Trex Company 4th-qtr loss widens on lawsuit costs

Trex Company posts wider 4th-quarter loss, books $10 million in costs related to litigation

Associated Press

WINCHESTER, Va. (AP) -- Alternative building material maker Trex Company Inc. said Monday its fourth-quarter loss widened dramatically from the year before because of charges related to manufacturing defects the company traces back to 2006.

The loss was deeper than analysts expected, but it was mostly due to the one-time cost related to manufacturing problems. The company said it expected revenue in the current quarter to be higher than analysts expected, and the stock gained a fraction in Monday trading.

Trex makes decking and construction materials out of alternative composite materials like recycled wood and plastic. The company said it recognized a $10 million charge in the fourth quarter to boost a warranty fund related to litigation over decking material it made at a plant in Nevada before 2006. Money in the warranty reserve can be set aside of pay off future legal claims related to the factory defects.

The company said that during the quarter ended Dec. 31, it had a net loss of $18.3 million, or $1.18 per share, compared with a net loss of $512,000, or 3 cents per share, during the 2010 period.

Trex said its adjusted net loss, excluding one-time costs like the warranty reserve charge, was 54 cents per share. That was deeper than the adjusted loss of 45 cents per share, on average, that analysts expected, according to FactSet.

Revenue during the quarter was $51.5 million, down sharply from $75.3 million in the prior-year period. That was lower than the $53.6 million analysts expected.

Trex Chief Financial Officer James Cline said the company boosted the reserve because of publicity surrounding the company's settlement of a class action lawsuit filed over the products it made in Nevada. As more customers nationwide learn about the settlement, they might contact Trex to get payments they are due under the agreement.

Cline said in a statement that the company expects "claims to continue for a longer period and the cost per claim to be slightly higher than previously anticipated, necessitating an adjustment to the warranty reserve."

Outside of the litigation costs, there was some reason to be hopeful about Trex future performance, Morgan Keegan & Co. analyst J. Keith Johnson said in a note to clients. As the housing market recovers, demand for decking material and other building supplies could increase, boosting Trex's revenue, Johnson said.

Trex predicted that its revenue in the current quarter would be $90 million, higher than the $85.8 million analysts were expecting, on average, according to FactSet.

For the full year 2011, Trex reported a net loss of $11.6 million, or 75 cents per share, compared with a net loss of $10.1 million, or 66 cents per share, for all of 2010. Revenue for the year was $266.8 million, down from $317.7 million the year before.

Shares rose 11 cents to close at $26.55. The stock has traded between $14.53 and $34 in the past 52 weeks.

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