more than 30% below its previous forecast of $115 million.

Trex, whose products typically cost more than using wood but require less maintenance, cited poor weather and weak economic conditions for the view, which is also well below Wall Street's current consensus estimate for revenue of $113.9 million.

"Sales did not materialize as expected during the second quarter. Poor weather and, to a lesser extent, the unfavorable macroeconomic environment, caused the lower-than-expected revenue performance," said Ronald Kaplan, the company's president, chairman and CEO in a press release. "Many parts of the country experienced major winter storms through April, which were then followed by heavier-than-normal precipitation during most of May, further delaying the start of the decking season."

The stock was recently trading down 14.3% at $20.54 on volume of more than 1 million, which is more than six times the issue's trailing three-month daily average of around 145,000.

Trex didn't provide an earnings view for the quarter. The average estimate of analysts polled by Thomson Reuters is for a profit of 86 cents a share in the June period. The warning is particularly devastating because the calendar second quarter was projected to be Trex's best of the year, by far, with spring considered prime deck-building season.

The consensus estimate for its full-year earnings is for a profit of $1.48 per share, meaning the second-quarter view represents more than half of earnings seen for all of 2011. In 2010, Trex delivered a second-quarter profit of $1.07 a share on revenue of $115.5 million.

Trex sewed some seeds for optimism, however, in its release, saying sales order activity in June was 15% ahead of last year as weather improved and that July was running ahead of a year ago as well.

The company is slated to deliver its full second-quarter results on Aug. 1.

Canaccord Genuity was bearish on the stock ahead of this news with a hold rating. On Monday the firm lowered its 12-month price target on the shares to $23 from $28 and cut earnings estimates, noting that it had theorized the company was vulnerable because of unfavorable weather back in early June. The pullback in the stock wasn't quite enough to get Canaccord excited from a valuation standpoint.

"Our revised price target is based on a lower projected EV/EBITDA enterprise value/earnings before interest, taxes, depreciation and amortization multiple of 6x vs. 7x previously, which we believe is warranted given the Q2 sales miss and current uncertainties around discretionary consumer spending," the firm wrote. "We would become more constructive on TREX in the high-teens range, which would offer 20%-plus upside to our new $23 target price."

Based on Monday's close at $23.96, Trex shares were up about 12% in the past year but they had dropped 29% since hitting a 52-week high of $34 on April 7. Wall Street had remained bullish on the stock, however, with five of the eight analysts rating it as a strong buy, and the median 12-month price target sitting at $31.50.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.

>To submit a news tip, send an email to: tips@thestreet.com

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Stocks

Market Can't Handle the Wild Ride: Cramer's 'Mad Money' Recap (Thursday 5/24/18)

Market Can't Handle the Wild Ride: Cramer's 'Mad Money' Recap (Thursday 5/24/18)

Replay: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation

Replay: Jim Cramer on North Korea, Oil Prices, Apple and Carnival Corporation

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Canopy Growth: First Cannabis Firm on the NYSE Fails to Generate Buzz

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

Video: This Startup Connects Buyers and Sellers of Legal Marijuana

Dow, S&P 500 and Nasdaq Tumble After Trump Calls Off North Korea Summit

Dow, S&P 500 and Nasdaq Tumble After Trump Calls Off North Korea Summit