Transcript: Trex Co Q2 2026 Earnings Conference Call

Trex Co (NYSE: TREX ) released second-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary Trex Co reported strong Q2 2026 financial results, with net sales of $418 million, an 8% increase year-over-year, driven by broad-based growth across product lines and price points.

The company raised its full-year guidance for net sales and adjusted EBITDA, and plans to repurchase up to an additional $150 million of shares, indicating confidence in its business outlook. Strategically, Trex Co is focusing on expanding its manufacturing capacity with the accelerated ramp-up of its Little Rock facility, enhancing its distribution network, and executing its wood conversion strategy. Operational highlights include an increase in production levels to meet rising demand, despite some short-term manufacturing inefficiencies, and the introduction of new marketing initiatives to target wood conversion.

Management expressed confidence in achieving its long-term goal of $2 billion in annual sales by 2030, supported by organic growth and potential M&A activities. Full Transcript OPERATOR Good day and welcome to the Trex Co second quarter 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to turn the conference over to Lee Coker, Vice President, Corporate Development and Investor Relations. Please go ahead. Lee Coker, Vice President of Corporate Development and Investor Relations Good morning everyone and thank you for joining us today to discuss our second quarter results and outlook. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prith Gandhi, Senior Vice President and Chief Financial Officer.

The company issued a press release earlier this morning containing financial results for the second quarter 2026, a copy of which is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws.

These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-K and Form 10-Q as well as our other filings with the SEC. Additionally, non-GAAP financial measures will be referenced in this call. com.

The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. I will now turn the call over to Adam. Adam Zambanini, President and Chief Executive Officer Thank you, Lee, and good morning everyone. As Lee mentioned, we pre-released our second quarter net sales and adjusted EBITDA results earlier this month, so I won't spend much time recapping the numbers.

The key takeaway is straightforward. We delivered an excellent quarter with net sales well above expectations, driven by strong execution and strengthening of end market demand. Importantly, that growth was broad-based across our product portfolio, channels, and price points. We were particularly encouraged by the momentum we saw as the quarter progressed.

Demand accelerated through May and June, supported by strong sell-through activity across the portfolio, and those trends have continued into the third quarter. That performance, combined with our strong execution and improved visibility, gave us the confidence to raise our full-year guidance and increase our planned share repurchases for the remainder of the year. We also generated strong free cash flow during the quarter, allowing us to reduce debt and return capital to shareholders through share repurchases.

Reflecting our confidence in both the business and our long-term outlook, we plan to repurchase up to an additional $150 million of shares during the balance of the year. While our sales performance was exceptionally strong, profitability reflected the pace at which demand accelerated during the quarter, along with several strategic choices that supported our long-term growth objectives. First, growth was particularly strong in railing and our entry-level decking products. We view this as a positive development, underscoring the growing consumer engagement across the product portfolio and successful execution of our wood conversion strategy.

Although the mix moderated consolidated gross margin, it meaningfully accelerated revenue growth and enhances the scale of our long-term value creation opportunity. Second, we continued investing in branding, talent, and organizational capabilities consistent with our strategy and our expectations to spend approximately 18% of sales on SG&A this year. These investments are intended to strengthen our competitive position and support sustained growth over time. Finally, demand strengthened significantly as the quarter progressed.

To support that growth and ensure excellent customer service, we increased production levels throughout the quarter. That created some short-term manufacturing inefficiencies, but utilization improved steadily and production performance returned to expected levels by the end of June. Taken together, we are very encouraged by these dynamics and what they tell us about our business. Stronger demand, continued gains in key growth categories, and disciplined investment in our strategic priorities reinforce our confidence in both our near-term outlook and our long-term growth potential.

Overall, we are pleased with our first-half performance and increasingly confident in the opportunities ahead. Our strong results, improving demand trends, and progress against our strategic priorities reinforce our belief that we are well positioned to achieve our long-term objective of $2 billion in annual sales by 2030. One of the priorities is to optimize our channels for growth. As we recently announced, we have taken decisive steps to further strengthen what we believe is the industry's leading distribution network in North America, ensuring that our products remain readily available to both pro contractors and homeowners.

While we discussed these changes during our July call, I want to spend a few minutes reiterating some key points. The decision was not simply a response to tremendous changes in the broader building products industry. It was a proactive decision designed to position Trex where the industry and the market are headed and to support our long-term growth objectives. I have full confidence in our distribution network we have assembled, built on relationships with companies that share our commitment to growth, innovation, and customer service.

Importantly, these actions create a meaningful incremental growth opportunity across our distribution network. We estimate there is more than $100 million of decking and railing currently represented by small proprietary brands, representing a substantial conversion opportunity as we continue to win share and transition customers to our brand. While this opportunity will take time to develop, we believe the strength of the Trex brand, our product portfolio, and our channel partnerships position us well to capture a meaningful share of that business over time.

Ultimately, these actions are about building a distribution network that is simpler, faster, and more effective, enabling us to execute our strategy and achieve our long-term financial goals. Another decisive step we are taking, which I'm pleased to announce, is the acceleration of the decking production at our Little Rock manufacturing facility. S. who are currently being serviced by our existing facilities in Virginia and Nevada.

Equally important, this location positions us closer to several key growth markets for wood conversion, particularly in the southern Sun Belt. The Sun Belt region remains heavily weighted towards wood decking, specifically pressure-treated southern yellow pine, representing a significant conversion opportunity for Trex. Given these factors, Little Rock is poised to become our wood conversion growth engine. Together with this decking capacity expansion, we have been actively investing in our wood conversion strategy through refreshed branding and marketing initiatives.

These efforts are already gaining traction, with our Trex Enhance Basic decking products, our primary driver towards wood conversion, also delivering strong sales during the quarter. The opportunity remains substantial. Wood continues to represent almost 75% of the decking category, with southern yellow pine accounting for the majority of the wood decking sales. As a reminder, every 1% share we take from wood represents about $80 million of incremental sales opportunity for Trex.

With the performance attributes of Trex Enhance product line, we believe that we have one of the best solutions in the market to accelerate this conversion opportunity, and we will not stop there. We will continue leveraging our world-class material science capabilities to develop innovative, high-performing, and more cost-effective products that further expand the opportunity ahead. I'll now turn it over to Prith, who will provide you more detail on the quarter and our outlook. Prith Gandhi, Chief Financial Officer Chris, thank you.

Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. Second quarter net sales of 418 million came in well above our expectations, growing 8%. Importantly, Q2 sell-out was slightly ahead of sell-in, reflecting strong underlying demand and healthy consumer engagement across our channels.

On a rolling 12-month basis, sell-in and sell-out grew 9% and 7%, respectively, compared with 7% and 6% in the first quarter. The difference primarily reflects timing effects within the trailing twelve-month period rather than any meaningful divergence in underlying demand trends. As Adam mentioned, our sales growth this quarter was broad based, as we experienced strength across product lines, distributors, and price points. Railing sales returned to double-digit growth while we also saw a nice increase in Trex's Enhanced Basics sales, the first meaningful sales increase we've seen at this price point in a few years.

As Adam mentioned, the Basics product line is our primary vehicle for wood conversion. Our growth was also largely driven by volume with minimal impact from pricing actions. Importantly, the increase in sales was supported by underlying end-market demand with strong sell-through across the portfolio. As I will discuss in more detail, we also saw a meaningful acceleration in demand in the latter part of the quarter, a trend that has continued into the current period.

This momentum, combined with our strong execution, gave us the confidence to recently raise our 2026 guidance. 9%, down from the level seen in the first quarter and prior year. As expected, gross margin was impacted by product mix and incremental depreciation associated with our Little Rock facility. Gross margin was also affected by short-term manufacturing inefficiencies as we responded to strengthening demand during the quarter.

As demand accelerated through May and June, we increased production levels to support customer needs and maintain channel inventories at appropriate levels. The pace of that ramp resulted in higher overtime costs, additional line changeovers, and other temporary operating inefficiencies, which we estimate reduced gross margin by more than 100 basis points during the quarter. Importantly, these impacts moderated as utilization improved. We exited June operating at significantly higher efficiency levels and with gross margins well above the overall second quarter average.

We expect those improvements to continue as we move through the remainder of the year. 1% of net sales, in line with our expectations and tracking to our annual target of 18% of sales. Excluding the impact of digital transformation and Little Rock start-up costs, SG&A was 66 million. We continue to invest in capabilities and marketing programs to accelerate consumer demand and drive long-term growth, and we believe we are already seeing the benefits through higher sales.

I also want to call out that the company took a 5 million non-cash write-down for obsolete equipment during the quarter that you will see on the P&L. 03. We had a very strong quarter of free cash flow, reflecting the seasonal benefit of working capital and lower capital expenditures as the construction of the Little Rock facility approaches completion. We used the 182 million generated to repurchase approximately 51 million of shares and repaid 130 million outstanding under our revolving credit facility, and we will continue to generate significant free cash flow with the completion of our multi-year capital expansion program, including the Little Rock facility.

This will give us the flexibility to pursue capital allocation priorities, including additional share repurchases and selective M&A opportunities. As part of this strategy, we plan to repurchase up to an additional 150 million of shares during the remainder of 2026, underscoring the company's confidence in its outlook and commitment to creating long-term shareholder value. Turning to our outlook, we recently increased our full-year 2026 net sales and adjusted EBITDA guidance. 5% we previously expected, primarily driven by higher capacity utilization.

With Little Rock starting production in Q3, we are also providing third quarter net sales guidance of 305 to 320 million as shown in the press release. Before turning the call back to Adam, I want to discuss our decision to accelerate the ramp-up of the Little Rock facility by over six months. This decision is backed by the increased demand that we are seeing because of the successful execution of our strategic plan. As we have discussed in the past, Little Rock will be our most efficient and lowest production cost plant.

Once these lines are fully ramped and operating at higher utilization levels, we expect them to become accretive to margins. We anticipate bringing half of the Little Rock lines into production by the end of the year. Because we are bringing on individual lines in a phased manner, most of the margin benefit will be realized in 2027 and beyond as we continue to scale capacity to support demand and our long-term goal of achieving 2 billion in annual sales by 2030. This accelerated rollout is not expected to have a material impact on our expected depreciation, as we already began depreciating our lines when we made them production ready.

We will provide additional details on the financial impact of Little Rock as we progress through the ramp-up period. I will now turn the call back to Adam for his closing remarks. Adam Zambanini, President and Chief Executive Officer Thank you, Prith. We believe we are already seeing the early benefits of the decisive strategic actions we have begun to take, and we expect this momentum to continue building as we execute on our upgraded distribution program, ramp up our best-in-class Little Rock manufacturing facility, and accelerate new product introductions by leveraging our industry-leading material science capabilities.

The Trex organization is energized, aligned, and focused on achieving our long-term goal of 2 billion in annual sales by 2030. Before we close, I want to take a moment to recognize our people. Their commitment, discipline, and relentless focus on our customers remain the foundation of our success. The progress we discussed today is a direct result of their efforts, and they remain committed to executing our strategy and delivering long-term value.

We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call for questions. OPERATOR We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone.

If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. We ask that you please limit yourself to one question and one follow-up. If you have additional questions, please rejoin the question queue at this time.

We will pause momentarily to assemble our roster.