Trex Company, Inc. Q1 FY2026 earnings call

Adam Zamboniti, now CEO, focuses on continuity, execution, and accelerating the existing strategy. The company has five long-term strategic priorities: creating an unbreakable bond with end users through marketing and product experience; maintaining focus on high-performance innovation; optimizing distribution channels; lowering the cost of railing; and growth enablement through investing in culture, technology, and talent. The company started the year with solid results despite adverse weather and an uncertain economic environment, and is actively investing to capture market share when demand normalizes. Prith Gandhi discussed net sales, gross margin, selling, general and administrative expenses, adjusted EBITDA, free cash flow, and the strong balance sheet. A rolling 12-month sell-in and sell-out metric was introduced, and capital expenditures are expected to decline as the Arkansas facility build-out nears completion.

Net sales were $343 million, up 1% year-over-year. Gross profit was $139 million, with a gross margin of 40.5%, approximately 100 basis points better than expected. Adjusted EBITDA was $103 million, which grew 2% in the quarter. Free cash flow was negative $143 million. Railing currently has a lower margin compared to decking, but there are efforts to optimize costs with the goal of eventually approaching the margins of core decking products over time. Decking contributed significantly, with favorable mix from higher margin premium decking products driving the margin performance.

The company is maintaining full-year guidance. Net sales are expected to be between $1.185 billion and $1.23 billion. Adjusted gross margin is approximately 37.5%, and adjusted EBITDA is between $315 million and $340 million. For the second quarter, net sales are expected to be in the range of $388 million to $403 million. There is an expectation of a reversal of the gross margin benefit from product mix seen in the first quarter, and a sequential step-up in selling, general and administrative expenses in the second quarter.

Macroeconomic uncertainty can affect consumer discretionary spending. Raw material price volatility is a risk, although recycled LDPE is less volatile and domestically sourced. Inflationary pressures on other inputs such as diesel fuel and aluminum pose risks. Geopolitical events like the conflict in the Middle East can impact input costs and market demand.

Q: Congrats on strong quarter, perspective on new leadership and innovation.

A: Adam mentioned focusing on continuity, execution, and accelerating the strategy, with five long-term strategic priorities including creating an unbreakable bond with end users and high-performance innovation.

Q: Sell-out trends inter-quarter.

A: January and February were challenging, but March saw a rebound, and channel inventory is lighter, with expectations of more sell-in in the second and third quarters.

Q: Gross margin beat, mix favorability.

A: Favorable mix from decking due to higher margin premium products, and lower railing sales in the first quarter due to a price increase pull forward.

Q: Revenue outlook deceleration.

A: There is conservatism due to macro uncertainty, but good order intake has been seen since March.

Q: Railing margin improvement and M&A.

A: Efforts to lower railing costs through material science and vertical integration, with M&A pipeline in outdoor living verticals.

Q: Inflation impact and price priorities.

A: Shielded from LDPE inflation through various levers, and near-term focus on creating an unbreakable bond with end users via marketing