What happened
Trex (TREX 1.25%) had a much stronger than expected quarter, and Wall Street is adjusting its expectations upward as a result. Investors are excited about what the company is building, sending shares up as much as 10% on Tuesday.
So what
Trex is a manufacturer of composite decking products. The stock is down big since the beginning of 2022 due to investor fears about a slowdown in housing and home renovations due to rising interest rates, but the company showed in the latest quarter it has its house in order.
Trex earned $0.71 per share in the third quarter on revenue of $356.5 million, easily topping Wall Street expectations for $0.53 per share in earnings on sales of $318.5 million. The company reported a gross margin of 43.9% and an EBITDA margin of 32.8% in the quarter, showing the results of a previously announced cost-cutting program.
"Trex delivered considerable margin expansion driven by production optimization and fast return cost saving programs," CEO Bryan Fairbanks said. "Additionally, investments in branding programs, and our expanding decking and railing product portfolio are yielding strong returns."
Wall Street took notice. At least eight analysts upped their price target on Trex on Tuesday following the Monday night earnings release.
Now what
Trex expects to report revenue of $280 million to $290 million in the current quarter, well above the $264 million consensus. For the full year, it expects revenue of $1.04 billion to $1.06 billion, within range of what analysts expect.
Trex is a longtime outperformer that appears to be getting its momentum back. The road ahead could be volatile, as end markets continue to adjust to higher interest rates and a dynamic housing environment, but investors are rightly excited about the long-term opportunity.
