Trex Company, Inc. (TREX) reported better-than-expected results driven by continued momentum in the repair and remodel market coupled with the company’s brand leadership and capacity expansion. Shares closed marginally lower at $96.84 on August 2.
Trex manufactures wood-alternative decking and railing products. The company reported earnings of $0.53 per share, an increase of 29% compared to the year-ago period and in line with the analysts’ estimates. (See Trex Company stock charts on TipRanks)
Revenue climbed 41% to $312 million and outpaced the Street’s estimate of $302.23 million.
Bryan Fairbanks, President and CEO of the company, said, “Our strong second-quarter revenue growth was driven by sustained broad-based demand across all Trex Residential product lines and market share gains from wood.”
The company completed its $200 million capacity expansion program in May, which boosted the Trex Residential segment’s sales growth by 43% year-over-year.
Fairbanks added, “With the largest part of our capacity expansion behind us, we will now pivot to cost reduction projects and continuous improvement opportunities…and focus on automation, modernization, energy efficiency, and raw material processing.”
For the third quarter, the company projects revenue to be in the range of $320 – $330 million, compared to the Street’s estimate of $323.3 million.
Following the results, Berenberg Bank analyst Alexander Leach reiterated a Buy rating on the stock with a price target of $123, implying 27% upside potential to current levels.
Leach said, “While demand remains robust and capacity expansion has allowed the company to better serve its customers, the quarter highlighted some of the gross margin headwinds the company continues to experience.”
Leach believes the company will be able to sustain the gross margins from Q3 onwards with its price increase and cost reduction efforts.
Overall, the stock has a Moderate Buy consensus rating based on 5 Buys and 6 Holds. The average Trex price target of $114.64 implies 18.4% upside potential to current levels. Shares have gained 34% over the past year.
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