Q3 2019 Earnings Call
Good afternoon, and welcome to the truck company third quarter 2019 earnings Conference call. All participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to X questions to actually quite she May Press Star then one on your telephone key.
Pat to withdraw your question. Please press Star then too. Please note that this event is being recorded I would now like to turn the conference over to Victoria Nicola. Please go ahead.
Thank you all for joining us today without the nickel or Jim Cline, President and Chief Executive Officer, and Bright Burbank, Executive Vice President and Chief Financial Officer.
Joining Jim and Brian It's Bill Gupp Senior Vice President General Counsel and Secretary as well other members of trucks management. The company issued a press release today after market close containing financial results for the third quarter does all that 19. This release is available on the company's website and this conference call.
Most of being webcast and will be available all day Investor Relations page of the company's website for 30 days I.
I would now like to turn the call over to build got Bill.
Thank you Victoria before we begin latrine, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward looking statements within the meaning of federal Securities Law. These statements are subject to certain risk and uncertainties that could cause actual results to differ materially from those.
Suppressing the forward looking statements for discussion of such risks and uncertainties. Please see our most recent Form 10-K important 10-Q's, as well or 1933 and other Nike 34 Act filings with the actually see the company expressly disclaims any obligation to update or revise publicly any.
Looking statements whatever is the result of new information future events or otherwise would that introduction I will turn the call over to Jim Cline.
Thank you Bill.
Thank you all for joining our call. This evening to review, our third quarter performance and business outlook.
I'm pleased to report that we continued to experience strong market conditions in the third quarter.
The repair and remodeling sector for outdoor living remains on a positive trajectory and continues to expand.
The demand for Trex residential decking products remains robust, reflecting their appealing aesthetics and performance as well as the value proposition that are bad brand represents.
Net sales increased 17% year on year with residential up 24%.
We achieved this strong performance despite customer delays of commercial orders to future corridors and delayed shipment Oh produced residential orders that caused third quarter consolidated sales to be below our expectations.
This was a very positive quarter for trucks, both in terms of financial performance.
And the progress we've made on our production output.
Startup cost associated with our new enhance basics and natural products are largely behind us.
Additionally, improved manufacturing throughput at both our Winchester and front for like facility along with added capacity apparently has increased our ability to meet the strong demand for our products.
In addition, we began the process of removing material from our new enhance product line.
Well the improvements are modest the date I'm pleased with the path forward to our original design has begun.
This will provide us additional throughput as well as a modest cost reduction in the near term.
[noise] trucks residential gross margin improved 170 basis points sequentially and the third quarter.
Reflecting improved production performance as well as cost savings and higher capacity utilization.
Thanks, So the combination of strong growth in residential product sales manufacturing efficiencies and cost management, we were able to achieve significant operating leverage in the third quarter driving a 44% year on year increase in consolidated school diluted EPS.
Net sales contribution from commercial products was below our expectations impart due to market conditions and in part due to the uneven nature of that business. Some large customer orders were pushed out into future quarters.
We saw in gross margin improvement, both sequentially and year over year reflective hours strategic shift to add more semi custom products to the portfolio and exiting and on profitable product line.
We continue to see benefits from this acquisition.
Which has added significant engineering capabilities.
Also we were pleased that the newly launched act ascent windscreen system wide Trex commercial products captured top honors and the 2019 Glass Magazine Awards.
The innovative glass one screen was chosen by voters as this year's best product hardware or system.
[noise] Trex transcend continues to be in high demand and is recognized for its unparalleled quality anesthetics.
It is a brand of choice for top remodel or professionals and earned a spot on the professional Remodelers list of top 100 products for 2019.
This recognition reinforces trex position as the go to decking brand for trade professionals.
Trex enhance basics and naturals have exceeded our expectations and have expanded our addressable market. Thanks to its appeal to consumers, who previously have not considered composites.
Well accurate third party market data is not available we're confident that the level of sales growth. The trex continues to achieve is a clear indication that there is an accelerated conversion.
Of our products.
From what.
In order to keep pace with demand we have a multiyear capacity expansion program underway that will increase our capacity by at least 70% in 2021.
And bring further manufacturing efficiencies to our production operations.
And the third quarter, we installed two additional lines in our <unk>.
Like facility.
And three lines will began ramping up in a second quarter of 2020.
One additional production line will be an operation in the once asked or facility in the fourth quarter of 2019.
And the new building being constructed in Winchester will start ramping up production by early 2021 at the latest.
All this speaks to the confidence we have and the consumer demand for Trex products and our ability to capture greater share of the wood market and 2028 and beyond.
Now I'd like to turn the call over to our CFO Brian for banks.
The third quarter financial review Brian .
Thank you Jim.
Good evening, everyone consolidated net sales for the quarter increased 17% year over year to $195 million well growth was robust consolidated performance was below our expectations for two reasons.
First we had lower than expected contribution from Trex commercial products due to customers pushing out orders to future quarters.
And attracts residential.
Delayed shipment of completed orders push shipments into the first week of October .
Trex residential products net sales increased 24% year over year to $183 million.
Performance was driven by continued strong demand for our decking products and due to constrain supply earlier in the year.
Trex commercial products contributed $12 billion to consolidated net sales in the third quarter compared to $19 million a year ago quarter, mainly due to fewer large projects after several.
The next plan for the third quarter being shifted to future quarters.
Adjusted gross margin expanded 200 basis points to 42.4% Trex residential gross margin expanded 110 basis points to 43.4%.
However, please keep in mind that net sales and gross margin in the comparable quarter last year were negatively impacted by a 6 million dollar charge related to expanded product stocking.
Positions and residential sales channels.
Sequentially Trex residential gross margin expanded 170 basis points of startup costs are behind us.
We continue to absorb increase material costs presently needed to maintain a higher throughput levels for our enhanced products.
Well, we have begun to reduce material from a product to generate increased throughput and reduce costs. We expect this will continue over the next 12 to 18 months.
Commercial products gross margin expanded 60 basis points year over year to 26.5%.
As the adverse impact of legacy products rolled off.
Benefits related to improve project management, we are realized.
SJ was $27 million compared to $28 million reported in the third quarter 2019.
As a percentage of bets.
Percentage of net sales SJ was 14.1% the year over year decrease was related to personnel related expenses.
Our third quarter tax rate was 24.7% compared to 25% and a year ago quarter.
Net income was $42 million or 72 cents per diluted share, increasing 42% and 44% respectively from the comparable quarter last year.
Adjusted for last years $6 billion charge earnings per share increased 26%.
To briefly some up our performance year to date.
We reported a 7% increasing consolidated net sales to $581 million.
Our next residential product sales were up 10% to $542 million, a consolidated net income amounted to $109 million or $1.86 per diluted share.
Our year to date operating cash flows were $99 million.
Our capital expenditures were $37 million compared to $22 million in a year ago period, mainly due to our investments and improved throughput and spending related to our announced capacity expansion.
This quarter, we repurchased approximately 125000 shares of our outstanding common stock under our stock repurchase program for a total outlay of approximately $10 million.
Under the program to date, we've repurchased approximately 835000 shares.
We have approximately 5 million shares available for repurchase left under our program.
For financial modeling purposes. Please note the following items.
We reaffirm our expectations for second half 2019 consolidated incremental gross margin of approximately 45%.
We've revised our full year capital expenditure guidance from six to 65 million to $70 million compared to our prior estimate a 75 million to $80 million.
The decrease was due to timing of actual cash payments related to our capacity expansion project.
I will turn the call back to Jim for his closing remarks.
Thank you Brian .
Market conditions continue to be positive for Trex strong demand for the residential product lineup and expanding addressable market positions tracks for strong double digit growth in 2020.
Trex continues to benefit from key competitive advantages.
We are the leading brand in our industry and the clear market leader.
With approximately 50% share of composites.
We have the best distribution and dealer network in the business.
And our a best seller at the major home improvement retailers.
Traffic to our websites continues to expand nicely and we're making ongoing investments in tools that guide the consumer through the entire deck design and building process.
In addition to the state sustainability appeal of our products. The fact that 95% of our input materials are derived from recycled material is a major cost advantage.
We have a track record of driving gross margin expansion and expect to continue to drive improvement in that regard in the on coming quarters.
Taken together these attributes underpin our confidence heading into 2020.
2019 has been a challenging year.
I would like to thank our channel partners for their hard work and continued support in 2019.
Their effort and support is greatly appreciated and has positioned our collective businesses well for strong growth and 2020 and beyond.
In the near term, we expect this year's fourth quarter to be another period of double digit sales growth with consolidated net sales of approximately $160 million.
And a modest sequential expansion in gross margin.
This will be driven by expanded residential sales due to the delayed shipments from September and continued strong consumer demand in the fourth quarter.
This will be parse, partially offset by lower sales for residential products sold under our early by program compared to December of last year.
In December of 2018 early by demand was quite strong as distributors and dealers placed orders in advance of an announced price increase on certain products.
We expect we expect to sales from December for the early buy to move into the first quarter of 2020.
Commercial sales will be down year over year due to customer delays and softer demand similar to the third quarter.
During the fourth quarter, we will experience downtime in both Virginia, and Nevada to enable certain infrastructure modifications related to our expansion projects. This planned downtime will reduce throughput and will pressure margin during the fourth quarter.
This is all being been included in the sales an incremental margin guidance, which Brian provided.
Operator, I'd now like to open the call up for questions.
We will now begin the question answer session. Today say question you May Press Star then one you've touched on phone if you're using a speakerphone. Please pick up your handset before passing the keys to withdraw your question. Please press Star then to you at this time, we will pause momentarily to assemble our roster.
And our first question will come from John Baugh Stifel. Please go ahead.
Thank you good evening few questions to lead off year one.
Is there any color Jim you could provide maybe year to date on how transcend has performed in units pricing.
And I fully recognize it.
Free to throw it in there if you want the.
Mers shipments probably should be at 19 in that pillar, it's kind of calculation.
Yes, John there was a.
A significant amount of transcend sales that were shipped and.
The fourth quarter of 2019, I'm, sorry, 2018 to avoid the price increase that I mentioned earlier.
We have seen a small amount of cannibalization on that product, but quite frankly, it's a little bit early.
To tell because.
The availability of our product in the marketplace suffered due to our ability to produce our entire product offering as we were trying to to give a full representation of our product across all all channels.
We struggled to get.
The mix right on the products so.
I would say at this point, we believe it's going to be approximately what we'd anticipated.
And.
Further than that I don't think I can give you a further guidance.
Okay, and then maybe a clarification on all these line additions.
So you add it to lines internally and then you expect to add an additional line in Winchester here in Q4, and then there's three more lines coming on in Q2 20 assume those will be at fertilizer.
That's correct those three additional lines will be of firmly in will start ramping those up and the second quarter of two.
2020.
One new line is the one in Winchester, we found a way to.
Take a line and inserted into our.
Existing facility.
We'll add the short end, we were able to get it and it will.
Not be is.
Strong firmer performance standpoint, as a full line but.
It will give us additional throughput.
That I know our business partners will appreciate okay, and then lastly, ill defer to others, but anything distributor meeting anything.
The to we should look for that's new in the 20 versus 19 or we did enough. This past year, that's kind of steady as she goes.
There are very few new products.
They are primarily in the railing category.
But nothing of significance in the decking side of the business.
Well anything with distribution changes.
No distribution changes of any significance.
We did have a minor change in distribution.
Out in the Denver market.
We're in existing distributor we.
We modify that relationship then move to another existing distributor.
But.
That's that's you want to change for tracks.
Competitors did have a couple of changes that took place.
And I think the word is out publicly that.
Fiber on picked up.
A west coast.
Distributor by the name of or pack.
Great. Thanks appreciate it you bet.
And the next question will come from Ryan Merkel of William Blair. Please go ahead.
Hey, Thanks couple of questions first off on enhanced line, how close are you to fully satisfying channel demand and when do you expect to be fully caught up.
Uh huh.
I would say in the month of November we won't be caught up with channel demand.
We made significant progress in September .
We will make a lot more in October and.
I would guess, we're going to be very close to having the.
The inventory in place that would be a normalized inventory sometime late October early November November tends to be the low 0.4 distributor inventory over the course of the year. So we'll be act actively shipping and with our present President pled, we expect they get back roughly at <unk>.
Slide with or normalized inventory for the under November .
Got it good to hear Okay, and then next.
Any chance you can quantify the push sales in the quarter for both commercial and residential.
Yes, so compared to our guidance that we provided of 205 to 210 million shares.
We look at last year, the amount of shipments that we had available to ship.
Versus what we had last year available to ship it increased by about $7 million.
The remainder of that would be related to their commercial division.
Okay.
And then just lastly, I'd ask DNA, 14.1% is a big improvement year over year, what drove this and animal.
At much higher demand in the third quarter, then we would normally see.
Because of the deferred demand and the lower inventories that were in the channel leading into the second quarter. So seasonally speaking it was a much larger quarter than what you would normally have and that really drove it from a percentage perspective.
Got it that's an on thanks.
The next question will come from Kurt younger of D.A. Davidson. Please go ahead.
Yes.
Good afternoon, Jim of Brian Thanks for taking my questions.
First of all this year has been a bit abnormal as far as the quarterly sales cadence. If we look back in the last couple of years call. It 55% to 60% of revenue is kind of come in the first half is there any reason to think that would be different 2020 or should we expect I guess, a typical quarterly cadence.
I would expect as we look out into next year, you get back to more of a typical cadence what can change that is the timing of the busy part of the season kicking off.
Sometimes that can be the end of March sometimes it's the second week of April .
You don't know until you actually get out into that timeframe, but it can move the sales from quarter to quarter.
But I would expect that you'll see a much more normalized type seasonality to our revenue next year versus what you saw this year.
Okay. That's helpful.
Then I appreciate the timeline for the additional capacity.
But can you provide a little ROI on.
How you're thinking about potential costs associated with additional training or labor.
Lower fixed cost absorption or anything like that.
I think we've discussed in prior calls we will have some headwinds as we bring labor on before the lives are actually ramped up.
We will need to train those individuals we will need to have made them staffing on hand, so there will be some headwind.
Bringing that labor on before it's absolutely necessary or production.
Offsetting that as we move back into next year, we've taken a bit of a pause on our cost saving project programs. This year, mostly as weve focused on improving the throughput to get more product available for our customers as we get into next year. There's a number of projects that we see that are available to us.
That will help to offset.
Those labor headwinds.
Great. Thanks, Brian and then just lastly, I know.
Potential railing isn't the top growth priority, but is there anything worth calling out there as far as opportunities to maybe accelerate growth or perhaps increase the attach rate with your decking sales.
We continue to have good cooperation with our commercial division and using their engineering expertise to allow us to come to market.
Rapidly with new railing profiles that our marketing team as desired for some time.
We've got a total of three product lines that are now been launched using the engineering capability of our commercial division and then commercializing it within residential so we see additional opportunity to be able to fill areas of the market that we're not hitting today with our existing product lines.
Great. Thank very much I'll turn it over.
Our next question will come from Matt Mccall of Seaport Global Securities. Please go ahead.
Thanks, Good afternoon guys.
Afternoon.
So maybe.
No I wouldn't call. This year, so we've got.
Reduced throughput drag from new lines, we've got some maintenance downtime or increased material.
Costs I guess total and then Ryan you talked about you know you've kind of delayed some of the cost savings is there any way to.
Kind of combine all that and give us an idea of what the impact has been.
Or is expected to be on 19, and then more importantly, what the opportunity as maybe some of those pressures side as you move on to 21 could that mean from a gross margin gross contribution margin perspective.
We've not provided guidance out to 2020 as of yet on margin.
But as a management team, we are very focused on margin and providing continuous improvement.
We recognize those headwinds are out there with the additional capacity that's coming on.
But we also see the opportunities and the cost saving programs that we have at other efficiencies within our plants to be able to to improve the margin along the way.
One thing to remember Matt year over year, we had a pretty horrific first quarter.
The drag on that was primarily startup related.
And.
We don't expect to see a repeat.
Of that kind of drag so by definition, we're going to start out a little bit stronger.
From an operation standpoint.
Okay all right.
Thank you quantified there the delayed shipments in Ramsey.
At $7 million, if I heard that that correctly, what about the early the impact of the early by Q4, how much I don't I don't think you said a number there what do you think the impact is on a year over year basis early Bob Thats not expected to recur and that I assume he said that that more of it was going to show up in Q1.
Yes, the portion of the early buy that doesn't occur and typically December for example last year, what we shipped out in December Didnt appear in the first quarter. This year, we'll go back to a more normal cadence where you'd have a more normal December for early buy.
With the remainder of that product being ordered January through March.
And what was the what was the.
Abnormal that they abnormal dollars last year what.
Can you quantify.
I can but.
We are we're not going to get down to that level at at this time.
Okay.
Last question I had.
You said something about exiting unprofitable product line and commercial was there any impact on revenue is there was there any impact on gross margin is there any impact on gross margin as you move forward or was it.
Kind of a a small deal.
It it's a smaller piece of the business, but it was quite impactful adverse manner over the last two years on their gross profit.
It was a fully customized product offering.
That is we got into it we determined it was not something that made sense for us we offered them alternatives, which they believed would be a better approach the market.
So we're going after market a little bit different way.
The reason, it's probably important as as you exit a certain strategy and began the new one you'd love it to be a direct replacement, but it's not so there is a portion of that business at will.
We'll lose for about a year and a half as we start building the new products and putting the new products and their place. So what we saw as a ramping down of demand this year.
It will be lower demand than what we saw two years ago for this product category.
Albeit the new product is substantially higher profit than the old is.
Okay, all right. Thanks again.
You bet.
Our next question will come from Alex Marazzi, Oh Berenberg. Please go ahead.
Hey, good afternoon, guys. Thanks for taking my questions. So the first one is on raw material pricing based on some industry data I've been reading recently, it looks like recycled polyethylene was up pretty drastically this month.
Why this was and how you are mitigating it for Q4.
We haven't experienced an increase in.
Price increases then Rob polyethylene.
We have seen a little bit of an increase in.
Wood fiber that we bye bye.
But as far as it relates to the polyethylene.
It's been.
Flat slightly down.
Okay.
Good enough.
And then the second one is on the international strategy.
It looks like you've spoken about it in the past couple of quarters for can you just discuss a little bit about the demand you're seeing there and how you're starting to shift some of the newer products to those geographies.
As a new products are certainly attractive and some of those.
International locations, specifically in Europe .
I'd like to new products.
Right now we are heavily focused on North America.
We are expanding the shipments into.
Into Europe in particular.
Primarily focused on the consumer side of the business as opposed to commercial at this point.
As we roll out into the latter part of.
2020, and 2021, we'll start opened the door a little bit further at that point and service the entire demand for that we see that as a really nice growth opportunity. So we see the interest we see the demand.
But at this point, we're going to focus most of our throughput to support the North American market.
Okay got it thanks a lot.
Thank you.
The next question will come from Phil Ng of Jefferies. Please go ahead.
Hey, guys.
You mentioned that Reggie was a little weaker because the delayed shipments can you provide a little color what drove that delay was it did it had anything do looks like your production ability.
Yes, it really was a timing of completions of the order were later in the month.
And.
Typically at this time of year at the end of September were able to.
Basically pull those shipments together and get them out and we ended up having a fairly large amount of orders that had been released the that didnt get on trucks.
And then nothing more complicated than that they basically all got out I would say virtually all of them got out in the.
First week to 10 days of the October Okay.
And then you mentioned in the fourth quarter, you're planning to take some downtime.
How much does that does that's had any impact on your sales for the fourth quarter and I think you mentioned there could have an impact on.
Profitability is that enough to let you know pressure gross margins on ready to be down year over year.
No so within that within our guidance the guidance implies increased margin. We just wanted people to understand that we have been running our lines hard over the past six months, we've talked about running everything in the fourth quarter, which we will do but we are taking reasonable steps to make sure that we do the.
Appropriate maintenance and do the upgrades required on the lines that we have a I don't see that has begun to any impact on our sales in the fourth quarter just more of a let the market know how we're going about managing this period of time, where we're running our operations at extremely high utilization levels.
Okay sounds sounds pretty manageable, there's certain plant shutdowns, we have to do to be able to support the the new production halls and production lines that are going up so each plant needs takes several days to.
Shut down so that they can.
For example, put new electrical lines across.
Where the new building site will be in Winchester.
And as we do that it just means that we have less production. It's all included in that.
Sales projection that we provided and the incremental margin numbers that Brian .
Provided earlier got it Okay. Just one last one for me the commercial businesses, obviously newer for most most of us.
You're lapping some tough comps in some of this business got push out, but obviously when we look at some the macro commercial indicators suggest the market's long bed just curious how your conversations are shaping up with your customers and when you look at a 2020 do you expect that business to grow year over year.
Yes, I think there's two things you need to remember this business as we've said all along we'll be very lumpy.
Last year, we had two major.
Stadiums slice arena projects that basically we're on high gear.
We did not have a repeat of that this year.
So that by itself is is a drag.
With regard to your other question do we expect to see year over year sales expansion answer is yes, but not a dramatic sales expansion.
Okay. Thank you appreciate the color.
[laughter].
And the next question will come from Keith Hughes of Suntrust. Please go ahead.
Thank you.
On the gross margin guidance, 45% consolidated in the second half its good that above that in the third.
It does imply it'd be below it below the 45 in the fourth.
I'm trying to reconcile that with some of your comments on.
Gross margin up year over year, and residential I think I'm missing. Some some numbers here can you can you just go over that one more time.
So the 45%.
Incremental EPS for the back half of the year.
And that's on a consolidated basis, not just a residential basis right.
Okay. So.
That would imply that I assume margins is gonna be good at lower than before so that would assume margins would sequentially moved down.
Holidays basis.
On a consolidated this looking at it on an adjusted so I know the adjusted basis.
So you have to adjust for the $6 million.
And the into third quarter that we had in third quarter 2018, okay.
Okay. So that's adjusted for the 6 million, Okay that answers.
And I guess.
As you look at inventory levels, you talked about a little bit, but specifically looking at enhance do you think you'll have the inventory levels of enhance you want to have by November to get ready for the particularly the first quarter as distributors are buying for the season.
Yeah, we've we've basically.
Seen an improvement in our ability to supply in particular for example, when you look at the West Coast.
As you're aware we were on allocation on the West coast. There were distributors that did not take their pull allocation beginning in the month of September for example.
We do see production ramping up at both locations.
And we are filling up the gaps in the inventory at distribution and we think between the inventory we will build.
And inventory that they have we should be in good shape or started this season.
Okay. Thank you.
Thanks.
Our next question will come from Alex Reigel of B. Riley FBR. Please go ahead.
Thank you Brian were there any onetime items that impacted as DNA in a third quarter.
No. The only thing that we really had was a little bit lower personnel.
Spending that we had last year, that's the largest variance of it we talked earlier about why the be percentage is lower than what you would normally see that's just purely because of the hi nature of the seasonality we had in the third quarter of 2019.
And any chance you could.
Quantify the cost pressure.
In the third quarter within residential business.
We've not provided guidance on the additional material usage.
We've had within the product line, we've kept it to a higher level of including the those costs as well as other opportunities that we've been able to offset some of the along the way, but we have not gotten into what the exact material cost is or margin impact at this point.
Maybe I can ask the question a different way.
Well I could see him answer, but let me try.
You've referenced the you'll have some cost pressure head wins.
Until a call at year end 2020.
How should we think about what's your.
I guess you. Your your overall pressure is from that standpoint, or maybe what your target margin is at that point in time.
Well, Jim mentioned that we've got to three lives coming on at our Nevada facility. So labor will come on in advance of those lines and we'll be bringing on labor at our Virginia facility later in the year.
To support the 2021 lives that are here.
I mentioned earlier, we are very margin focused organization.
We see opportunities for further cost reduction of being able to improve throughput on the lines that we have.
So continued focus on margin improvement is what this this management team.
We'll be going after.
Thank you very much.
Thank you.
Our next question will come from Trey Grooms of Stephens. Please go ahead.
Hi, good afternoon.
Afternoon Trey.
So just a few lift for me here on SDMA.
Kind of looking at it going into Fourq, you, we usually don't see much of a change from Threeq to Fourq you.
From an absolute dollar standpoint is there any reason that wouldn't be the case this year as we look in fourq.
Generally that's probably a good way to look at it not a significant difference.
Yes, okay. So nothing nothing unusual that would take place this year.
And then.
On the on the commercial side.
You had pretty good margins on that business and.
And you mentioned that the topline sales will be down year over year in commercial.
And the margins can swing around it seems like quite a bit in the for Q is there any way that we can maybe try to quantify or give us some direction on on how we should be thinking about that given the.
Kind of unique situation, I guess, where you're having down year over year volume in our sales in that in that division.
Yeah, I wouldn't expect a significant margin difference.
Quarter over quarter.
I think as it gets in the ballpark of.
Third so weve.
In the first half of the year, we had some.
Pretty significant.
Expenses associated with contracts that.
We are underwater that.
Product line that we exited.
And I think we pretty much have all of that behind US now I think theres one minor contract that was wrapped up and I guess October .
At.
Well no longer have that kinda drag going forward.
Gotcha, Okay. That's helpful and then kind of sticking with commercial.
You mentioned that there.
That there was some business that was delayed there and it doesn't or at least it doesn't look like from the from the guidance at that would pick up into Fourq. You. So is that something that that would be pushed into may be one Q of next year or when do delayed projects when does that usually come come back to you.
Yes, it's it's not a business that you normally see with tracks because our lead times are usually pretty tight.
These actually can be pushed out quarters, not one quarter to quarter, but multiple quarters.
Some of these projects have been pushed out.
Longer than six months.
So we'll pick them up eventually but.
We are going to see any any of those projects.
And some of those projects had work that was planned that would've been recorded as sales in the fourth quarter, we're pushing that out also because we don't expect that.
There are going to come back in the hopper until sometime late.
Late into next year.
Got it Okay and then.
Last one for me and this is maybe a little more high level, but Jim I know you've mentioned you mentioned today and I think you've mentioned in the past expectation from strong double digit type growth in 2020.
You know can you talk about your outlook just kind of for the poor market the underlying growth of the.
Composite market as you look into next year, and just trying to kind of pace.
Back and forth from what you guys are.
Expecting as in your business versus the the marketing.
Where the rest of the growth would come from as far as I market share gains in capacity increases.
Yeah. It historically if you go back the last couple of years, we've seen mid to upper single digit overall growth in.
And the decking and railing market.
Tracks is been fortunate and we have participated in a much higher level. If you go back the last.
Four or five years should see their average compound growth is closer to a 15%.
Incremental.
Sales.
Last year, we had two competitors that disclose their growth it was under 10%.
And we grew very nicely.
In 2019, because we were unable to deliver product some of those.
Customers should have expanded their sales to something I would guess in low single digit.
The fact that I mentioned.
For the first time any guidance on the topline growth.
I think is noteworthy.
I think what I said was that we plan to have.
Solid.
Double digit growth in 2020.
The demand, we've got and what we see is very strong.
Even though we couldn't deliver a lot of that demand this year.
It is continuing and we expect that we'll be able to drive demand.
Through our branding activities.
So we're pretty comfortable that.
We can drive demand.
As a lot of other consumer product companies do.
And it's what that branding.
Ability.
And having a product that is desired in the marketplace as we've seen this past year. We believe we continue to see a and strong double digit growth.
All right well thanks, a lot for the color, it's encouraging keep up good work. Thanks, Thanks Frechette at Trey.
Again, if you have a question. Please press Star then one our next question will come from Eve from head what exon BNP Paribas. Please go ahead.
Good evening, gentlemen, I have two question if I may.
First one could you give us more color on your comments regarding material costs, which you said that you expect to come down in the next 12 to 18 months.
I wanted to understand what might you mentioned, we're talking about and whether or not you can roll. This out to your other product line and then this the new enhance products.
Well all of our decking products, which is the core of our product offering.
Our made primarily of two things waste polyethylene.
And waste would fibers.
The waste polyethylene over the last several years.
We have seen a reduction in cost.
Either due to the fact that.
The market underlying market has been going down or we've been able to find other sources.
Polyethylene waste polyethylene that was cheaper.
This past year that a reduction has slowed and we expect 2020.
To again be a very slow.
Reduction.
Not of significance of much lower cost reduction on that material.
Wood fiber on the other hand.
Has seen an increasing cost.
Primarily due to the fact that you have to go further to get the quantities that we need which means transportation becomes a bigger part of the product cost.
In aggregate when you combine all those.
It looks to me like our cost structure is basically flat year over year.
Pardon me Mr. bromine.
Yeah. So and then second question. So do you have an idea of the addressable markets in in Europe .
I'd be interested to understand what is the market share of composite index versus.
Conventional materials, probably ceramic tiles and wood.
Yes.
Addressable market size is fairly challenging here in North America.
We've got some good good estimates for a it gets more complicated as we move into the overseas markets. We believe it a very high level about 60% of the markets North America, 40% of it isn't to overseas market places all of that being said.
There's a large market opportunity for trucks to go after we're a very small share of the overall market, albeit nicely growing one and some of the larger economies with a larger GDP. So something that we're excited about as we become a more meaningful share within those.
Markets.
We'll be spending some additional time and in studying it understand exactly where our share is against the composite players as well as the conversion opportunity. It gets would in those marketplaces.
Great. Thanks, you very much for your answers.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jim Cline for any closing remarks. Please go ahead.
Yes, I'd like to thank everyone for their interest in tracks, we look forward at upcoming conferences to spend more time getting into a little bit more detail related to our company and encourage anyone interested to.
Follow our website for those conferences.
Have a good evening. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.