Shares of Trex Co. Inc. (TREX) rose about 21% after the company reported improved fourth-quarter 2013 earnings on Feb 24. Adjusted earnings per share (EPS) was 23 cents, turning around the loss of 13 cents in the year-ago quarter. Moreover, the results outperformed the Zacks Consensus Estimate of 8 cents. The year-over-year growth was led by improved sales.
Shares reached a new 52-week high of $86.85, exceeding the previous high of $83.04 on Dec 24, 2013. The company has beaten the Zacks Consensus Estimate three times in the trailing four quarters with an average surprise of 14.99%.
During fourth-quarter 2013, Trex recognized favorable income tax adjustment of $10.9 million. In the prior-year quarter, the company had incurred provision for costs of $20 million related to the mold class action. Including these, EPS marked an impressive year-over-year rise of 309% to 90 cents from 22 cents in the prior-year quarter.
Operational Update
Total revenue grew 37.5% year over year to an adjusted $63.5 million, ahead of the Zacks Consensus Estimate of $51 million as well as management guidance of $50 million. The improvement was mainly driven by increased distribution and dealer demand. A high-performance product platform, coupled with recently revised pricing strategy also aided the performance.
Cost of sales increased 34.9% year over year to $44 million. Adjusted gross profit went up 44% to $19.3 million. Gross margin expanded 140 basis points (bps) to 30.5%.
Adjusted selling, general and administrative expenses increased 1.7% to $15.3 million. Adjusted operating income in the reported quarter was $3.9 million compared with the loss of $1.7 million in the year-ago quarter. Including a provision for the mold class action, The company posted an operating income of $4.3 million against an operating loss $3.2 million in the year-ago quarter.
Financial Update
Trex ended 2013 with cash and cash equivalents of $3.7 million, up from $2.1 million as of 2012-end. Cash flow from operations was $45 million as of Dec 31, 2013, against $60 million as of Dec 31, 2012.
The company generated free cash flow of $33 million for 2013 compared with $53 million in 2012. The decrease was due to rise in capital expenditures, receivable and inventory. The company has no debt on its balance sheet.
The company declared a new stock repurchase program. As per the program, Trex will buy back shares of up to $50 million.
Trex also announced that its board has approved a two-for-one stock split. This will be distributed in the form of dividend on May 7 to shareholders of record on Apr 7.
Fiscal 2013 Performance
For full-year 2013, Trex reported earnings per share of $2.81, up 82% from $1.55 in 2012. The results surpassed the Zacks Consensus Estimate of $2.52.
Revenues for the year 2013 increased 10.9% year over year to $341 million. An improving economy, along with high-performance decking and railing product platforms were the key growth drivers. However, revenues lagged the Zacks Consensus Estimate of $335 million.
Outlook
For the first quarter of 2014, Trex expects sales of around $115 million, which marks an increase of 7% from 2013. Selling, general and administrative expense (SG&A) for 2014 is expected to be slightly lower than 2013. In addition, the company guided capital expenditure (CapEx) to be approximately $15 million for 2014.
Our Take
Trex will to benefit from the ongoing economic recovery. Additionally, the company’s consistent focus on industry-leading distribution presence, best-in-class product platform, low-cost manufacturing competitive advantage and strong brand presence will drive growth.
Moreover, the company’s strategy of offering a wide range of best-in-class, high-performance decking and railing products has so far been successful. These products offer a higher level of fade, scratch and stain resistance. Moreover, with growing high-performing platforms, Trex will be able to attract more consumers.
Winchester, Virginia-based Trex manufactures and distributes wood/plastic composite products and related accessories, primarily for residential and commercial decking as well as railing applications in the United States.
Currently, Trex carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include CaesarStone Sdot-Yam Ltd. (CSTE), USG Corporation (USG) and Wolseley plc (WOSYY). While CaesarStone has a Zacks Rank #1 (Strong Buy), USG Corporation and Wolseley carry a Zacks Rank #2 (Buy).
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment