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Trex Company (TREX) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

Trex Company, Inc. TREX is slated to report fourth-quarter 2018 results on Feb 14, after market close. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 7.6%. Also, the reported figure grew an impressive 68% from the prior-year quarter. Notably, the company’s earnings topped the consensus mark in each of the trailing 12 quarters, with the average being 10.9%.

In the last reported quarter, its total net sales increased 19% on a year-over-year basis to $166 million, given strong segmental performance. However, the said figure missed the consensus mark by 3.8%.

Trex Company, Inc. Price and EPS Surprise

Trex Company, Inc. Price and EPS Surprise | Trex Company, Inc. Quote

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate is pegged at 37 cents, remaining flat over the past 60 days. This reflects a gain of 32.1% from 28 cents in the year-ago quarter. Revenues are expected to be $131 million, up 7.2% from the year-ago figure of $122.2 million.

Factors at Play

Trex Company is one of the largest manufacturers and distributers of wood/plastic composite products and related accessories in the United States. Its strong residential and upbeat commercial business, along with manufacturing cost-saving initiatives bode well for the company’s overall performance.

In the third quarter of 2018, its Trex Residential Products segment (accounting for 88.4% of the total sales) increased 12.2% year over year. The upside mainly stemmed from strong demand, reflecting a favorable macro-economic environment and brand leadership.

Also, the repair and remodeling industry continues to drive growth. The company incurred $6 million one-time charge in order to expand business relationships in residential sales channels. Excluding the effect of the charge, net sales in the segment grew 17% from a year ago.

The segment is capturing an increasing share of the wood market, aided by continued investments in product development activities, branding and marketing programs.

Its Trex Commercial Products have been performing impressively, according to plans, winning new projects and positioning it well for the to-be-reported quarter on solid backlog. In the last reported quarter, the segment posted an impressive 111.8% sales growth on a year-over-year basis. The reported growth was the strongest since the company entered the commercial market.

For the fourth quarter, the company expects consolidated net sales of $131 million, of which Trex Residential Products are anticipated to contribute $115 million and Trex Commercial Products are likely to account for $16 million.

With operating leverage being key part of its business model, the company intends to invest in strong manufacturing cost-saving projects. In fact, its first phase of production line improvement project will increase throughput in the Winchester facility by more than 20% in 2019. As a result of solid phase 1 outcome, the company plans to accelerate investment in Phase 2.

In the third quarter of 2018, its cost of sales, as a percentage of total revenues, declined 100 basis points (bps) owing to the successful implementation of manufacturing cost-saving programs, lower recycled polyethylene input costs and higher capacity utilization. Its gross margin increased 100 bps during the same period.

Here is What Our Quantitative Model Predicts

Our proven model does not conclusively show that Trex Company is likely to beat on earnings in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are some construction companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Toll Brothers, Inc. TOL has an Earnings ESP of +1.91% and a Zacks Rank #3.

Taylor Morrison Home Corporation TMHC has an Earnings ESP of +1.29% and a Zacks Rank #3.

Forterra, Inc. FRTA has an Earnings ESP of +8.99% and a Zacks Rank #2.

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