Why Trex Stock Plunged Today
Key Points
Trex reported 22% revenue growth due to easy comparisons, but still missed expectations.
Fourth-quarter guidance called for revenue to fell double digits.
Trex will likely need to see a recovery in the housing market in order for the stock to bounce back.
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Shares of Trex (NYSE: TREX), the maker of composite decking, fencing, and related materials, were tumbling on Wednesday after the company came up well short of estimates in the third quarter and offered disappointing guidance in the fourth quarter.
Trex's struggles reflect the broader challenges in the housing market, but it's clear that investors expected more.
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As of 11:51 a.m. ET, the stock was down 27.4% on the news.
Image source: Trex.
Trex delivers growth, but it's not enough
Trex's revenue jumped 22.1% to $285 million, though that seemed to come from lapping a quarter in which revenue fell 23% due to its customers reducing inventory.
Even with that gain, the company was still below Q3 2023 levels and missed both the company's guidance at $295 million to $305 million and the analyst consensus at $301.7 million.
Management said that the improvement it saw in its repair and remodel business earlier in the year faded in the third quarter, marking the second year in a row it saw that falloff in the third quarter.
Profitability did improve in the quarter, and gross margin improved 60 basis points to 40.5%. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose from $67.9 million to $90.4 million, and adjusted earnings per share rose from $0.37 to $0.51, which missed estimates at $0.57.
What's next for Trex?
CEO Bryan Fairbanks also warned that the sales slowdown was expected to continue into the seasonally slower fourth quarter.
For the fourth quarter, management expects revenue to come in at $140 million to $150 million, down 13% from a year ago.
Overall, Trex is still clearly struggling with the current weak housing market, and the company will likely need to see a recovery in home purchases in order for the stock to bounce back.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Trex. The Motley Fool has a disclosure policy.
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