Q4 2024 Trex Co Inc Earnings Call
Speaker Change: [music].
Good afternoon, and welcome to the trucks company fourth quarter and full year 2024 earnings conference call.
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Casey Coterie: I would now like to turn the conference over to Casey Coterie Investor Relations Representative. Please go ahead.
Speaker Change: Thank you everyone for joining us today with us on the call are Bryan Fairbanks, President and Chief Executive Officer, and Brenda Love Chick Senior Vice President and Chief Financial Officer, joining Brian and Brenda is Amy Fernandez Senior Vice President Chief Legal Officer, and Secretary as well as other members of <unk> management.
Speaker Change: The company issued a press release today after market close containing financial results for the fourth quarter and full year 'twenty 'twenty. Four this release is available on the Companys website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days I will now turn the call over to Amy Fernandez.
Speaker Change: Amy.
Amy Fernandez: Thank you Casey and before we begin 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 laws.
Amy Fernandez: These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward looking statements for.
Amy Fernandez: For a discussion of such risks and uncertainties. Please see our most recent Form 10-K and Form 10-Q as well as our 19 thirty-three. Another 1934 act filings with the SEC. Additionally.
Amy Fernandez: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measure can be found in our earnings press release at tracks Dotcom. The company expressly disclaims any obligation to update or revise publicly any forward looking statements whether as a result of new information.
Speaker Change: Future events or otherwise with that introduction I will turn the call over to Bryan Fairbanks.
Bryan Fairbanks: Thank you Amy and thank you all for participating in today's call to discuss our fourth quarter and full year 2024 results.
And our business outlook for 2025.
Bryan Fairbanks: I'll open by thanking our channel partners distributors contractors and attracts consumer for driving our performance in 2024 and of course, we cannot be successful without the dedication to excellence I see every day from our <unk> team members at every level. Thank you all.
Bryan Fairbanks: The Trek team ended 2024 by delivering stronger than expected fourth quarter results, enabling us to exceed our full year revenue guidance for both sales and EBITDA.
Bryan Fairbanks: We continued to experience strong demand for <unk> premium products in the fourth quarter.
Bryan Fairbanks: Together with strengthening sequential demand for value priced products.
Bryan Fairbanks: Our EBITDA outperformance is a good indication of the positive operating leverage we gain on higher utilization.
Bryan Fairbanks: And the production efficiencies that our continuous cost out programs are yielding.
Bryan Fairbanks: We have a full roster of these fast return projects set for 2025 and beyond.
Bryan Fairbanks: During the year, we executed on several key strategic initiatives that provide the foundation for our company's continued long term growth.
Bryan Fairbanks: <unk> development product market availability and branding programs.
Bryan Fairbanks: First we continue to prioritize new product development and market launches, which are long term growth drivers.
Bryan Fairbanks: In fact products launched within the last 36 months accounted for approximately 20% of our full year revenues.
Bryan Fairbanks: Between new products introduced in 2024, and those slated for 2025, we will launch a record number of new products that will support future sales growth.
Bryan Fairbanks: During the year, we saw a particular success with our premium decking transcend lineage, which continued to drive strong consumer demand at the high end of the market.
Bryan Fairbanks: Transcend lineage features heat mitigating technology now branded southern comfortable which reflects UV rays and heat to keep deck boards feeling cooler.
Bryan Fairbanks: Late 'twenty 'twenty four we introduced two new colors to our enhanced decking line, both featuring southern comfortable technology.
Speaker Change: Keep mitigation attributes are becoming more popular across all markets, where people enjoy outdoor living activities, but especially in the sunbelt where high temperatures in abundance on are the norm.
Speaker Change: So I'm comfortable technology has garnered very positive responses from our channel partners and consumers and we will continue to rollout this new future with our new decking product launches.
Speaker Change: Just last week, we announced the next generation of Trek select decking with three new colors fresh engraving patterns and so uncomfortable technology.
Speaker Change: Our new select asking will be available during the second quarter.
Speaker Change: First generation <unk> select was launched back in 2012 and has been an extremely popular mid price deck Board. This second generation select product will continue to fill the needs of mid price buyers and the $4 50 to $5 a linear foot price range.
Speaker Change: 2024 was a pivotal year in advancing our rail and growth strategy as we accelerated the pace of new product introductions with new steel mesh and aluminum railing systems cable and glass systems and enhancements to the trek select and tracks enhanced composite railing systems that.
Speaker Change: Our price to provide an alternative to vinyl railing.
Speaker Change: With these new offerings, which will all be available for the 2025 season, we now have a comprehensive portfolio of railing products addressing all major design preferences and price points.
Speaker Change: This accomplishment is aligned with our objective of doubling our market share of the $3 3 billion dollar railing market over the next five years moving from 6% to a 12% share.
Speaker Change: And we continue to build out our adjacent growth opportunities. We now have a full line of <unk> branded deck fasteners. In addition to providing a clean cohesive aesthetic to the homeowner. These products are engineered to make installation easier and more efficient for both contractors and DIY installers.
Speaker Change: Taken together, our expanded decking and railing and fastener product lines give our channel partners and contractors a competitive edge by offering the ability to deliver end to end solutions from one trusted supplier.
Speaker Change: It also gives the homeowner comfort in knowing that their warranties are backed by the leading manufacturer of decking and railing products.
Speaker Change: Second with respect to product market availability, we leveraged our expanded product portfolio to further strengthen our relationships with our distribution partners.
Speaker Change: Longtime distributors like safely forest products, and Boise Cascade announced their decisions to fully align with treks decking and railing across each of their locations. Additionally.
Speaker Change: Additionally, Weyerhaeuser, a global leader in distributing building products to both pro and retail channels.
Speaker Change: Aligned with treks, decking, and railing and will serve as the California, Arizona, Nevada, and New Mexico markets.
Speaker Change: Also we expanded our relationship with international Wood products, which will fully aligned with tracks and offer both tracks decking and railing in northern California, and Northern Nevada give.
Speaker Change: Giving us the ability to further increase our share in key geographies in the western part of the U S.
Speaker Change: Further we strengthened our distribution network in Canada, with Alexandria, molding, especially building products brand.
Speaker Change: Which will bring our premium decking and railing products to a broader range of Canadian retailers homeowners and contractors.
Speaker Change: In addition, our home center business will benefit from additional shelf space, we're gaining in this quarter at the home depot.
Speaker Change: And third related to branding.
Speaker Change: We continued to make substantial investments in branding and marketing program that strengthened consumer recognition of the advantages of <unk> products.
Speaker Change: These programs capitalize on current trends and outdoor living by highlighting products that support seamless transition from indoor comfort to outdoor enjoyment and emphasize the climate resilience of <unk> with innovations such as southern comfort of both technology and the weather resistance overboard that make them ideal for you.
Speaker Change: In and around water.
Speaker Change: These advantages appeal to a broad range of consumers, who want to add value to their homes and trucks branded products have shown to be an excellent way to add value similar to investing in a sub zero refrigerator or a wolf range in your kitchen.
Speaker Change: We were honored last month to be named America's most trusted outdoor decking for the fifth consecutive year.
Speaker Change: According to a nationwide survey of nearly 4000 participants.
Speaker Change: Life story research noted that <unk> received the best reviews and satisfaction scores among six outdoor decking brands included in the survey.
Speaker Change: And with the only decking brand to earn the five.
Speaker Change: Star rating for trust compared to the three stars for the next two closest competitors.
Speaker Change: In addition, these strategic initiatives to drive future growth, we remained on track with our investments into new Arkansas campus.
Speaker Change: Our recycled plastic processing operation is scheduled to go online late in the first quarter. When we begin recycled materials reprocessing in Arkansas.
Speaker Change: The output from this operation will be used at our Virginia, and Nevada facilities, eliminating the need to purchase higher cost externally recycled materials.
Speaker Change: Once completed Arkansas will be our most efficient production site and it will give treks total manufacturing capacity of more than $2 billion in sales.
Speaker Change: The majority of the capital spending related to the Arkansas campus will be completed this year, which will make 2026, a year of substantial free cash flow generation for trucks as we return to a more normalized level of capital spending.
Speaker Change: And as we leverage the investments made between 23 and 2025.
Speaker Change: <unk> is positioned for continued growth in 2025 amid expectations for the repair and remodel market to be approximately flat compared to the 2024 levels.
Speaker Change: Our guidance for market outperformance anticipates continued strong sell through of <unk> premium decking products improved demand for trucks entry level products and double digit growth in our railing product sales now.
Speaker Change: Now I will turn the call over to our senior Vice President and CFO Brendan loan check for a financial review and additional color on our guidance for 2025 Brenda.
Brendan: Thank you, Brian and good evening everyone.
Brendan: Before I walk through our financial results I would like to highlight some of the many strategic priorities. We executed on during 2024 that will drive growth and profitability in 2025 and beyond.
Brendan: One of our top priorities during 2024, what is the new product introductions. We are excited to have expanded our decking portfolio with new and innovative product offerings, including a very innovative he mitigation technology that we are incorporating across our decking portfolio.
Brendan: We also introduced a comprehensive portfolio tracks railing products, helping us greatly expand our relationship with our distributors, who will now be able to offer a full check stacking solution.
In the second half of 2024, we revised our channel inventory strategy to reduce the quarterly volatility associated with the timing of channel stocking and destocking and to minimize production fluctuations within our manufacturing plants.
Brendan: So the efficiencies generated by continuous improvement initiatives, coupled with increased inventory, which we now believe to be at the right level.
Brendan: Position us to service the market with normal lead times.
Brendan: Avoid significant channel fluctuation experienced historically.
Brendan: And minimized quarterly revenue and gross margin volatility.
Brendan: We are also pleased with our capacity expansion in little rock, Arkansas that is on schedule to start pellet production in Q2 of 2025.
Brendan: As Brian mentioned once the initial startup expenses are behind US, Arkansas will be our most efficient plant and will enable us to increase the flexibility inefficiencies at our existing manufacturing facilities.
Speaker Change: I will provide more detailed information concerning the new plant and my financial discussion.
Speaker Change: We also accelerated our digital transformation initiative to further enhance the tracks consumer experience.
Speaker Change: The benefits of these strategies will enable us to continue to outpace the repair and remodel market in 2025 and beyond as well as enhance our long term profitability.
Speaker Change: I'd now like to review, our fourth quarter and full year 2024 results. Please note that unless otherwise stated all comparisons comparisons discussed today.
Speaker Change: On a year over year basis, compared to the fourth quarter of 2023 and full year 2025.
Speaker Change: As Brian mentioned, the fourth quarter represented a stronger than expected finish to 2024, a year in which we continued to execute on our key strategic priorities.
Speaker Change: In the fourth quarter net sales were 168 million, a decrease of 14% compared to $196 million in.
Speaker Change: In Q4 channel inventories decreased by approximately 45 million.
Speaker Change: It is almost double what we had originally forecasted.
And despite the better than expected sales in decades, the decking channel inventory days on hand are down from 2023 and near all time lows.
Speaker Change: Even with the substantial channel inventory reduction sales were ahead of our expectations driven by continued strong demand for our premium priced products and so.
Speaker Change: Sequentially stable demand for our entry level products.
Speaker Change: Gross margin was 32, 7% down 340 basis points from 36, 1%.
Speaker Change: This decrease is primarily the result of lower utilization, partially offset by the benefits of our continuous improvement initiatives.
Speaker Change: Selling general and administrative expenses were $39 million or 23, 4% of net sales compared to 43 million or 21, 7% of net sales.
Speaker Change: The year over year decline was primarily related to lower incentive compensation, while we continue to invest in branding marketing and new product innovation.
Speaker Change: Net income was 10 million or nine cents per diluted share a decrease of 58% from $22 million or 20 cents per diluted share.
Speaker Change: We delivered EBITDA of $29 million or 17% of net sales down from 30% compared to $41 million or 21% of net sales last year.
Turning our attention to full year results net sales for the full year 2024 totaled $1 2, billion% to 5% increase compared to 1.1 billion, primarily due to the shift of our early buy program from December to January of 'twenty, 'twenty, four and the strong demand for our premium products.
Speaker Change: Net income was $226 million or $2.09 per diluted share compared to 205 million or $1 89 per diluted share representing 10% growth.
Speaker Change: EBITDA was 360 million also up 10%.
Speaker Change: $326 million in the prior year and EBITDA margin expanded by 150 basis points to 31, 3% from 29, 8%, primarily due to our cost out programs, which continue to drive margin improvement and improved utilization in 2024.
Sure.
Speaker Change: 2020 for operating cash flow was 144 million compared to $389 million.
Speaker Change: The decrease was primarily a result of increased inventories as we prepare to execute on our new channel inventory strategy deliver our new decking and railing products and prepare for the 2025 decking season.
Speaker Change: Consistent with our capital allocation strategy and continued confidence in our long term outlook, we returned over $100 million to our shareholders in 2024 through the repurchase of one 6 million shares of our outstanding common stock.
We also invested 232 million in capital expenditures in 2024, primarily related to the build out at the little rock, Arkansas facility.
Speaker Change: Our outlook for our little rock remains the same.
Speaker Change: As a reminder, the total capex for the facility is expected to be approximately $550 million of which we have already invested $408 million.
Speaker Change: Once this project is completed our capital expenditures are expected to return to historical levels.
Speaker Change: 5% to 6% of revenue, which will result in a significant increase in our annual free cash flow beginning in 2026.
Speaker Change: Recycled plastic processing in Arkansas is now in startup phase with employees hired and being trained.
Speaker Change: As a reminder, in 2025, we expect that the associates.
Speaker Change: One time startup costs to total approximately $5 million to $8 million and the associated annualized depreciation to be approximately $10 million with the official production starting in the second quarter of 2025.
Speaker Change: These operations are expected to run at target utilization rate by the third quarter with startup costs ending at that point.
Speaker Change: Also as mentioned last quarter, the startup of our Arkansas decking lines is slated for early 2027.
Speaker Change: At that time, we expect the one time startup costs to be approximately $12 million beginning in the first half of 2027 with associated annualized depreciation of $20 million beginning at the same time we.
Speaker Change: We expect these operations to be running at target utilization rates by the end of 2027.
Speaker Change: Now turning to our 2025 guidance for the full year 2025, we expect net sales to be in the range of one point to 1212 3 billion, representing a year over year growth of 5% to 7%.
Speaker Change: As a reminder, in 'twenty 'twenty four we shifted the timing of our early buy program to January which means that our 2025 program is in full swing and early indications are positive.
Speaker Change: Adjusted EBITDA margin is expected to exceed 31% consistent with 'twenty 'twenty four is record year, excluding the one time, Arkansas startup costs restructuring costs related to digital transformation and railing transition costs of approximately $15 million to $20 million in the aggregate.
Speaker Change: SG&A expenses are expected to be approximately 16% of net sales.
Speaker Change: Our interest expense is anticipated to be four to 6 million, while depreciation in the range of $60 million to $63 million.
Speaker Change: We are projecting an effective tax rate of approximately 25% to 26% and.
Speaker Change: Capital expenditures are projected to be approximately $200 million for the full year as we continue the development of the Arkansas facility.
Speaker Change: Based on the inventory strategy highlighted earlier 2025 first quarter sales will include our early buy program assumed at levels similar to last year, but we will not include the channel inventory builds to the same degree as in 2020 for this strategy will change the quarterly timing of 2020.
Speaker Change: Net sales as compared to prior year with approximately $40 million shifting out of the first quarter into the remainder of the year. As a result, we are guiding the first quarter 'twenty twenty-five revenues to be between 325 million to $330 million.
Bryan Fairbanks: With that I will now turn the call back to Brian for his closing remarks. Thank you Brenda our market leadership brand equity reputation and robust product portfolio have attracted the largest and most trusted network of distributors.
Speaker Change: <unk> and home centers in North America, we.
Speaker Change: We recently held or annual tricks pro platinum events, and we were encouraged by the expressions of confidence and we share their enthusiasm for growth in 2025 for.
Speaker Change: For our part we doubled down on our commitment to innovation with many new products launching in 2025 as a part of our performance engineered four year life outdoors campaign.
Speaker Change: New program designed to both strengthen and expand our existing market leadership position.
Stay tuned for more on that as the year progresses. We appreciate the support of our channel partners and the tireless work of the trucks team to build our business, while maintaining the highest standards of quality and integrity together, we are positioned to capture the greatest share of the industry's growth opportunities.
Speaker Change: <unk>. Please open the call to questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
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Speaker Change: Please limit yourselves to one question and one follow up if you have additional questions you may rejoin the queue.
Speaker Change: Our first question today is from Rachel Jed Rossetti for Bank of America. Please go ahead.
Speaker Change: Hey, good afternoon, Thanks for taking my question.
Speaker Change: Hey, rich.
Brian first I just wanted to ask about on the distribution side. This has been a pretty.
Speaker Change: Called volatile period, where there's been a lot of distribution changes that'd be seen you in one of your competitors announced can you just talk about some of the changes that have happened do you anticipate any more going forward and maybe like how it positions us going forward.
Bryan Fairbanks: Yes, I expect that you will see a much calmer environment in 2025, we talked about the decking and railing alignment strategy extensively in 2024 and a lot of those distribution changes were related to that as well as ensuring that we had the right number of distributors.
Appropriate coverage across the country. So again I think youll see a much calmer a period of time in 2025. The other thing that we will see is the infill.
Bryan Fairbanks: Not necessarily see all of those distributors infill during the fourth quarter. So we'll see some of that in the first quarter and then there was also some swapping of inventory.
Bryan Fairbanks: Between distributors that were carrying a competitor brand and then those two distributors working through existing inventories and then swapping them. So that they can service their new customers.
Speaker Change: Great and then on just on the railing side you'd mentioned that you secured commitments for railing products could you just talk about what that process is like what that commitment means and they're just trying to get an understanding on how much visibility that gives you onto the growth go up going forward.
Speaker Change: Yeah, there's three stages of that commitment in the first stage is making sure that you could get that product to the marketplace effectively.
That relies upon.
Speaker Change: Distributors.
Speaker Change: The second piece of that is making sure that we can get that into the pro channel dealer as well as retail centers, where it makes sense. So we're these are new products thats exactly what the team has underway doing at this point they were during the fourth quarter they'll continue to do that and then finally, it's going to be that in consumer you will see a significant amount of mark.
Speaker Change: <unk> of these new railing systems, but also our sales team is out working with the contractors and where they are using competitive product today, whether it's aluminum railing system, a steel railing system, a mesh ruling system or vinyl PVC. We have products that can match that that then allows the consumer to have there.
Speaker Change: <unk> build with one manufacturer your decking and railing fasteners, all coming from trucks and having the confidence that your warranty is going to be supported by a market leader.
Speaker Change: Okay. Thanks I appreciate it.
Speaker Change: I'm sorry.
Speaker Change: The next question is from Keith Hughes with Truest. Please go ahead.
Keith Hughes: Yes. Thank you.
Speaker Change: On the guidance calls for about six or so percent revenue growth.
Speaker Change: How much of that would come from decking and how much of that.
Keith Hughes: Yeah.
Keith Hughes: Yeah, we're not going to split out necessarily the exact difference I did say in my commentary, we expected double digit growth on the railing side of the business you would expect to see that with infill as well as taking some share away and then the difference of it will be coming through the decking side of the business.
Speaker Change: Okay and are you projecting your production whatever percentage labs railing are you assuming to produce at that level during the year.
Speaker Change: Railing is a combination of internally manufactured product as well as some sourced product. So yes, we do expect that we will be expanding our railing manufacturing as you saw with our inventory at year end, we built inventory, especially on the extruded and powder coating side of things so that we could service the marketplace.
Speaker Change: So it'd be confident we had plenty of inventory as we get out to the busy season.
Speaker Change: Okay final question the inventory level you ended the year is that about what we should look at it.
Speaker Change: The plan is that about.
Speaker Change: At the end of 'twenty five.
Speaker Change: Yeah, we feel pretty good about that inventory level, there may be a slight decrease from that but I wouldn't expect it to be going up from there.
Also in the right place, giving the new products were coming to market with and it'll be a structural change to our balance sheet.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: The next question is from Susan Mcclary with Goldman Sachs. Please go ahead.
Susan Mcclary: Thank you good afternoon, everyone.
Speaker Change: Oh My question was on hold.
Speaker Change: Brian My first question.
I was talking to demand one of the things that you mentioned in your commentary.
Speaker Change: Acceleration at the some of the lower price point of the product offerings that you have out there.
Speaker Change: What gives you the confidence and how you're thinking about getting that consumer engaged given the macro environment and the backdrop that we're in.
Speaker Change: Specifically during the fourth quarter, we saw a high single digit overall that was an acceleration from the third quarter on the premium side of the business. We saw a double digit increase on that so it was a pretty significant increase we saw consumer confidence increase now its dropped a little bit over the.
Speaker Change: First month or so but.
Speaker Change: But we saw that flow through the channel and talking with our channel partners with the new products, we have with the new decking lineups that we have and understanding where the consumer's head is at this point, we feel that 5% to 7% is the right range and we have the support in place to be able to drive that kind of.
Speaker Change: Growth for the company.
Speaker Change: Okay, and then turning to the margin can you talk a bit about some of the puts and takes that you are expecting this year, especially as it relates to the gross margin with the recycling capacity at little rock starting to ramp and then any cost savings initiatives or other company specific efforts that can come through in there as well.
Speaker Change: Yeah in general you know that.
Speaker Change: The gross margin will appear to be flat off of a very high gross margin that we ended 2024 alright. So.
Speaker Change: You will see a little bit of pressure coming from the depreciation that we'll experience from them.
Speaker Change: Little rock, excluding some of the one time costs, there and again, you'll you'll see that nice.
Speaker Change: Elevated margin at that 41 42.
Speaker Change: Percents for the full year and again, a lot of that will be continuous improvement offsetting some of the other inflationary pressures that we feel like increased.
Labor.
Speaker Change: And we've been working through working through the Ter S implications are that at its core and then we're still working through that as well.
Speaker Change: Okay. That's helpful. Thank you good luck with everything.
Speaker Change: Thank you.
Speaker Change: The next question is from Ryan Merkel with William Blair. Please go ahead.
Speaker Change: Hey, everyone. Thanks for the questions I wanted to ask on QQ sales I think you mentioned flat year over year, that's a little different than I was thinking can.
Speaker Change: Can you just talk about why that's flat and then how much of the $40 million shift how much of that impact QQ.
Speaker Change: The $40 billion will shift into the rest of the year, we haven't really provided a split on what that would be it took us time to be able to work that inventory down in the majority of it's going to be into Q2 in Q3. The reason we feel as though Q2 is going to be flattish.
Is because of the revised inventory strategy recall last year in the first quarter. The channel really loaded up we work with them. We wanted to make sure that we were going to service our customers, which the channel did a great job with that last year and I expect to do a great job of that this year.
Speaker Change: We have the inventory to be able to support that so as Brian to talk about our revised strategy is to make sure. We're not getting too far ahead in the channel. This strategy allows us to add capacity. If we start seeing things are a little bit stronger we can bring on a couple of lines and continue running those for the rest of the year if we see.
Speaker Change: Things are a little bit weaker we could drop those couple of lives that we could bring inventory to get it back in line. So we're using our balance sheet to be able to manage it rather than having already booked through revenue and then have to worry about taking it back out of the distribution or dealer channel.
Speaker Change: I see okay. So the inventory strategy change that impacts to Q comparison got it okay.
Speaker Change: And then in terms of the EBITDA margin cadence, maybe a little help there if you tied it feels to me like it could be more second half loaded in terms of the margins, but given the change in the inventory strategy is it actually it's more level loaded through the year, how do we think about that.
Speaker Change: It is more back half loaded you are you are correct. One thing to do recognize SG&A from an SG&A perspective, you will see more expense coming through in Q1 and Q2 as we launch our new products. So you'll see more from a marketing perspective there.
Speaker Change: And as well as you know, we've got more going on that but new wins and home depot on the retail side. So I'll have more marketing in the first half of the year, which has again that elevated spend in SG&A puts it a little more pressure on.
Speaker Change: On EBITDA.
Speaker Change: You'll see it start.
Speaker Change: Swing in Q2, but then more in Q3 and Q4.
Speaker Change: Alright, that's very helpful. Thanks. Thanks.
Ryan Merkel: Thanks Ryan.
Speaker Change: The next question is from Tim will just with Baird. Please go ahead.
Speaker Change: Yeah, Hey, everybody. Thanks, Thanks for all the details.
Speaker Change: Maybe just on the on the on the topline the 5% to 7% I guess is that relative to the R&R market, Brian is that kind of purely sell through in your eyes or is there still is there some things around pricing and some of the channel activities that that has an impact on that as well.
Speaker Change: We took just a little bit of pricing going into the year less than 1% of that will flow through as we are seeing increased incentives rebate programs in the marketplace. So we won't really see that flow through to the bottom line or even to offset inflation at this point more so just for the incentive side effects I mentioned in my.
Speaker Change: Commentary that I expect repair and remodel to be flat over the course of the year.
Speaker Change: So by the time, we get to the end of the year I do expect that as the level of sell through that we will see the channel will be a little bit of loaded we'll see it in with some of the new the new products, but as Youre aware in this industry. The channel tends to bring inventory back down at the end of the year recognizing its a lower volume portion of the year.
Speaker Change: <unk>.
Speaker Change: It'll be roughly in line with what we expect sell through to be in 2025.
Speaker Change: Okay. So the inventory in the channel shouldn't really be on a year over year basis pretty pretty similar to how 2024 and I would expect to see that guidance.
Speaker Change: Okay, Great and then just on the margins you talked about accelerating digital transformation and it sounds like there's some restructuring that's excluding what I guess, what exactly are you doing there and if you can just add a little bit of color on what exactly the case.
Speaker Change: Yes, So I think everybody is aware that we hired a new CIO in Q4 of this past year and as he has come into the organization and we are really accelerating our work around digital transformation and there's really three phases of that of that work there is <unk>.
Speaker Change: Operational efficiencies.
Speaker Change: And in automation internally across the organization and there's a lot of work being done around enhancing harnessing the power of data and data with our distributors data with our dealers and that other data that we have internally and then the third area.
Speaker Change: You know, there's a lot that's happening.
Speaker Change: Around around the channel so really looking at.
Speaker Change: The consumer journey and enhancing the overall consumer and customer experience.
Speaker Change: Experience so I'm.
Speaker Change: Making sure we were ahead of what's what's happening within within the market place around.
Speaker Change: Around there and so with our new CIO come in and he's got some great initiatives in front of us that.
Speaker Change: We will require some restructuring.
Speaker Change: Yes, some assets that we have that we might have to write off and things like that that that that work that we're working through internally a lot of that will end up and just normal SG&A that's part of our.
Speaker Change: Our our increase in SG&A as well, but we're really excited about the efficiencies and the value that that's going to drive for us long term.
Speaker Change: Okay. Okay, great. Thanks, a lot for the time.
Speaker Change: Yep.
Speaker Change: The next question is from John Lovallo with UBS. Please go ahead.
John Lovallo: Hey, guys. Thank you for taking my questions. The first one is just on the expectation for R&R to be flat.
John Lovallo: 2025, it seems like maybe a little bit of a downshift from.
Speaker Change: What folks were thinking before and what you guys were thinking before I'm curious on the cadence there is that more back half weighted than first half weighted and is there any risk to that conversion in your mind in a slower R&R market.
Oh, it is slightly weaker than what I talked about in the third quarter, we've not seen a decline in interest rates in the marketplace.
Speaker Change: And that's why we're looking at it from a flat perspective, we think it's prudent to plan that way recognizing that the rest of the R&R market.
Speaker Change: We will continue to struggle.
Speaker Change: The lower rate.
Speaker Change: But we still see great opportunities with the products, we're coming to market with and I think when you talk about the risk of being back loaded. The reality is this business operates in the second quarter and third quarter.
Speaker Change: And you've got to see that those decking sales coming through during those two quarters. So if it's too heavily back loaded where we see a really strong economy, starting mid mid third quarter. Then that's probably that's probably a problem for us, but all the indications that we see right now based off of what.
Speaker Change: We're hearing from our contractors, what we're hearing from our dealers is that as the weather allows us they are seeing good flow through especially at the high end of the market that continues to perform very well.
Speaker Change: Okay. Yeah. That's helpful. And then maybe sticking on the product launches I mean, I think you said that new products accounted for 20% of 2024 sales what's the expectation for this as we move into 2025.
Speaker Change: Well, you've heard us talk about a significant number of product launches that will continue to expand as we begin to commercialize them two new colors of lineage just hitting the market now three new colors, and all new <unk> relaunch of our select product line as well as we could probably say roughly doubling the <unk>.
Speaker Change: Size of our railing portfolio at this point.
Speaker Change: A significant increase in that number and we will continue to launch new products every six to nine months, we've been at a much faster track than that over the past year.
Speaker Change: Great. Thanks, Brian.
Speaker Change: The next question is from Phil <unk> with Jefferies. Please go ahead.
Speaker Change: Hey, guys Italia on for Phil.
Going back to really maybe if you could talk about how that margin profile compares chill decking, especially sense.
Speaker Change: For 2025, Youre expecting higher growth in railing and then it.
Speaker Change: Maybe if you could talk about the attachment rate, we have historically seen and if.
Speaker Change: If you are targeting.
Speaker Change: At a higher rate with the new distribution lines.
Speaker Change: Yes, so much like decking, there is going to be a pretty wide range of margin on the railing programs that we have I think it's important to note that as a management team. We are very focused on driving appropriate gross margins that we can support the elevated level of drag.
Speaker Change: Handing and ability to drive the <unk> brand name to that and customers. So we really work to drive that overall fleet margin as an as an organization and we will continue to do that as we go forward Youre second question real quick was.
Speaker Change: The historical attachment rates for <unk>, we're targeting a new level.
Speaker Change: Yeah, it varies by the region and I always.
Speaker Change: Struggle using an overall attachment rate because of how different it is by region. If we pick up in the northeast the majority of our products have been northeast and Midwest centric from a design perspective, we have a much higher attachment rate in those marketplaces, and we go out west La.
Speaker Change: Out of our new products have very much more of a western theme to it. If you were to ask me on an overall basis, probably around 20% from an overall perspective, and yes, we would expect to significantly increase that attachment rate as we look out over the next five years.
Speaker Change: Okay.
Speaker Change: Just to.
Speaker Change: Hello, a finer point on the first part around gross margins.
Speaker Change: You would not expect the higher growth rate and railing the CR to be gross margin dilutive is that the right takeaway.
Speaker Change: It's inclusive of the results of that are inclusive in the overall guidance that we've provided for the year.
Speaker Change: Okay.
Brenda: And then Brenda you you mentioned.
Speaker Change: Evaluating your debt.
Speaker Change: But the haynesville impact of tariffs.
Speaker Change: If you could give us a little more color around that.
Speaker Change: Your Cogs exposure.
Speaker Change: And then do you have a price increase out there too.
Speaker Change: That thought.
Speaker Change: Overall from a cost of goods sold perspective trucks has a very low amount that sourced from from the overseas market I did mention some of these railing programs are are more sourced then maybe inside but again, we manufacture a lot of it is a small piece of our Cogs, Let me turn to Brenda talk about mitigation yeah. We've got.
Brenda: Great relationships with our supplier and again the small amount that we do have that Brian and Brian referenced we're having and you know we're in the middle of negotiating with them now and we also have dual source and we've shared that before on the calls that we do have local source suppliers as well so.
Brenda: We have a lot of ways in which we can help mitigate the impact of the tariffs.
Brenda: Okay, great. Thanks, guys.
Brenda: Thank you.
Speaker Change: The next question is from Trevor Allinson with Wolfe Research. Please go ahead.
Trevor Allinson: Hi, Good evening, Thank you for taking my questions.
Trevor Allinson: Firstly on your expectation for premium to continue outperforming in 2025 can you quantify the growth you're expecting for more premium products versus entry level within your 2025 sales guidance and then given stronger demand at more premium price point should we expect some sort of mix margin tailwind in 2025.
Trevor Allinson: Yeah, we're not going to bifurcate the growth levels of the different parts of our business. It is inclusive of the guidance that we provided but I did mentioned earlier that I do expect that we will continue to see good performance.
Trevor Allinson: From those higher end consumers out there the wealth effect and allowing them to continue to do home improvement projects.
Speaker Change: Okay. Just a quick follow up on that one do you see a difference in margin profile between the two and would you expect that to be a benefit year over year than in 2025.
Speaker Change: In some cases, yes, we do have different margins between the high end and low end and just because it's more of an entry level product doesn't mean that.
Speaker Change: A low margin in itself, but there are different levels, there and we expect from an overall mix perspective, probably similar to what we saw this year in 2024 as it relates to decking.
Speaker Change: Okay understood and then.
Speaker Change: Second question would be just on sell through trends here. It seems like <unk> was.
Speaker Change: Pretty up pretty positively it sounds like maybe you're expecting things to slow its be more flattish here can you just talk about what you've seen more recently and perhaps I expect sell through to trend throughout the year.
Speaker Change: One quarter doesn't make a year, while it was a positive from what we had seen during the first three quarters of the year, we did see volatility over the course of the year.
Speaker Change: So I wish I could give you the level of detail that you'd like of how does that progress over the course of the year, that's where the 5% to 7% on an overall year basis is our best estimate of where it comes together and we will continue to provide updates as we see the results.
Speaker Change: Yeah.
Speaker Change: Okay I appreciate all the color good luck moving forward.
Speaker Change: The next question is from Kurt Yinger with D. A Davidson. Please go ahead.
Great. Thanks, and good afternoon, everyone.
Speaker Change: Brian you had mentioned that the three stages in railing and the last one being consumer pull through I'm curious when you talk to your sales folks.
Speaker Change: The pushback or what is.
Or two things that you kind of here in terms of what tracks needs to do in order to really convert more of those contractors and increase that attach rate.
Speaker Change: Well, what we've been hearing this for the last two years and speaking with our contractors trucks. If you had these if you had these products we would be putting your products on these decks, we have a contract or out west that does about three quarters of a million dollars of a competitive product today, we have that product that can.
Speaker Change: <unk> will allow him to replace that will ease building attract stack today now he's going to be putting a treks railing on with that so we see that across our trucks pros and that's the first place that we can start is working with them and then making sure that we have the appropriate merchandising displays in each one of our dealers. So those customers who are doing it more on.
Speaker Change: DIY basis, they're able to see that those products exist as well too.
Speaker Change: Okay great.
Speaker Change: Great that makes sense and then second.
Speaker Change: I apologize if I missed it but can you talk a little bit more about kind of the railing transition costs and what those are associated with and I guess timing.
Speaker Change: The primary piece of that is going to be first is the merchandising costs given the amount of railing that we are launching there is significant merchandising to get into the field as well as dealer resets and then a couple of situations where.
Speaker Change: We're working with taking.
Speaker Change: Breaking out our competitors.
Speaker Change: Our programs around that.
Speaker Change: And Youll see that mostly first half yep yep.
Speaker Change: Okay I appreciate the color. Thank you the biggest piece of that is going to be the merchandising impact.
Speaker Change: The next question is from Anthony Pettinari with Citigroup. Please go ahead.
Speaker Change: Hi, This is actually <unk> on for Anthony. Thanks for taking my question was I think you've already said new product launches, maybe targeting more western styles of markets can you just talk about which regions. You see is maybe most attractive from a demand or pricing position and then are there any notable geographic white spaces, you would you would call out.
Speaker Change: Yeah, well, what I said was more of our designs were Midwest and northeast centric.
Speaker Change: The designs that we've put together and the products. We've launched there are areas that we were not participating in that primarily appeal than with some of the designs. They wanted out west it doesn't mean that in the southern market places in the northeast marketplaces.
Speaker Change: Those are designs, they want, especially the new aluminum railing system, our select aluminum railing system, we've seen widespread interest in that product line and we expect that's going to do extremely well across the entire country.
Speaker Change: Okay. Thanks, and then I think you have purchased over $100 million of stock in 2024, and just how should we think about your appetite for repurchases as we move through 2025, particularly given Canada temporarily elevated capex.
Speaker Change: We continue to have a program available to us are roughly 10% of the float of the company. So thats a program available to us and as we've looked at in the past we see.
Speaker Change: We have a program and we could be in the market.
Speaker Change: And yes, I mean, we've been active even when we've had higher capital requirements. So I wouldn't necessarily say, that's something that would hold us back if we see the right opportunity to be in the market.
Speaker Change: Great. Thanks, I'll turn it over thanks.
Speaker Change: Again, if you have a question. Please press Star then one the next question is from Steven Ramsey with Thompson Research Group. Please go ahead.
Steven Ramsey: Hi, good afternoon wanted to ask a bit on the railing growth expected for 2025, maybe relative to the last couple of years, how much of that growth is wallet share gains versus new partners I'm sure products are dry.
Speaker Change: Both but curious if there's a way to parse that out.
Speaker Change: We've seen attractive growth over the past couple of years within the railing portfolio that we have we've continued to add more features and benefits to those existing product lines.
Speaker Change: Of course, we've added more new product lines to it but we do expect to see I mentioned double digit type growth for those railing product lines as we move forward.
Speaker Change: Okay. That's helpful. And then lastly for me do you have.
Speaker Change: Have they.
Speaker Change: New maintenance capex level.
Speaker Change: As you as you get past the this year with the elevated levels and getting the Arkansas plant are running.
Yes, it'll be roughly 5% to 6% of revenue.
Speaker Change: So a lot lower than what we've been spending on capex to date.
Speaker Change: Good news thank you.
Speaker Change: Yeah, that's great news.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Bryan Fairbanks for any closing remarks.
Thank you for your participation in today's call. We look forward to seeing many of you at upcoming meetings and conferences good evening.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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