I have to admit: I spent my first five minutes reading over the 2004 annual earnings report for "fake wood" manufacturer Trex Company (NYSE:TWP) shaking my head in disbelief, wondering whatever possessed Tom Gardner to recommend this dog for the Motley Fool Stock Advisor newsletter. Sales looked to be collapsing, profits were down, free cash flow drying up...

(Go ahead and shout out at this point, "Doofus, you're reading it backwards!")

Exactly. And then I realized that, after reading 30 or so earnings releases over the past couple weeks, in which companies published their results right-to-left, with 2003 numbers on the right and current numbers on the left, I'd missed the fact that Trex lists its numbers left-to-right. Fact of the matter is, Trex did just fine last year:

  • Sales grew 33%
  • Profits grew 30%
  • Cash from operations more than septupled

You'll notice that I said "cash from operations" rather than "free cash flow," which is cash from operations minus capital expenditures. The reason for this is that Trex, for whatever reason, declined to break out its $35 million in cash spent on "investing activities" and give us the specific number for capex. Without that number (which will eventually be broken out for us when the company makes its official filing with the SEC), we cannot yet figure the exact rate of free cash flow.

It's safe to assume, however, that that free cash flow number -- when we're ultimately able to calculate it -- is going to be good and high. Through the first nine months of 2004, Trex had already generated free cash flow of $52.6 million. The cash from operations number reported yesterday shows that the company went cash flow-negative in Q4, however, as it builds inventory in anticipation of a growth in sales in 2005. Still, the company's bank accounts are practically overflowing with new cash this year, up $36.7 million since this time last year.

Between the continuing growth of the housing market and builders such as NVR (AMEX:NVR), Pulte Homes (NYSE:PHM), and RylandHomes (NYSE:RYL), and Trex's new relationship with Home Depot (NYSE:HD), it's now clear that 2004 has been kind to Trex. My accounting dyslexia notwithstanding.

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Fool contributor Rich Smith has no position in any of the companies mentioned.