Trex Company, Inc. Q2 FY2025 earnings call

• Trex delivered strong second quarter results with 3% net sales growth despite adverse weather and a declining repair and remodel market.
• Demand was led by Trex composite and aluminum railing, Trex Lineage decking, and expanded mid-priced select decking line. Wood alternative products took 170 basis points of market share from wood over 18 months.
• Arkansas manufacturing facility construction progressing; recycled plastic processing started in Q2 with production rates exceeding expectations. On-site plastic pellet production reduces reliance on external sourcing.
• Branding and marketing investments showed positive returns with increased dealer and contractor searches. New products, including heat-mitigating technology in decking and expanded railing portfolio, contributed to sales.

In the second quarter of 2025, net sales were $388 million, a 3% increase compared to $376 million in the prior year. Product development was a key element, with products launched within the last 36 months representing 22% of quarterly sales, significantly ahead of the 13% contribution in the same period last year. Railing portfolio expanded, and new decking products with heat-mitigating technology were important contributors. The heat-mitigating technology in decking and expanded railing portfolio gained traction across channels.

• Reaffirmed 2025 guidance: net sales growth 5%-7%, adjusted EBITDA margin >31%, SG&A ~60% of net sales, interest expense <$2M, depreciation $55M-$60M, effective tax rate 25%-26%, capital expenditures ~$200M.
• Q3 net sales expected $295M-$305M, adjusted EBITDA margin ~32%; Q4 adjusted EBITDA margin ~31%.
• Level loading and elimination of Enhance reengineering expenses will benefit margins in Q3 and Q4.

• Adverse weather conditions can impact sales.
• Competitive landscape evolving could affect market share.
• Dependence on successful product launches and market acceptance of new products.

Q: Can you give more color on the 100 basis point comment related to EBITDA?

A: The EBITDA discussion is around 32% for Q3 and 31% for Q4, driven largely from gross margin improvements, including elimination of Enhance expenses and level loading impact.

Q: How is sell-through looking, especially with weather conditions?

A: Sell-through varied considerably due to wet weather; it picked up in mid-June and continued into July, but could have been stronger with better weather.

Q: Thoughts on capital allocation, especially post-Arkansas investment?

A: Considerable increase in free cash flow generation, organic growth opportunities, acquisition opportunities, and share buyback are priorities.