Trex(US:TREX)2022-03-01 02:42Financial Data and Key Metrics Changes - The company reported record sales of $1.2 billion for the full year 2021, with fourth quarter sales increasing 33% to $304 million and adjusted earnings per share growing 49% to $0.55 per share [11][34] - Consolidated gross margin in the fourth quarter was 38.9%, down from 40.5% in the previous year, primarily due to increased raw material and transportation costs [27][28] - Net income for the fourth quarter was $25 million or $0.22 per diluted share, with adjusted net income at $64 million or $0.55 per diluted share, representing increases of 47% and 49% respectively from the previous year [32][34] - Full year 2021 adjusted EBITDA increased 38% to $357 million, with an adjusted EBITDA margin of 29.8% [35] Business Line Data and Key Metrics Changes - Trex Residential net sales grew 38% to $1.14 billion, while Trex Commercial contributed $58 million to net sales, with a 6% year-on-year increase [34][27] - Fourth quarter gross margin for Trex Residential was 39.7%, down from 41.3% in the previous year, while Trex Commercial's gross margin was 24%, down from 28% [28] Market Data and Key Metrics Changes - The company noted strong consumer demand driven by repair and remodel activity, particularly in outdoor living spaces, which is the fastest-growing category [13][15] - The company expects international growth to exceed domestic market expansion in the long term, as composites have lower market penetration outside of North America [21] Company Strategy and Development Direction - The company executed the largest capacity expansion program in its history, increasing total capacity by 85% above 2019 levels, including a new facility in Little Rock, Arkansas, expected to commence operations in 2024 [18][19] - A new marketing campaign launched in 2022 aims to highlight how Trex products transform outdoor living spaces, reinforcing the brand's market position [23] - The company remains focused on sustainable growth and increasing market share from wood, utilizing recycled materials in its products [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand continuing into 2022, driven by favorable trends in outdoor living and home renovations [15][44] - The company anticipates double-digit revenue growth for 2022, with first quarter consolidated net sales expected to range from $320 million to $330 million [39][38] - Management acknowledged challenges from inflation and transportation costs but expects pricing realization to offset these pressures [50][99] Other Important Information - The company recognized a $54 million goodwill impairment charge in the fourth quarter due to reduced project commitments in the commercial segment, influenced by COVID-related uncertainties [29] - The company generated record cash from operations of $258 million in 2021, enabling self-financing of capacity expansion and stock repurchases totaling $74 million [35][37] Q&A Session Summary Question: Can you talk about the incremental EBITDA margin guide for the year? - Management expects EBITDA margins to improve sequentially throughout the year, with the highest margins anticipated in Q3 and Q4 [48] Question: Can you unpack sales outlook for 2022? - Management indicated that pricing will contribute in the low teens, with normalized seasonality expected to return [58][59] Question: What are contractors saying about their backlogs? - Contractors reported positive sentiment with backlogs ranging from three to six months, indicating strong interest in outdoor living [67] Question: Can you elaborate on the reduction in commercial project commitments? - The reduction was primarily due to COVID-related uncertainties affecting investments in core markets like sports and entertainment [75] Question: Was there any negative impact from Omicron in January? - The company experienced elevated absences due to Omicron but managed to offset this with increased overtime [82] Question: Can you talk about international growth opportunities? - Management sees potential for international markets to outgrow North American markets, focusing on regions with higher GDP and interest in outdoor living [96][152] Question: How much of the sales growth is from core wood conversion? - Management indicated that growth is driven by remodeling, wood conversion, and international market expansion [120] Question: What is the expected decline in commercial sales for 2022? - Management expects a decline of about 10% year-over-year in the commercial segment [158]