The Deck Is Stacked Against Trex

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Lumber Liquidators (NYSE: LL  ) let us know last week that we're not buying a whole lot of hardwood flooring planks for our homes. Trex (Nasdaq: TREX  ) is now letting us know that we're not so hot on the idea of building out our patios, either.

The leading maker of wood-alternative decking revealed yesterday that its second-quarter performance was brutal. Shares of Trex fell 15% after it announced that it would sorely miss the $115 million in revenue it was originally targeting. Trex expects just $78 million on its top line for the three months ended in June.

This is the worst time of the year to come up short, as it's when homeowners begin building out their decks to make the most of the summer season.

Trex has its scapegoats.

It points to major snowstorms in April, followed by unusually high precipitation in May. It's hard to get outdoor projects started when the elements aren't cooperating. Trex closed out the quarter on a good note, with June revenue clocking in 15% ahead of last year's showing, but hold the cookout celebration.

Revenue will still be off sharply from the $115.5 million it reported last year, even with June's save. July is off to a good start, but it's too late. Who starts building a deck in mid-July when the summer season is already under way? This is a highly seasonal business, and sequential sales plunged 48% between the second and third quarters of last year. Bulls better not be expecting cheery third-quarter guidance when Trex reports in three weeks.

Once again, we're seeing consumers holding off on major home improvement projects. The lackluster economy isn't helping, but the bigger problem may be that so many homeowners owe more on their houses than they're presently worth. Who wants to build a new deck on a property that may have to be surrendered to the banks?

Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) operate on fiscal years that end a month later than Trex and Lumber Liquidators, but no one should be surprised if they also feel the sting. Before then, we'll see new residential construction product distributor Builders FirstSource (Nasdaq: BLDR  ) on deck. It reports next week, and it's not going to be pretty. It's still several quarters away from a return to profitability.

The bad news for Trex investors is that having scapegoats for missing out on this year's telltale deck-building season doesn't excuse the company from missing out on said season. Barring a miraculous midsummer jump -- and, spoiler alert, it won't happen given the macroeconomic issues -- Trex will now go back into hibernation until it gives next springtime a shot at weathering the elements.

Do you have any experience with Trex decks? Share your thoughts in the comments box below.

The Motley Fool owns shares of Lumber Liquidators Holdings. Motley Fool newsletter services have recommended buying shares of Lumber Liquidators Holdings, Lowe's Companies, and Home Depot. Motley Fool newsletter services have recommended writing covered calls in Lowe's Companies. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Longtime Fool contributor Rick Munarriz isn't interested in selling his home, even if he recognizes that the once red-hot South Florida market is a ghost of its former glory. He does not own shares in any of the stocks mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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10/21/2016 4:00 PM
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