Trex Company Reports Second-Quarter Revenue And EPS Growth

Trex Company, Inc. (NYSE: TREX), the world’s largest manufacturer of wood-alternative decking and railing products, today announced financial results for the second quarter ended June 30, 2013.

Net sales for the second quarter of 2013 totaled $98.6 million compared to net sales of $94.3 million for the 2012 second quarter, an increase of 4.5%. The Company reported net income of $13.2 million, or $0.76 per diluted share, for the 2013 period compared to $8.4 million, or $0.48 per diluted share, for the prior-year period, a 57% increase in earnings per share. During the 2013 second quarter, the Company recognized a $1.7 million adjustment to the mold class action provision. During the second quarter of 2012, the Company recognized a $1.1 million increase to its warranty reserve for decking material manufactured at its Nevada plant prior to 2007 and $0.7 million of severance charges. On a pro-forma basis, 2013 net income was $14.9 million, or $0.86 per diluted share, a 46% increase over pro-forma earnings per share in the 2012 period.

For the six months ended June 30, 2013, the Company reported net sales of $206.4 million compared to net sales of $190.4 million for the prior-year period, an increase of 8.4%. The Company reported net income of $34.8 million, or $2.01 per diluted share, for the first six months of 2013 compared to net income of $20.7 million, or $1.22 per diluted share, for the 2012 period, a 65% increase in earnings per share. The Company recognized $1.9 million of adjustments to the mold class action provision in the 2013 period. The Company recognized an increase of $1.5 million to the warranty reserve and $0.7 million severance charges in the 2012 period. On a pro-forma basis, 2013 net income was $36.7 million, or $2.12 per diluted share, a 58% increase over pro-forma earnings per share in the 2012 period.

Chairman, President and CEO Ronald W. Kaplan commented, “Our 2013 strategy of providing a full line-up of high-performance decking and railing products made a strong contribution to our growth in sales. All of our product introductions for 2013, which give homeowners even more options for creating their ideal outdoor living space, have been well received in the marketplace.

“Our expanded array of best-in-class products is also helping us build stronger relationships with our distributors, dealers and contractors. Our product strategy has strengthened loyalty in the marketplace.

“This year’s branding strategy, featuring our Engineered Artistry advertising campaign, coupled with a strong focus on digital marketing, has been very successful. We dominated the Decking: Composite and Vinyl category in all areas measured in Remodeling Magazine’s 2013 Brand Use Study.

“Gross margin for the second quarter rose to 37.5%, 70 basis points higher than pro-forma gross margin for last year’s period. These improved results indicate that our product innovation, sales programs and low-cost manufacturing strategies continue to contribute to our goal of increasing shareholder value. At the same time, our strong cash generation is further bolstering our capital structure, giving us an even stronger foundation and more flexibility to grow our business and pursue strategic opportunities.

“For the third quarter of 2013, we expect net sales of approximately $72 million, a gain of approximately 2% over the prior-year period.”

Share Repurchase Program

The Company also announced that its Board of Directors has authorized a common stock repurchase program of up to $25 million of the Company's outstanding common stock over a six-month period.

“This share repurchase program is the first step in a comprehensive review of our capital structure and demonstrates our Board’s confidence in the Company’s strategy and long-term prospects,” said Mr. Kaplan. “We have been delivering consistently strong earnings and cash generation performance and expect to continue this trend. Our strong balance sheet – which has been a cornerstone of our strategy – enhances our ability to implement a share repurchase program while maintaining the financial flexibility necessary to grow our business.”

In connection with the repurchase program, the Company will enter into a written trading plan under Rule 10b5-1 of the Securities Exchange Act of 1934 by which the Company will authorize the repurchase of the shares at certain designated prices. Because the repurchases under the Plan are subject to certain pricing parameters, there is no guarantee as to the exact number of shares that will be repurchased under the Plan, or that there will be any repurchases pursuant to the Plan. In addition, the stock repurchase program may be suspended, extended or terminated by the Company at any time without prior notice.

Second-Quarter 2013 Conference Call and Webcast Information

Trex will hold a conference call to discuss its second-quarter 2013 results on Tuesday, August 6, 2013 at 10:00 a.m. ET. To participate in the live call by telephone, please dial 706-634-1218 or 888-803-7566 and reference conference ID #16622046. 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 Pro-Forma Net Income and Related Earnings Per Share (EPS)

To supplement the condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, the Company uses the following non-GAAP financial measures: net income on a pro-forma basis and related EPS. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

The Company defines net income on a pro-forma basis as net income before certain charges. The second quarter of 2013 includes a $1.7 million provision for costs related to the mold class action. The second quarter of 2012 includes a $1.1 million increase to its warranty reserve for decking material manufactured at the Company’s Nevada plant prior to 2007 and $0.7 million of severance charges.

Financial results for the six months ended June 30, 2013 include a $1.9 million provision for costs related to the mold class action. The 2012 period includes a $1.5 million increase to the Company’s warranty reserve for decking material manufactured at its Nevada plant prior to 2007 and $0.7 million of severance charges.

The Company defines related EPS as net income on a pro-forma basis divided by the weighted average outstanding shares, on a fully diluted basis. The Company uses these pro-forma financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. The Company also believes that investors and analysts benefit from referring to these pro-forma financial measures in assessing the performance and expectations of the Company’s future performance.

For more information on the reconciliation of GAAP and pro-forma financial terms, please see the two tables titled “Reconciliations of Pro-Forma Results of Operations Measures to the Nearest Comparable GAAP Measures Three Months Ended June 30, 2013” and “Reconciliations of Pro-Forma Results of Operations Measures to the Nearest Comparable GAAP Measures Six Months Ended June 30, 2013” at the end of this release.

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 6,000 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 June 30, Six Months Ended June 30,

2013

2012

2013

2012
 
 
Net sales $ 98,551 $ 94,279 $ 206,430 $ 190,379
 
Cost of sales   61,629   60,689   127,649   121,369
 
Gross profit 36,922 33,590 78,781 69,010
 
Selling, general and administrative expenses   23,392   20,866   43,234   39,467
 
Income from operations 13,530 12,724 35,547 29,543
 
Interest expense, net   210   4,299   461   8,710
 
Income before income taxes 13,320 8,425 35,086 20,833
 
Provision for income taxes   96   86   293   182
 
Net income $ 13,224 $ 8,339 $ 34,793 $ 20,651
 
Basic income per common share $ 0.78 $ 0.54 $ 2.05 $ 1.33
 
Basic weighted average common shares outstanding   17,012,046   15,571,207   16,947,935   15,522,492
 
Diluted income per common share $ 0.76 $ 0.48 $ 2.01 $ 1.22
 
Diluted weighted average common shares outstanding   17,392,270   17,210,177   17,336,714   16,964,082
 
Comprehensive income $ 13,224 $ 8,339 $ 34,793 $ 20,651
 

 
TREX COMPANY, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
     
 

30-Jun-13

31-Dec-12
 
 
ASSETS
Current assets:
 
Cash and cash equivalents $ 15,583 $ 2,159
Accounts receivable, net 50,959 26,542
Inventories 14,963 17,521
Prepaid expenses and other assets 1,706 2,188
Income taxes receivable 809 435
Deferred income taxes   3,858   3,792  
Total current assets 87,878 52,637
Property, plant and equipment, net 100,955 104,425
Goodwill and other intangibles 10,546 10,550
Other assets   1,195   1,003  
Total assets $ 200,574 $ 168,615  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
Accounts payable $ 15,020 $ 11,161
Accrued expenses 20,026 18,818
Accrued warranty 7,500 7,500
Line of credit   -   5,000  
Total current liabilities 42,546 42,479
Deferred income taxes 7,073 7,353
Non-current accrued warranty 17,747 21,487
Other long-term liabilities   2,402   3,310  
Total liabilities   69,768   74,629  
Stockholders’ equity:
Preferred stock, $0.01 par value, 3,000,000 shares authorized; none issued and outstanding - -
Common stock, $0.01 par value, 40,000,000 shares authorized; 17,222,232 and 17,010,493 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively 172 170
Additional paid-in capital 100,663 98,638
Retained earnings (deficit)   29,971   (4,822 )
Total stockholders’ equity   130,806   93,986  
Total liabilities and stockholders’ equity $ 200,574 $ 168,615  
 

         
TREX COMPANY, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
Six Months Ended June 30,

2013

2012
 
OPERATING ACTIVITIES
Net income $ 34,793 $ 20,651
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,341 14,154
Other non-cash charges 1,334 1,395
Changes in operating assets and liabilities   (21,328 )   (253 )
 
Net cash provided by operating activities $ 23,140   $ 35,947  
 
INVESTING ACTIVITIES $ (4,873 ) $ (2,892 )
 
FINANCING ACTIVITIES $ (4,843 ) $ 12,990  
 
Net increase in cash and cash equivalents $ 13,424 $ 46,045
Cash and cash equivalents at beginning of period $ 2,159   $ 4,526  
 
Cash and cash equivalents at end of period $ 15,583   $ 50,571  
 

                               
Trex Company, Inc.
Reconciliations of Pro-Forma results of operations measures to the nearest comparable GAAP measures
Three Months Ended June 30,
(amounts in 000's except for EPS)
 
 
                           
2012 Reconciliation 2013 Reconciliation
 
GAAP Pro-Forma Pro-Forma GAAP Pro-Forma Pro-Forma
2012 Adjustments(1)   2012 2013 Adjustments(2)   2013
 
Net sales $ 94,279 $ 0 $ 94,279 $ 98,551 $ 0 $ 98,551
 
Cost of sales $ 60,689 ($1,084 ) $ 59,605 $ 61,629 $ 0 $ 61,629
           
Gross Profit $ 33,590 $ 1,084 $ 34,674 $ 36,922 $ 0 $ 36,922
% of Net sales 35.6 % 1.1 % 36.8 % 37.5 % 0.0 % 37.5 %
 
SG&A Expenses $ 20,866 ($673 ) $ 20,193 $ 23,392 ($1,695 ) $ 21,697
% of Net sales 22.1 % -0.7 % 21.4 % 23.7 % -1.7 % 22.0 %
           
Income from operations $ 12,724 $ 1,757 $ 14,481 $ 13,530 $ 1,695 $ 15,225
% of Net sales 13.5 % 1.9 % 15.4 % 13.7 % 1.7 % 15.4 %
 
Interest expense, net $ 4,299   $ 0   $ 4,299   $ 210   $ 0   $ 210  
 
Income (loss) before income taxes $ 8,425 $ 1,757 $ 10,182 $ 13,320 $ 1,695 $ 15,015
           
Net income (loss) $ 8,339   $ 1,757   $ 10,096   $ 13,224   $ 1,695   $ 14,919  
% of Net sales 8.8 % 1.9 % 10.7 % 13.4 % 1.7 % 15.1 %
 
Diluted earnings (loss) per common share $ 0.48       $ 0.11       $ 0.59   $ 0.76       $ 0.10       $ 0.86  
 

(1) 2012 Pro-Forma Adjustments include a $1.1MM charge to the previously established warranty reserve (Cost of sales) and a $0.7MM severance charge (SG&A Expenses).
 

(2) 2013 Pro-Forma Adjustments include a $1.7MM charge to the previously established mold class action provision (SG&A Expenses).
 

                               
Trex Company, Inc.
Reconciliations of Pro-Forma results of operations measures to the nearest comparable GAAP measures
Six Months Ended June 30,
(amounts in 000's except for EPS)
 
 
                           
2012 Reconciliation 2013 Reconciliation
 
GAAP Pro-Forma Pro-Forma GAAP Pro-Forma Pro-Forma
2012 Adjustments(1)   2012 2013 Adjustments(2)   2013
 
Net sales $ 190,379 $ 0 $ 190,379 $ 206,430 $ 0 $ 206,430
 
Cost of sales $ 121,369 ($1,487 ) $ 119,882 $ 127,649 $ 0 $ 127,649
           
Gross Profit $ 69,010 $ 1,487 $ 70,497 $ 78,781 $ 0 $ 78,781
% of Net sales 36.2 % 0.8 % 37.0 % 38.2 % 0.0 % 38.2 %
 
SG&A Expenses $ 39,467 ($673 ) $ 38,794 $ 43,234 ($1,891 ) $ 41,343
% of Net sales 20.7 % -0.4 % 20.4 % 20.9 % -0.9 % 20.0 %
           
Income from operations $ 29,543 $ 2,160 $ 31,703 $ 35,547 $ 1,891 $ 37,438
% of Net sales 15.5 % 1.1 % 16.7 % 17.2 % 0.9 % 18.1 %
 
Interest expense, net $ 8,710   $ 0   $ 8,710   $ 461   $ 0   $ 461  
 
Income (loss) before income taxes $ 20,833 $ 2,160 $ 22,993 $ 35,086 $ 1,891 $ 36,977
           
Net income (loss) $ 20,651   $ 2,160   $ 22,811   $ 34,793   $ 1,891   $ 36,684  
% of Net sales 10.8 % 1.1 % 12.0 % 16.9 % 0.9 % 17.8 %
 
Diluted earnings (loss) per common share $ 1.22       $ 0.12       $ 1.34   $ 2.01       $ 0.11       $ 2.12  
 
(1) 2012 Pro-Forma Adjustments include a $1.5MM charge to the previously established warranty reserve (Cost of sales) and a $0.7MM severance charge (SG&A Expenses).
 

(2) 2013 Pro-Forma Adjustments include a $1.9MM charge to the previously established mold class action provision (SG&A Expenses).

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