Trex Company, Inc. (NYSE:TREX) Q4 2022 Earnings Call Transcript

Dennis Schemm: Thank you.

Operator: The next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.

Steven Ramsey: Good evening. I want to jump on the question there. So, if Q4 has even €“ Q4 €˜23 has even some normalized level of inventory build in the channel, that would be upside to thinking about the $1 billion of production. Is that a fair way to think of it?

Bryan Fairbanks: Yes, depending upon the strength of the consumer. If the consumer behaves as we have expected with the production plan that we have built, then yes, there would be upside based on that.

Steven Ramsey: Okay. Helpful. And then I wanted to make sure I understood on the gained distribution in Texas and surrounding states. You said that was more retail oriented than the wholesale channel, maybe just help us understand if that’s the case and how you see that building in the guidance this year or if that more benefits 2024.

Bryan Fairbanks: All of our distributors support both the pro channel as well as retail customers. So, it’s really an overall channel opportunity to improve our representation in those markets and ensure that we can get product to customers where and when they need it.

Steven Ramsey: Helpful. Thank you.

Operator: The next question comes from Adam Baumgarten with Zelman. Please go ahead.

Adam Baumgarten: Hey. Good evening everyone. Just given the kind of more gradual build out of Little Rock, can you maybe talk to the overall dollar amount of capacity you have just because with the return to growth in the coming years and the push out until 2026, just curious if you have enough capacity to grow at maybe your kind of historical rates as we get into the outer years here.

Bryan Fairbanks: Yes. We are not going to get into the capacity of dollar value of total capacity that we have. We are confident that we have the capacity we need to be able to grow through that timeframe. If we see it come on quicker, we would use inventory as the buffer to build ahead on that.

Adam Baumgarten: Okay. Got it. And then in the near-term, if demand does end up being stronger than anticipated, how quickly can you ramp up production? Would that just be with your existing workforce, or would you need to hire additional people to service that additional demand?

Bryan Fairbanks: It would be a combination of both. We would bring people in. I did mention in my comments, we do have a highly talented workforce today because we have kept our most experienced and long-tenured employees. So, we do have the ability to bring in some less skill, less knowledgeable individuals on day one and be able to train them on how to run our lines. So, they become highly skilled and are with us for a long period of time. But with a much higher percentage of highly skilled individuals who know all the ins and outs of running our lines, it’s much easier to bring on that line today than it was during the peak of the pandemic.

Adam Baumgarten: Got it. Thanks a lot. Best of luck.

Bryan Fairbanks: Thanks.

Operator: The next question comes from Rafe Jadrosich with Bank of America. Please go ahead.

Rafe Jadrosich: Hi. Good afternoon. Thanks for taking the question. Dennis, I just wanted to follow-up on an earlier comment about the gross margin cadence through the year. You expect relatively consistent other than some of the mix shift pressure in 2Q and 3Q. Does that mean that like in terms of the production levels, you are assuming that it stays relatively consistent through the year? I would think if productions were sort of ramping the gross margin would go up with it.