TREX CO INC
For the period ended Sep 30, 2024. Filed Oct 28, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 28, 2024
TREX$54.74-2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0000950170-24-091989
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-28.
0000950170-24-117783
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 91 previous paragraphs and 97 current paragraphs.
63 unchanged; 23 reworded; 9 added; 4 removed; 1 previous and 2 current paragraphs rearranged.
Tables are not compared: 17 previous and 17 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (9)
Current report
Trex Launches National Drop Off Directory for Plastic Bag and Film Recycling. The directory is the only online searchable platform dedicated to connecting Americans with Trex recycling partners in their local community.
Current report
Trex Adds Two New Enhance® Decking Hues with heat mitigating technology.
Current report
Trex Launches New Trex Signature® X-Series™ Railing. Trex has expanded its popular Trex Signature® Railing line with the introduction of X-Series™ Cable Rail and X-Series™ Frameless Glass Rail.
Current report
Trex Introduces New All In One Railing Post Kitsfor Trex Select® and Trex Enhance® railing.
Current report
Net sales decreased by $70.1 million, or 23.1%, in the 2024 quarter compared to the 2023 quarter. The decrease was driven by volume, predominantly in the entry level product category, as consumers reduce their discretionary spending during uncertain economic times and our channel partners normalize their inventories related to the consumer behaviors.
Current report
Gross profit as a percentage of net sales, gross margin, was 39.9% in the quarter compared to 43.1% in the 2023 quarter. The 2024 and 2023 quarters included benefits of $1.1 million and $3.8 million, respectively, from a reduction of the surface flaking warranty reserve. Excluding the surface flaking benefit, gross margin in the 2024 quarter was 39.4% compared to 41.8% in the 2023 quarter. The decrease was primarily the result of lower sales volume, offset partially by favorable impacts from our continuous improvement programs.
Current report
Nine Months Ended September 30, 2024 Compared To The Nine Months Ended September 30, 2023
Current report
Indebtedness on and after October 10, 2024. On October 10, 2024, Trex entered into a Second Amendment to the Credit Agreement (Second Amendment) with certain lending parties thereto (Lenders) to amend that Credit Agreement dated as of May 18, 2022, as amended by that certain First Amendment dated as of December 22, 2022.
Current report
The Second Amendment provides us with Revolving A Loans in the maximum principal amount of $400,000,000 (Revolving A Loans), Revolving B Loans in the maximum principal amount of $150,000,000 (Revolving B Loans), and Letters of Credit and Swing Line Loans (as defined in the Credit Agreement). The Second Amendment extends the maturity date of the Revolving B Loans from December 22, 2024 to December 22, 2026.
Removed paragraphs (4)
Previous report
Trex's 2023 Sustainability Report Showcases Ongoing Progress across the broad spectrum of company activities.
Previous report
Trex Taps Paragon Stairs as Exclusive Provider of Trex® Spiral Stairs. For the Trex Spiral Stairs collection, Paragon offers two modular systems specifically designed to pair perfectly with Trex decking and railing. These systems are ideal for use where space is limited.
Previous report
Net sales increased by $19.9 million, or 5.6%, in the 2024 quarter compared to the 2023 quarter. The increase was driven by volume, predominantly in the premium product category, as consumers remain in their homes longer and prioritize investments that offer enjoyment of their outdoor spaces, while increasing the value of their homes. In addition, Trex remains a primary beneficiary of the ongoing conversion from wood to composites.
Previous report
Six Months Ended June 30, 2024 Compared To The Six Months Ended June 30, 2023
Reworded paragraphs (23)
Previous wording
Highlights and Financial Performance Quarter-to-Date and Year-to-Date –a summary of financial performance and highlights for the three months and six months ended June 30, 2024, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.
Current wording
Highlights and Financial Performance Quarter-to-Date and Year-to-Date –a summary of financial performance and highlights for the three months and nine months ended September 30, 2024, a general discussion of factors that may affect our operations, and a description of relevant financial statement line items.
Previous wording
Results of Operations — an analysis of our consolidated results of operations for the three months and six months ended June 30, 2024 compared to the three months and six months ended June 30, 2023, respectively.
Current wording
Results of Operations — an analysis of our consolidated results of operations for the three months and nine months ended September 30, 2024 compared to the three months and nine months ended September 30, 2023, respectively.
Previous wording
Capital expenditures. During the six months ended June 30, 2024, our capital expenditures were $73.2 million primarily related to $51.1 million for the Arkansas manufacturing facility, $7.4 million in cost reduction initiatives, and $11.6 million in capacity expansion in our existing facilities and safety, environmental and general support.
Current wording
Capital expenditures. During the nine months ended September 30, 2024, our capital expenditures were $151.5 million primarily related to $108.1 million for the Arkansas manufacturing facility, $16.0 million in capacity expansion in our existing facilities and safety, environmental and general support, and $12.0 million in cost reduction initiatives.
Previous wording
Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended June 30, 2024 (2024 quarter) compared to the three months ended June 30, 2023 (2023 quarter), and for the six months ended June 30, 2024 (2024 six-month period) compared to the six months ended June 30, 2023 (2023 six-month period).
Current wording
Below is the discussion and analysis of our operating results and material changes in our operating results for the three months ended September 30, 2024 (2024 quarter) compared to the three months ended September 30, 2023 (2023 quarter), and for the nine months ended September 30, 2024 (2024 nine-month period) compared to the nine months ended September 30, 2023 (2023 nine-month period).
Previous wording
Selling, general and administrative expenses decreased $0.5 million in the 2024 quarter. The decrease primarily related to lower personnel costs, partially offset by increases in branding and other expenses.
Current wording
Selling, general and administrative expenses decreased $5.6 million in the 2024 quarter. The decrease primarily related to lower personnel costs and branding expenses resulting from timing of the spend, partially offset by increases in information technology expenditures and insurance costs.
Previous wording
The effective tax rate for the 2024 quarter was comparable to the 2023 quarter and was 25.6% and 25.5%, respectively.
Current wording
The effective tax rate for the 2024 quarter was comparable to the 2023 quarter and was 25.3% and 25.1%, respectively.
Previous wording
EBITDA increased 11.4% to $130.4 million for the 2024 quarter compared to $117.1 million for the 2023 quarter. The increase in EBITDA was driven primarily by higher net sales and gross profit.
Current wording
EBITDA decreased 31.6% to $67.9 million for the 2024 quarter compared to $99.4 million for the 2023 quarter. The decrease in EBITDA was driven primarily by lower net sales and gross profit.
Previous wording
Total net sales increased by $154.9 million, or 26.0%, in the 2024 six-month period compared to the 2023 six-month period. The increase was substantially all due to an increase in volume, driven in part, by changes to our early-buy program running January to March, rather than our historical December to March time frame. This change accounted for $75 million or approximately 13% of the growth in the 2024 six month period. The remainder of the growth is due to the expectations of continued favorable economic conditions for Trex's outdoor living products.
Current wording
Total net sales increased by $84.7 million, or 9.4%, in the 2024 nine-month period compared to the 2023 nine-month period. The increase was substantially all due to an increase in volume, driven primarily by changes to our early-buy program running January to March, rather than our historical December to March time frame. We estimate this change accounted for approximately $75 million, or 8.3%, of the growth in the 2024 nine month period.
Previous wording
Gross profit as a percentage of net sales, gross margin, was 45.0% in the 2024 six-month period compared to 42.1% in the 2023 six-month period. The increase in gross margin was primarily the result of higher absorption due to increased production levels, and benefits from the Company's continuous improvement activities, partially offset by higher labor costs and depreciation.
Current wording
Gross profit as a percentage of net sales, gross margin, was 43.8% in the 2024 nine-month period compared to 42.5% in the 2023 nine-month period. The increase in gross margin was primarily the result of higher absorption due to increased production levels and favorable impacts from our continuous improvement programs, offset partially by higher labor costs, utilities, and depreciation.
Previous wording
Selling, general and administrative expenses increased $12.6 million in the 2024 six-month period. The increase primarily related to increases of $7.0 million in personnel related expenses, $4.7 million in branding, $1.2 million in disposal of manufacturing equipment, offset partially by decreases of $1.0 million in facilities and support.
Current wording
Selling, general and administrative expenses increased $7.0 million in the 2024 nine-month period. The increase primarily related to increases of $2.5 million in branding, $2.4 million in personnel related expenses, $1.2 million in disposal of manufacturing equipment, and $0.9 million of depreciation.
Previous wording
The effective tax rate for the 2024 six-month period and the 2023 six month period was 25.4%.
Current wording
The effective tax rate for the 2024 nine-month period and the 2023 nine month period was 25.4% and 25.3% respectively.
Previous wording
Total EBITDA increased 41.7% to $263.5 million for the 2024 six-month period compared to $185.9 million for the 2023 six-month period. The increase in EBITDA was driven primarily by higher net sales and gross profit.
Current wording
Total EBITDA increased 16.2% to $331.4 million for the 2024 nine-month period compared to $285.3 million for the 2023 nine-month period. The increase in EBITDA was driven primarily by higher net sales and gross profit.
Previous wording
We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facilities, operating leases and normal trade credit terms from operating activities. At June 30, 2024, we had $1.2 million of cash and cash equivalents.
Current wording
We finance operations and growth primarily with cash flows from operations, borrowings under our revolving credit facilities, operating leases and normal trade credit terms from operating activities. At September 30, 2024, we had $12.8 million of cash and cash equivalents.
Previous wording
Cash provided by operations was $19.6 million during the 2024 six-month period compared to cash provided by operations of $107.8 million during the 2023 six-month period. The $88.1 million decrease in cash provided by operating activities was primarily related to an increase in accounts receivable and inventories. The increase in accounts receivable is primarily driven by the increase in net sales in the 2024 six-month period compared to the 2023 six-month period. Substantially all of the accounts receivables balances as of June 30, 2024 will be collected during the third quarter of 2024. The increase in inventories is the result of increased production in the 2024 six-month period compared to the 2023 six-month period.
Current wording
Cash provided by operations was $152.4 million during the 2024 nine-month period compared to cash provided by operations of $288.2 million during the 2023 nine-month period. The $135.8 million decrease in cash provided by operating activities was primarily related to an increase in inventories, as a result of increased production in the 2024 nine-month period compared to the 2023 nine-month period.
Previous wording
Capital expenditures in the 2024 six-month period were $73.2 million primarily related to $51.1 million for the Arkansas manufacturing facility, $7.4 million in cost reduction initiatives, and $11.6 million in capacity expansion in our existing facilities and safety, environmental and general support.
Current wording
Capital expenditures in the 2024 nine-month period were $151.5 million primarily related to $108.1 million for the Arkansas manufacturing facility, $16.0 million in capacity expansion in our existing facilities and safety, environmental and general support, and $12.0 million in cost reduction initiatives.
Previous wording
Net cash provided by financing activities in the 2024 six-month period consisted primarily of net borrowings under our line of credit.
Current wording
Net cash provided by financing activities in the 2024 nine-month period consisted primarily of net borrowings under our line of credit.
Previous wording
Stock Repurchase Program. On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). As of March 31, 2023, the Company had repurchased 10.1 million shares under the Stock Repurchase Program. On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. This repurchase program has no set expiration date. During the six months ended June 30, 2024, the Company did not repurchase any shares of its common stock under the 2023 Stock Repurchase Program.
Current wording
Stock Repurchase Program. On February 16, 2018, the Trex Board of Directors adopted a stock repurchase program of up to 11.6 million shares of its outstanding common stock (Stock Repurchase Program). As of March 31, 2023, the Company had repurchased 10.1 million shares under the Stock Repurchase Program. On May 4, 2023, the Trex Board of Directors adopted a new stock repurchase program of up to 10.8 million shares of its outstanding common stock, and terminated the existing Stock Repurchase Program. This repurchase program has no set expiration date. During the nine months ended September 30, 2024, the Company repurchased 822,400 shares of its common stock under the 2023 Stock Repurchase Program.
Previous wording
On May 18, 2022, the Company entered into a Credit Agreement (Credit Agreement) with certain lending parties thereto (Lenders) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019. Under the Credit Agreement, the Lenders agreed to provide the Company with one or more Revolving Loans in a collective maximum principal amount of $400,000,000 (Loan Limit) throughout the term, which ends May 18, 2027 (Term). Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.
Current wording
Indebtedness prior to October 10, 2024. On May 18, 2022, the Company entered into a Credit Agreement (Credit Agreement) with certain lending parties thereto (Lenders) to amend and restate the Fourth Amended and Restated Credit Agreement dated as of November 5, 2019. Under the Credit Agreement, the Lenders agreed to provide the Company with one or more Revolving Loans in a collective maximum principal amount of $400,000,000 (Loan Limit) throughout the term, which ends May 18, 2027 (Term). Included within the Loan Limit are sublimits for a Letter of Credit facility in an amount not to exceed $60,000,000; and Swing Line Loans in an aggregate principal amount at any time outstanding not to exceed $20,000,000. The Revolving Loans, the Letter of Credit facility and the Swing Line Loans are for the purpose of raising working capital and supporting general business operations.
Previous wording
At June 30, 2024, we had $63 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $487 million.
Current wording
At September 30, 2024, we had $70 million in outstanding borrowings under the revolving credit facility and borrowing capacity under the facility of $480 million.
Previous wording
Capital Requirements. In October 2021, we announced plans to add a third U.S.-based manufacturing facility located in Little Rock, Arkansas, on approximately 300 acres of land that will address increased demand for Trex outdoor living products. The development approach and related expenditures for the new campus will be modular and calibrated to demand trends for Trex outdoor living products. Our capital expenditure guidance for 2024 is $210 million to $230 million and includes estimated expenditures for the development of the Arkansas facility in 2024. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit.
Current wording
Capital Requirements. In October 2021, we announced plans to add a third U.S.-based Trex manufacturing facility located in Little Rock, Arkansas. The new campus will sit on approximately 300 acres of land and will address increased demand for Trex outdoor living products. The development approach for the new campus will be modular and calibrated to demand trends for Trex outdoor living products. Construction began on the new facility in 2022. The Company anticipates spending approximately $550 million on the facility, of which approximately $340 million has already been disbursed. Construction for the new facility will be funded primarily through the Company’s ongoing cash generation or its line of credit.
Previous wording
In addition to the construction of the Arkansas facility, our capital allocation priorities for 2024 include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit our long-term growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders.
Current wording
Our capital expenditure guidance for 2024 is $210 million to $230 million. In addition to the construction of the Arkansas facility, our capital allocation priorities for 2024 include expenditures for internal growth opportunities, manufacturing cost reductions, upgrading equipment and support systems, and acquisitions which fit our long-term growth strategy as we continue to evaluate opportunities that would be a good strategic fit for Trex, and return of capital to shareholders.
Previous wording
The number of incoming claims received in the six months ended June 30, 2024, was higher than the number of claims received in the six months ended June 30, 2023, but lower than our expectations for 2024. Average cost per claim experienced in the six months ended June 30, 2024, was lower than that experienced in the six months ended June 30, 2023 and lower than our expectations for 2024. We believe the reserve at June 30, 2024 is sufficient to cover future surface flaking obligations.
Current wording
The number of incoming claims received in the nine months ended September 30, 2024, was lower than the number of claims received in the nine months ended September 30, 2023, but higher than the Company’s expectations for 2024. Average cost per claim experienced in the nine months ended September 30, 2024, was lower than that experienced in the nine months ended September 30, 2023 and significantly lower than the Company’s expectations for 2024. After evaluating trends in incoming claims and closures in its actuarial analysis and combining these factors with future cost estimates, the Company recorded a reduction of $1.1 million to its warranty reserve for the future settlement of Surface Flaking claims. The Company believes the reserve at September 30, 2024 is sufficient to cover future surface flaking obligations.
Previous wording
Our analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows. We estimate that the annual number of claims received will continue to decline over time and that the average cost per claim will increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. We estimate that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $0.8 million change in the surface flaking warranty reserve.
Current wording
Our analysis is based on currently known facts and a number of assumptions, as discussed above, and current expectations. Projecting future events such as the number of claims to be received, the number of claims that will require payment and the average cost of claims could cause the actual warranty liabilities to be higher or lower than those projected, which could materially affect our financial condition, results of operations or cash flows. We estimate that the annual number of claims received will continue to decline over time and that the average cost per claim will increase slightly, primarily due to inflation. If the level of claims received or average cost per claim differs materially from expectations, it could result in additional increases or decreases to the warranty reserve and a decrease or increase in earnings and cash flows in future periods. We estimate that a 10% change in the expected number of remaining claims to be settled with payment or the expected cost to settle claims may result in approximately a $0.7 million change in the surface flaking warranty reserve.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Base Rate Loans (as defined in the Credit Agreement) under the Revolving A Loan and the Swing Line Loans accrue interest at the Base Rate plus the Applicable Rate (as defined in the Credit Agreement) and Term SOFR Loans for the Revolving Loans accrue interest at the rate per annum equal to the sum of Term SOFR for such interest period plus the Applicable Rate (as defined in the Credit Agreement). The Base Rate for any day is a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the rate of interest in effect for such day as publicly announced from time to time by BOA as its prime rate, and (c) the Term SOFR plus 1.0% subject to certain interest rate floors. Repayment of all then outstanding principal, interest, fees and costs is due at the end of the Term (as defined in the Credit Agreement).
Current report — wording carried from elsewhere
With respect to Revolving B Loans (as defined in the Credit Agreement), for any day, the rate per annum is a tiered pricing based upon the Consolidated Debt to Consolidated EBITDA Ratio. The applicable rate for Revolving B Loans that are Base Rate Loans range between 0.20% and 1.15%. and the applicable rate for Revolving B Loans that are Term SOFR/Term SOFR Daily Floating Rate range between 1.20% and 2.15%.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Gross profit as a percentage of net sales, gross margin, was 44.7% in the 2024 quarter compared to 43.9% in the 2023 quarter. The increase was primarily the result of higher absorption due to increased production levels and the Company's ongoing continuous improvement activities.