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

Dennis Schemm: Yes. So, we build our plan basically assuming a level load of production to support $1 billion in sales. So, to answer your question, it’s a level load across the quarters.

Rafe Jadrosich: Okay. That’s helpful. And then just on the €“ are you assuming anything on the international side? Can you give further an outlook for 2023, is there any step-up there now that you have some excess capacity?

Bryan Fairbanks: Yes. We do have the capacity. International is a challenge. It’s fair to say. Those markets are in a little bit different situation compared to North America, their energy prices continued to be very, very high. Some of the other inflationary factors have been more elevated than what we have seen here in the States. So, we are expecting a much weaker consumer in those marketplaces. Our customers did infill their inventories at the end of the year. They are in good shape, whatever the market throws at them along the way. But I do expect this will be a difficult year with some of our international marketplaces.

Rafe Jadrosich: Thank you. That’s helpful.

Operator: The next question comes from Michael Rehaut with JPMorgan. Please go ahead.

Michael Rehaut: Great. Thanks for taking my questions. So first, I just want to get €“ make sure I am understanding it right in terms of the first quarter sales. You mentioned that the destocking is largely completed or completed by year-end. At the same time, you are looking at a €“ on an adjusted basis, if you take out the builds from last year, still sales down about 8% to 12%. And €“ but the sell out €“ the sell-through, did I hear it right that you are expecting it to be roughly flat year-over-year. So, the delta would be a difference in channel inventory?

Dennis Schemm: Well, we are thinking sell-in will be equal to sell-out, right. And so I think Bryan talked a little bit about Q1 sales being a little lighter than we would like them to be at this point in time because the channel understand €“ we understand the channel’s position, they understand as well that we have inventory and we have capacity. However, we expect things to heat up here in the second quarter and be more of a shift, much higher shift in demand in Q2. So, that’s how we are looking at that first half. First half would be larger than the second half as far as sales go. I wouldn’t call it a 50-50 across the halves.

Bryan Fairbanks: And I think it’s important to recognize, even though the channel is not stocking to the same degree that it has in the past, it will be building inventory in the first quarter. It’s a must to be able to service the marketplace during the peak part of the season as some of that inventory is built. So, that when we talk about producing and what we see in the sell-through, that’s on the course of the full year. But through the first quarter, we definitely expect inventory to be built in the channel. It’s just much more conservative than what it has been in the past.

Michael Rehaut: Okay. We perhaps you can follow-up with that after I guess. Secondly, also, I just wanted to make sure I understood. You are talking about an expectation for gross margins to be roughly similar throughout the year at around 37.5%, 38%. Would that apply the same then to SG&A? And if you could just remind us how to think about SG&A for the year, I think the last time €“ last call, you talked about 15% to 16%. Just curious if that still applies.