TREX. That’s What’s Next.

Graphic, cover, TREX 2Graphic, STOCKjAW banne, Quality ViewPrecisely

how much reflected excitement is socially appropriate?  You’re wine touring your best neighbor’s mammoth new hot tub, when you notice it’s clad in exquisite  redwood.  Is it right to raise a toast “Fa King awesome–those redwoods sucked anyway.  All they ever did was stand there.”  How about when a cousin coos abut her  new cedar wood shingles, and she borders a fire zone?  “Nice–of course,” you nod vigorously, with nowhere to stare.  “Filthy buggers.  You ever seen that crap that comes off cedar trees?  Might as well have been you.  They were just beggin’ to be nailed to someone’s roof.”

 

Life is weird, and situations arise, like grossly over-built 10,000 square foot decks.  But then there’s Trex, actually making American life seem more sensible, and sustainable.  In fact, everyone can feel distinctly better about our decades-long rap sheet of single-swipe plastic bags.  That’s what Trex uses to make its’ stuff.

 

Natural resources are not endless.  Most are not renewable, trees included–unless you enjoy fields of stumps.  Meanwhile, the true filth of the chemical industry remains slightly more contained as no one needs to slather their completely unused and already half-rotted back deck in paints, or stains, and sealants.  Why?  Trex.  Live like an American, while leaving every tree right where it lives.

 

 

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We aren’t the only ones attempting to make a living. What was that about the measure of a civilization? It’s judged by how it treats it’s most vulnerable members?  True beauty and grace.  Perhaps we’ll learn that, someday, very very soon.

What’s

better than investing in good companies?  Investing in good companies doing good.  What’s even better than that?  Trend-driven investing in good companies doing good, and doing very well.  Would you buy a company returning to you 195% over three years, while reducing our planet-choking trash load?

 

What about if we told you they produce a wood replacement product far superior to the wood it doesn’t use?  Would you buy them if you knew that 95% of their principal product is recycled, and better than all it’s competition?  And if we told you it’s on sale?  Right.  Yeah, you wood–oops, woodless.

 

Environmentally conscious living only makes sense.  Investing in kind also makes cents, and both are increasing..  Socially conscious investing is growing.  That the yet private Sofi, providing financial services with a conscience, and a bit of social media.

 

tropical, pool, deck
Trex(TREX) is a maker of highly-durable maintenance-free decking materials consisting of 95% recycled plastics, primarily single-swipe plastic shopping bags, along with sawdust. Their manufacturing process is a closed-system, not requiring a water source. Trex also provides durable, highly-customizable, railing systems found in over 90% of major U.S. sports stadiums. Their recent share price decline came on a temporary manufacturing delay related to the production of a new product designed to compete directly with pressure-treated lumber. And it will. Sj bought on Wednesday.

What’s

not to love when James Cline, your front man’s a smooth gray professional with a satin touch?  The rains this spring for one, and then there’s that production hitch swirling delay into the mix.  Temporary both.  Dominant companies are never immune to mishaps or weather.  Their hallmark however is coming back strong.  Strong is also the word for the demand Trex continues to see for it’s extensive line of decking materials and highly-customizable railing systems.

 

Trex trims and fits any outdoor space with everything from the ground up; deck framing–including bullet-proof steel now,  drainage, outdoor lighting solutions, furniture–including their “Cap Cod” deck chair and “Yacht Club” swing,(4.6 stars), outdoor kitchens, and more.  Trex isn’t new to the game, having been around since the late ’90s.  And it you’re worried about the look forget about it.  Have it your way–and it looks great, with a twenty-five year guarantee not to color fade.      

 

Trex(TREX)5-27-19

Chart, TREX, 5-27-19
Out-preforming both the NASDAQ Composite and the S&P 500.

Trex

investors have been living the dream for years.  Anyway you slice it steady shareholders have been paid by the bag-load.  That is until lately.  Over the last five year period TREX–that’s the ticker symbol–has returned 323%.  Over the last three years it’s 195%.  That’s a 65% annual return.  Yet Trex is a mature company now.  The numbers reflect such.  It’s not a kid and growth in the future will not come in leaping bounds.  Should shareholders stay?

 

Thus far this year TREX has returned 10.34%.  It’s May.  How can that be bad?  The 52 week range was set within a seven week spread beginning back on September 12th and a $90.74 high.  On October 30th–a scant seven weeks later, shares bottomed at $50.88.  That was the late-year market-wide kaka storm.  All were invited to that party and all were promptly victimized for showing up.  Remember Christmas Eve?

 

As this piece prepares to launch shares stand at $61.71.  The price displays the V-shaped price-action following Q1’s distinct disappointment.  Listen to the call.  You can hear it in the verbal comportment of CEO Jim Cline.  “We’re not happy with these results.”  Well, of course not.  Nor were investors, as the chart clearly captures.  

 

waterfalls-1081703_1920
Did we say that Trex uses a “closed system” manufacturing process? Nearly all industrial processes are extremely water-intensive, and polluting. Take Trex out of that category.

The

company’s results suffered from “start-up challenges with our new Enhanced products, which is not uncommon.”  Cline goes on “We had equipment failures at our Nevada facility, resulting in a $10 million impact on returns for our Enhanced product.”

 

Later in the call Cline again refers to the money left on the table in Q1 by saying “…tens of millions,” or “at least 10 million.”  It was messy.  Both CEO Cline and CFO Bryan Fairbanks sounded subdued.  Meanwhile analysts seems supportive, in their earnest “thanks.”  No high-fives were exchanged as all collectively recognized the fiasco.  Yet good news did emerge.

 

deck, outdoor
Many absolutely love outdoor spaces. Few enjoy big prep and chemical application jobs. Trex allows homeowners to skips almost all maintenance, and the looming nagging r”got to” thinking that precedes such. Who wouldn’t pay up a bit for that?

“Our

Nevada operation is back up and we expect 300 bps ii margin improvement for Q2.”  Current gross margin stands at 41%, but “we continue to forecast FY gross margin of 45%,” says Fairbanks.  This is a company with a return on equity of 41.3% against an industry standard of 16.2%.

 

“We had operation inefficiencies, and lower levels of inventory of finished goods,” Cline told analysts.  “We’re not going to be able to fully satisfy all our good customers.  Our full year sales miss will be measured in tens of millions of dollars, mostly in the first and second quarters.”

 

Clearly the takeaway from this call is a multi-quarter issue in process. Cline again: “Enhanced(the new product) faced lower run rates and line outages at Nevada.  When you can’t ship orders, you’re going to miss future sales.  Demand has been robust.  It was two key pieces of equipment on two lines that failed.  It takes 30 days to put replacements into place.”

 

grill, burgers
Men love to grill. Wait–is that Beyond Meat?

The

company posted net sales up 5%y/y for their residential products division, and flat for commercial.  That flat commercial result came on top of what management described as an outstanding year in ’18.  

 

The bottom line here seems to be a company with flat expenses, super low debt, and very busy investing in “through-put” capability even while keeping cap-ex spending flat.  They face a high-quality problem of  “Demand for products coming in stronger than anticipated.  We left a lot of demand on the  books we couldn’t supply.”

 

In the end we hear that “We do believe in Q3 we’ll see improved margins and sales.  Demand will continue further into the year than we normally see.”  Adjustments to their process are in place, as the company works to smooth and ramp production.  All of these are quite common issues many companies face while paving their way forward.  Trex is building a future for themselves and the planet.  Good luck and good investing.

 

 

-TREX-

Investor Relations

https://www.trex.com/our-company/investor-relations/

Consumer website

https://www.trex.com/

 

When you feel good, it shows.

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