Q2 2025 Trex Co Inc Earnings Call
Good day and welcome to the trucks company second quarter 2025 earnings Conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to Casey Coterie. Please go ahead.
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 as Amy Fernandez Senior Vice President Chief Legal Officer, and Secretary as well as other members of tracks management The company issued a press release.
Today after market close containing financial results for the second quarter of 2025. 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 Amy.
Thank you Casey 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.
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 a discussion of such risks and uncertainties. Please see our most recent Form 10-K and Form 10-Q as well as our 1933 and other 1934 Act filings with the SEC. Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial.
Cancel measure can be found in our earnings press release that tracks Dot Com. The company expressly disclaims any obligation to update or revise publicly any forward looking statements whether as a result of new information future events or otherwise with that introduction I will turn the call over to Bryan Fairbanks.
Thank you Amy and thank you all for participating in today's call to review, our second quarter results and discuss our business outlook.
<unk> team delivered strong second quarter results highlighted by 3% net sales growth achieving a record level of quarterly sales despite adverse weather conditions in many parts of the country and despite a declining repair and remodel market. These.
These results are a testament to the high level of execution from our team and our channel partners as well as broad based a sustained demand for our differentiated products.
We are pleased with our results to date, which are grounded in the resilience of our trucks consumer the benefits of our unique channel positioning and the appeal of our new products.
Our success demonstrates effective focus and underscores the importance of ongoing investment in the strategy is fueling our momentum while strengthening the branding and marketing messages that connect with consumers and channel partners alike.
Sales trends were similar to those of the first quarter demand was led by strong performance of treks composite and aluminum railing treks lineage decking and positive momentum in our expanded mid priced select decking line over.
Over the past 18 months, we've seen wood alternative products take 170 basis points of market share from wood and as always treks is aggressively pursuing wood conversion as a core growth strategy.
From a geographic standpoint, we see strong demand in markets across the U S. We continue to be pleased with our pickup in dealer conversions Amtrak's pro contractor recruitment activity in the western region, which together with our existing and new distributors are increasing market penetration of <unk> products.
As the competitive landscape within our industry continues to evolve we feel confident that our consistent consumer messaging unwavering commitment to our channel partners and focus on the decking and railing segment will result in additional sales growth. Additionally.
Additionally, <unk> will ensure that our products are available everywhere that consumers make their purchasing decisions.
Product development remains a key element of our long term strategy new products were once again, a key contributor to the past quarter sales performance.
Products launched within the last 36 months continue to represent 22% of quarterly sales significantly ahead of the 13% contribution in the same period last year.
The past 12 months have been a period of record product introductions by trucks.
Built on the success of the trucks lineage and select decking lives by introducing new Hughes and further integrating our popular sun comfortable heap mitigating technology. Now also featured in the latest colors within our value focused enhanced decking collection.
As consumers increasingly seek to enjoy their outdoor living spaces treks offers a compelling solution low maintenance performance engineered decking that combines proprietary heat mitigating technology and superior scratch in stain resistance, all made from 95% recycled and reclaimed materials. It is a no.
Ideal choice, particularly for the environmentally conscious consumer.
We plan to continue rolling out our heat mitigating technology with new product launches.
Over the past year with greatly expanded our really portfolio to offer consumers a comprehensive range of options across every price point and design preference from the value priced trek select composite T rail, which delivers the high performance of composite materials, while competing on a price with PVC vital to the prime.
Liam <unk> X series cable and Frameless glass rail, which deliver elevated aesthetics favored by design conscious homeowners.
In the second quarter, our expanded railing portfolio continued to gain traction across both key channels in the pro channel where distributors have aligned with our railing products and in the home Center channel, where we secured additional shelf space.
We also continued to strengthen our investments in branding and marketing featuring our expanded rail like portfolio submersible Marine grid decking for both fresh and saltwater environments and demonstrating the enhanced comfort and aesthetic appeal of a tricks that.
Our new performance engineered to your life out doors campaign, which launched in May 1st highlights our leadership in innovation and our commitment to delivering outdoor solutions that combine lasting beauty with real world durability.
New performance engineered products or currently in the pipeline for market launch in the coming year.
In the second quarter, our new inventory strategy the level loading production delivered important benefits trust from our channel partners at Trek says the inventory availability needed to meet consumer demand.
The enhancement in our operational efficiency and reduction of the quarterly volatility in our results.
This past quarter saw the first returns from our new state of the art plastic processing facility in Arkansas.
The performance results have been very promising.
Production rates and yields surpassed our initial expectations and the facility is helping reduce the need for externally purchased plastic pellets for our decking operations in Virginia and Nevada.
Importantly, these production results affirm our expectations that once fully built Arkansas will be a model for efficient vertically integrated self sufficient production that supports our channel partners and capitalize on growth opportunities for years to come.
To sum up as we look ahead, we expect similar sales trends in the third quarter, representing substantial year on year revenue growth and positive financial performance, which Brandon will detail in a moment.
Pleased that even amid a repair and remodel market is now projected to be down in 2025 versus last year <unk> is positioned to continue outperforming the market now before I turn the call over to senior Vice President and CFO Brendan Love Chicks for a financial review I'd like to take a moment to thank Brenda for her contributions to trucks and wish her all.
The best in her future endeavors Brenda.
Thank you, Brian and good evening, everyone. We are pleased with our performance in the second quarter and year to date, especially against the backdrop of challenging weather and a soft repair and remodel market that now looks to be down compared to 2024.
We continue to execute effectively against our goal at outperforming the repair and remodel market driven by resilient consumer demand for tax decking and strengthened by the successful launch of new products that have been well received by the market.
We are making excellent progress on the buildup of our state of the art, Arkansas manufacturing facility.
Cycled plastic processing began on schedule in Q2 and production rates and yields have exceeded our initial expectations.
Onsite plastic pellet production is delivering cost savings by reducing our reliance on more expensive external sourcing.
Additionally, the advanced processing technology at Arkansas will allow us the option of utilizing lower grade less desirable recyclable plastic.
Further reducing input costs and reinforcing our commitment to sustainability, while maintaining the quality of our high performance low maintenance products.
As Brian mentioned once fully operational in 2027, the Arkansas facility will become our most efficient production hub, enabling us to expand capacity to support market growth and more effectively serve our channel partners.
I would now like to review, our second quarter 2025 and year to date results.
Please note that unless otherwise stated all comparisons discussed are on a year over year basis compared to the second quarter of 2024.
As a reminder, this is the first year of our new level loaded manufacturing strategy, which we put in place to bring greater efficiency to our manufacturing while also reducing the volatility typically associated with channel stocking and destocking.
This new strategy has caused lower than typical first half gross margins given the shift in production and associated utilization rates, but will result in higher than historical second half of the year gross margins.
Overtime, we believe the level loading strategy will be accretive to the full year gross margins.
Similar to Q1, we also incurred several one time expenses tied to strategic initiatives, including startup costs associated with our Arkansas plastic processing facility railing conversion efforts and the investments in digital transformation.
I will provide adjusted results, reflecting these items, while discussing our financial performance.
A reconciliation of these adjustments can be found in our Q2 press release on <unk> Dot com.
In the second quarter net sales were 388, million% to 3% increase compared to $376 million in the prior year, despite adverse weather slowing construction activity in many parts of the U S and lower repair and remodel spending we achieved low single digit growth demonstrating the.
<unk> of the checks brand and the adoption of our new products.
Gross profit was 158 million and gross margin was 48% compared to gross profit of 168 million and gross margin of 44.7% down $10 million or 390 basis points.
The decrease is primarily due to the onetime strategic investments made within the quarter as well as lower year over year production due to our decision to level load, which we estimate had a 100 basis point impact on the quarter.
While level loading negatively impacted gross margins in Q1 and Q2 as previously noted we will see a benefit to the margins in Q3 and Q4.
In addition costs associated with the successful reengineering of our enhanced decking line were approximately $4 million or a 100 basis point impact that have not been adjusted out of gross margin.
This project is now complete and we do not expect any additional enhanced related expenses.
Going forward.
The strategic investments this quarter included onetime really conversion cost of approximately $1 4 million and onetime startup costs related to Arkansas facility of approximately $1 3 million.
Excluding these items adjusted gross profit was $161 million.
Selling general and administrative expenses were 56 million or 14, 4% of net sales compared to $51 million or 13, 6% of net sales. The increase was primarily due to the additional investments in branding, which we are delivering positive returns as we saw an increase in.
Dealer and contractor searches product sample sold and new leads.
One time expenses related to the startup of the Arkansas facility and digital transformation activities were approximately $1 1 million.
Excluding these one time expenses SG&A expenses were $55 million.
Net income was 76 million or 71 cents per diluted share a decrease of 13% from $87 million or 80 cents per diluted share.
Excluding the aforementioned expenses adjusted net income was $79 million or 73 cents per diluted share adjusted EBITDA was $122 million down 6% compared to $130 million.
From a year to date perspective net sales for the first half of 2025 totaled $728 million, a 3% decrease compared to $750 million in the first six months of 2024.
Net income was $136 million or $1 27 per diluted share, a 23% decrease compared to $176 million or $1 62 per diluted share.
Excluding one time charges incurred year to date adjusted net income was $143 million adjusted diluting earnings per share was one dollar and 33 cents and adjusted EBITDA was $223 million.
Year to date operating cash flow was 96 million compared to 20 million in 2024, the increase was primarily due to the lower inventory.
We anticipate ending the year with inventory levels at approximately the same level as the end of the year in 2024 levels.
In the first half capital expenditures were 126 million primarily related to the Buildout of the Arkansas manufacturing facility.
As noted in today's earnings release, we are pleased to reaffirm our full year 2025 guidance, we expect to see strong year over year comparisons in the second half of the year driven by improved production levels from level loading the ongoing benefits of our continuous improvement initiatives and the absence of the channel inventory reductions.
That occurred in the second half of last year.
To reiterate our 2025 guidance, we expect net sales growth of between 5% to 7%.
Adjusted EBITDA margin to exceed 31%.
SG&A expenses to be approximately 16% of net sales.
Interest expense less than 2 million and depreciation in the range of $55 million to $60 million.
We are projecting an effective tax rate of approximately 25% to 26%.
Capital expenditures are projected to be approximately 200 million for the full year as we continue the development of the Arkansas campus.
I will provide additional financial information for the third quarter and the remainder of the year given the impact of our level loading program.
We expect Q3 net sales in the range of $295 million to $305 million, indicating growth of 28% at the midpoint as compared to the prior year.
As a reminder, in Q3 of last year, there was a 70 million inventory depletion in the channel.
As mentioned above our level loading program will benefit gross margins in the third and fourth quarters. While we also eliminate expenses previously associated with our enhanced reengineer nearing efforts.
We expect approximately 2 million in additional one time expenses impacting our gross profit and 2 million incremental SG&A expenses in both Q3 and Q4.
Taking us to the high end of our estimate for the one time expenses, which was $15 million to $20 million for the year.
These amounts will be excluded from the adjusted results We report.
We anticipate third quarter and fourth quarter, adjusted EBITDA margin to be approximately 32% and 31% respectively.
Primarily benefiting from the higher gross margins driven by our level loading program as well as the lack of additional enhance related expenses.
With that I will now turn the call back to Brian for his closing remarks. Thank.
Thank you Brenda at the end of June we published our 2020 for sustainability report illustrates how we have seamlessly integrated sustainability into our business as a core strategy and details our company's commitment to circularity innovative product development manufacturing efficiency and creating professional growth opportunities for our.
Our employees to report can be found in the sustainability section of our website under the <unk> tab.
In conclusion, we are constantly in a market leadership position based on our tremendous brand equity our differentiated channel positioning and the relationships we've built over more than three decades with industry's most respected professional contractors distributors dealers and home centers by fostering strong partnerships.
That are reinforced by mutual benefit.
Together with partner every day to bring the highest quality performance driven products to the consumer and the opportunity is tremendous as industry data shows there are over 50 million tax in North America and over half are either at or beyond their normal life spans. This gives us substantial runway for future growth now I would like to <unk>.
Nicole to questions operator.
We will now begin the question and answer session.
Also a question you May press Star then one on your telephone keypad.
We're using a speakerphone please pick up your handset before pressing the keys if at any time. My question has been addressed and you would like to withdraw. Your question. Please press Star then two please limit yourself to one question and one follow up question at this time, we will pause momentarily to assemble our roster.
Our first question comes from race, Zhejiang sick with Bank of America. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Hi, rich.
I just want to first clarify on the gross margin comments for the third quarter.
Can you just give some more color on is that 100 basis points step up off of the GAAP number that you gave.
Or is that off of the 41 five adjusted figure and then does that include the $2 million of one time expenses. It just helps us to understand exactly what the comments Rob.
So as it relates to growth, but we did not give guidance on gross profit our gross margin numbers for Q3 and Q4, we did provide EBITDA.
The EBITDA margin guidance rate of 32 and 31, respectively.
In Q3, you will no longer will have the reversal of level loading so that will help us in Q3 and Q4 and then we will no longer have the enhanced cost both of those were about a 100 basis point pressure on our margins in Q2.
Okay. So that that was a that was a.
EBITDA margin comment not not gross margin on the Barclays. Perhaps got it okay and then the fourth quarter is significantly higher than its been historically and the step down from three <unk> to four two is obviously much lower than it's been historically can you just help us understand.
What is allowing that like how much higher as production in the fourth quarter now than what it's been historically just to give us some some confidence on that higher level for the fourth quarter that it's been.
We're not going to hand out total production levels, but you will see meaningful production increases both in Q3 two in Q4.
To level, the gross margin as you're as you're describing.
One of the benefits, we're seeing with this level loaded production and.
We've talked about this in prior calls is less volatility in the quarterly earnings. So you don't have the the really high gross margin all of a sudden in one quarter and in the fourth quarter are much lower now still of a fourth quarter you do have lower sales. So it is more difficult to cover all of those fixed costs.
So there are some adjustments at at that point that do drive somewhat lower margin, there, but youre going to generally see much lower volatility.
Assuming we can keep our production relatively level loaded at our plants over the course of the year.
Sure.
Got it thank you.
Thanks Ruth.
Our next question comes from Susan Mcclary with Goldman Sachs. Please go ahead.
Thank you and good afternoon, everyone.
My first question is talking a bit about the demand picture out there can you give us a bit more color on the outperformance that you're seeing versus the market. How much of that is being driven by the new products and the share gains that you talked about and how are you thinking about just the broader path from here given the state of the consumer.
And the housing backdrop.
Overall, we were pleased with the behavior of our consumers seeing our contractor backlogs in the six to eight week range, we're seeing that in the third quarter as well.
We've seen outperform against.
Repair and remodel a really for a couple of years now that continues it is a low cost way for people to be able to add square footage to their home I mentioned about the large number of $50 million would decks in existence in North America, most of which are at a point, where they need to be replaced so those are some of the secular factors that are helping.
This industry grow, albeit not at the levels, we would normally like to grow but at least showing gross numbers as compared to many other repair remodel companies.
Yeah.
Okay.
Helpful. And then can you also talk a bit about the efficiencies that you're seeing within your own operations held that is coming through to the margin and any thoughts on initiatives or anything that we should be aware of as we think about the back half of the year in terms of some of those aspects.
Coming through the past couple of years has been really choppy for operations, we expanded capacity quickly and the pandemic then had to bring it back down again as we work through excess inventory that had to bring it back on again and with those significant swings in production that adds a lot of inefficiency into the or.
Organization by level loading and running consistently from month to month over a longer period of time, we can make minor step ups, we could make minor step down without any impact to the efficiency that we're seeing we're seeing higher rates higher yields improve quality across all of our manufacturing operations as it relates to this strategy.
Additionally, with little rock coming on why we are still in startup phase we have a lot of other assets to bring on we are very encouraged with the initial performance. We've seen of the new plastic processing technology that we've put in place we've talked over the years tracks has had a long history of continuous improvement we know that every year there.
There are certain amount of costs that are going to come into the business. We work as hard as we can to try to offset a reasonable amount of those costs with those continuous improvement activities and that's something that will continue on into the foreseeable future.
Okay. Thank you good luck with the question.
Our next question comes from Keith Hughes with Truest. Please go ahead.
Thank you I just wanted to go back to the first question about the sequential 100 basis points, we'll make sure I understand this is a 100 sequential basis points improvement from second quarter EBITDA to third quarter EBITDA is that correct.
So.
The EBIT the EBITDA discussion is.
I get to focus on 32, so Q3, we're going to be approximately at 32% EBITDA and in Q4, 31% EBITDA that that increase will be driven largely from gross margin improvement and again the biggest change.
Zinger gross margin are going to be the.
Elimination of be enhanced.
Expenses that we had which are approximately 100 basis points the level loading, which again was a drag on our margin of 100 basis points and in Q2, and then you'll have those one time.
Gross margin by will.
Adjusted gross margin.
For our strategic investments also include another a little bit more expensive than in.
In Q3 and Q4.
Okay.
It appears as though just the way you're talking about at the gross margin that there'll be a step down from the third or the fourth but it should be fairly modest is that direct exactly.
Exactly.
They're things that I remember in the gross margin is Q2 is when we started the production in our poly processing plant and so we started the depreciation of that as well and so as a reminder.
It's $10 million for the full year to approximately $2 5 million a quarter of depreciation that is now hitting the gross margin line.
Got it one other question for Brian just in terms of sell through what are you, saying and it varied a lot by month as we particularly as we head into July.
It vary considerably it may because of the wet weather that we saw across a good portion of the country and as we started moving into mid June we saw picked up considerably.
<unk> continued to do well into into July so, yes. It was definitely different depending upon the weather conditions I think the second quarter could have been a really good quarter on a sell through basis that we've seen more favorable weather conditions across the country.
Okay. Thank you.
Thanks.
Next question comes from Ryan Merkel with William Blair. Please go ahead.
Hey, good afternoon, thanks for taking the question.
First question is just on the broader R&R outlook I think last quarter was flat now it's going to be down a little bit I guess, just what what's changed would be helpful.
We're just what we're seeing as the other reports that are coming out at this point other industry experts that are expecting to see some weakness with in.
General consumer uneasiness about the economy at this point so might it ended up being flat and very possibly but it seems like there's more of a bias towards the downside at this point.
Yeah I take your point, it's been kind of mixed out there. So it's hard to say, what's going to happen Alright, and then my next question I think Brenda mentioned level loading is going to be accretive to margins I'm not sure. If you've said that before but could you talk about why that is and then I'd be curious how accretive it is going to be the margins that youre willing to give us that.
So it's accretive because we'll be doing more production in Q3 and four as we level load. The facility, we're not going to get into the actual specifics of that but again by level loading that we gain a lot of efficiencies as Brian emphasized.
Emphasized earlier.
Got it all right I'll pass it on thanks.
Thanks Ryan.
Our next question comes from Colin <unk> with Deutsche Bank. Please go ahead.
Hi, Thanks for taking my question I was just hoping you could provide some more color on just how youre thinking about sell out demand.
Through the rest of the year just given the moves in the inventory last year I think if you just add back sort of the Destocking that you guys called out previously it would put you above the high end of the 7% range. So I was just curious as to how youre thinking about maybe.
Sell out to the rest of the year and maybe channel inventories.
Over the course of the year, we've got a 5% to 7% growth.
That's the kind of sell out that we expect on a full year basis for the third quarter. So it's still one of the stronger quarters from an overall volume perspective, Q2, and Q3 in this sees seasonal business the timing of our inventory going into the channel can be different from when the channel sales.
We have to make sure that it is well stocked as we get to early buying season kicks off in the second quarter.
The team did a great job in making sure that the channel was very well service to in the second quarter made sure that all of the products were available for their consumers along the way.
But we're comfortable where inventories were coming out of the second half of the year to be able to support our growth expectations.
Okay. Thank you and then in the press release, you guys talked about taking some prices for tariffs I guess any color to the pricing actions that you've taken in 2025 what.
What percentage of the portfolio that's impacting.
We did take pricing there was a mid single digit increase across many of our decking products. We did not elect to take its own are railing products.
Great. Thank you for the color I'll pass it along.
Thanks.
Next question comes from Clayton <unk> with BMO capital markets. Please go ahead.
Good afternoon, and thanks for taking my question.
Maybe the first one.
Top Q4 production contemplate any.
Inventory building.
In the channel given that you are sort of level loading now.
I would expect both our inventory to be similar to last year as Brenda mentioned and I would expect to channel inventory.
To be similar to where it was last year as well.
Understood, Okay and then.
Brian any any thoughts around capital allocation you gave him. This was part of the last eight years for the Arkansas investment.
How are you thinking about it.
We think about next year.
Yes, we will see considerable increase in free cash flow generation, we're seeing it this year, but wall, even see it to a larger degree next year as a lot of the investment for little rock will be behind us and will continue to grow from there.
We will continue to look at our priorities first will be organic growth opportunities.
Second would be any acquisition opportunities in the marketplace and I'm pleased with the low debt level that we have high cash generating opportunities that I think there may be some interesting things in the marketplace and then finally share buyback. So we do have.
An approved share buyback program for up to roughly 10% of the company and we've been active on that in the past and expect it will be active in the future.
Very helpful I'll jump back in the queue. Thank you.
<unk>.
Next question comes from Michael Rehaut with J P. Morgan. Please go ahead.
Thanks, Good afternoon, everyone. Thanks for taking my questions.
I wanted to first go back to one of your comments earlier, Brian in the prepared remarks about.
Taking about 170 basis points from wood decking, yet you guys over the last 12 months.
How does that compare to maybe the rate of share gain over the past couple of years and I'm just kind of curious.
What you know.
There's kind of a obviously at a limited.
The amount of <unk>.
Data sources for the decking market, if youre working off of.
Specific.
Yeah.
Data aggregation sources that help inform you and in the rate of change.
Yeah. So it's 170 basis points over the last 18 months remember over the last couple of years. The low end consumer has been relatively weak in many cases that is going to be your biggest part of the wood conversion marketplace as a consumer comes back again I expect that that expansion will go for.
From there.
It's been up and down over the past couple of years anywhere from 50 basis points. During the pandemic. We were at 300 basis points of following year went down to 100 basis point I think the most important part of this is that in spite of a weak repair and remodel marketplace. We are still seeing people make the decision to move over to composites.
Other than installing wood, so how do we get that information, we do use external services to be able to get that information, but we also can talk with our channel partners and they understand what they're seeing in their business of Howard there's composite sales doing against wood compared to prior year. So we've got a number of ways that we can triangulate on that.
Yeah.
Okay, great and I appreciate that.
Secondly.
Following up on a previous question around price.
A little surprised to hear you say that youre, taking price in decking.
Which I assume is your core composite decking products, which are not as impacted by.
The tariffs on steel and aluminum.
Just trying to.
Maybe you could talk about kind of the pricing strategy for for that segment of your product segment and you know.
Maybe on a bigger picture level, when we think about the 5% to 7%.
Growth how much of that is coming from price versus volume.
Yes, I'm not going to get into our pricing strategy here here on an open call with it and we haven't provided the exact amount of pricing either we've given you a revenue for the full year. So a couple of things that we're not going to discuss here today.
Okay. Thanks very much.
Our next question comes from Jon <unk> with UBS. Please go ahead.
Hi, guys. Thanks for taking my questions as well. The first one is you guys mentioned some adverse weather conditions in the second quarter or is there any way to sort of size the impact of that.
It's really difficult to try to try to size that we did definitely see weaker sales as we were going through the adverse weather periods. It is very clear what we were seeing but we've not tried to size what that would have been.
Okay understood and then wanted again commend the team because they outperformed despite despite that whether that everybody was talking about.
Okay got it and then I guess you know just more strategically speaking here if the consumer we awarded a weekend and in demand for decking and railing were slow I mean, how would that impact if at all your new product introductions.
I don't think it would impact our new product introductions at all we would continue moving forward with that we would address our production capacity, what we're running but it wouldn't impact our R&D. Those are long term investments, we're making into making sure. We have the right products in the market to be competitive over the long term.
So I really don't see any impact from that perspective.
Okay I appreciate the time.
Thanks.
Our next question comes from Trevor Allinson with Wolfe Research. Please go ahead.
Hi, Good evening. Thank you for taking my questions, Brian I'd a follow up question on your comments regarding capital allocation, you mentioned M&A, which is something you guys have not done a lot of historically do you think M&A is going to be a bigger part of the capital allocation moving forward you start to generate more free cash flow here.
Well, it's been a very low part of our capital allocation. So yes, it's safe to say that.
There will be opportunities as we look out in the coming years that will be looking at.
Okay makes sense and then second question would be related.
And a question on Capex you are through the majority of the build out of little rock, how should we think about capex stepping down next year versus where it is at this year.
Okay.
Yeah, So we're guiding cap.
<unk>, 1% of our net sales is roughly what we think that ongoing capital requirements will be going forward. So it would be like $50 million to $60 million a year.
5% to 6% now what one percentage.
Okay sorry.
That's why it's 50 to 60, sorry, 50% to 60% or $59 million to $60 million.
On an annual basis on a maintenance of business perspective, and then any additional cost savings or organic.
Growth opportunities beyond that so you'll see a considerable step downs.
And there will be some little rock spending that does carry out into next year, but as we've mentioned before that will it will decline considerably.
Alright, Thank you for all the color and good luck moving forward.
Thanks.
The next question comes from Trey Grooms with Stephens. Please go ahead.
Hey, good morning, everyone and also wanted to say.
Best of luck to Brenda on your next endeavors.
I guess.
One thing I wanted to touch on was just kind of this might be a little bit bigger picture, but youre seeing.
Any any kind of demand shifts you're seeing.
From the pro versus the DIY channel.
You mentioned DIY had been a little bit slower.
But you've introduced some new some new products, there, particularly with heat mitigation technology and such but.
Any any shift in the demand trends youre seeing in pro versus DIY.
What we are seeing is a very aggressive home center channel, especially in going after the pro business.
So it is serving a little bit different customer to have that level of pro compared to what they've done historically, but I do expect they will continue to be aggressive and I expect our approach handle customers.
They understand what theyre going after as well and they will rise to meet the occasion from a competitiveness perspective.
Okay. It makes sense and then on the kind of continuing with the new products.
Clearly now a much more meaningful part of the business.
Railing is strong you guys pointed that out but any other new any excuse me new products.
That you could highlight that are that are driving this.
Well, we've talked about the new decking products, we ever continued additions within the lineage product line select was just launched in the second quarter of this year select decking net.
And then of course the railroad products that have come so it's been a pretty busy year at this point from a product perspective, our team's got some nice things in the pipeline coming down the path here and stay tuned we'll talk about them as they hit the market.
Okay sounds good thank you.
Our next question comes from Phil <unk> with Jefferies. Please go ahead.
Hey, guys.
I appreciate all the great color.
Any any thoughts any color on how your demand outlook has shaped up this year, whether it's the high end or the low end and consumer.
And by the mid single digit price increase a speck was not in the guide coming a year or so is that a source of upside already to reflect net demand, perhaps a little softer in general.
Well, we did mention that the second quarter.
Because of the weather was a little softer so no we're not taking guidance up with that.
With that so if we see the consumer continue to.
Behave at the levels, we expected there could be some upside to that number.
Okay, but your view is demand hasnt materially changed outside of wet weather.
And the demand cadence that's the reason why it gives came in line with what we expected for the year is correct.
Okay.
And Brian you mentioned M&A more to do things that are interesting out there can you expand a little bit in terms of what could be interesting to you. I mean, you can tag wrong railing on your own organically, so new categories that you're perhaps not in I mean, your biggest competitor obviously expanded into something different so just give us a little more.
Colored bolt ons, new categories of technology on the M&A side at potentially interesting to you.
Yes, it could be any of those sort of things outdoor living is going to be of course, the theme that we've always had as an organization.
And we'll continue to look for opportunities that can deliver of the kind of shareholder returns that.
Our shareholders expect.
Okay is there any margin threshold that you need because you have a very very high par. So that's been an element that's restricted U.
In the past, but just any thoughts on that front as well.
From a margin perspective, we recognize its very difficult to find organizations that are going to be treks level of gross margin and EBITDA margin.
But clearly there are opportunities to generate considerable shareholder value at something less than that so in a perfect world I would love to find everybody who looks just like us.
The reality is it's probably something different but I think the opportunity is because of our ability to reduce cost in the organization to the capabilities around that.
Could take somebody who may be a little bit lower on the margin side and have considerable improvement once it's part of the <unk> system.
Okay I appreciate all the great color. Thank you.
Yes.
Our next question comes from Kurt Yinger with D. A Davidson. Please go ahead.
Great Thanks, and good afternoon.
Yes, I think sales in Q1 were up 2%, if we kind of took out the prior year load N plus 3% this quarter.
Is that at a high level, how we should think about kind of sell through through the first half is that relatively in line at least with the visibility to that element that you guys have.
Yes, low to mid single digit.
Okay, and then on the enhance profile change I know you called out.
That youll be moving past some of the expenses around reengineering that.
If I understand correctly. There is also going to be kind of a material added relative to what the previous profile was is there a way to think about kind of the lasting go forward impact of that or is it.
Something we should be aware of.
No I wouldn't say, it's material enough that I'd say anything to be concerned about.
Okay. Thank you.
Our next question comes from Matthew Bouley with Barclays. Please go ahead.
Hey, good evening, everyone. Thanks for taking the questions.
I wanted to ask about the retail channel.
You had some I guess competitive capacity investments out there and other folks talking about trying to push harder into that channel can you just speak a little bit about kind of your own medium to longer term positioning in retail and how do you sort of.
Effectively defend your kind of leading position in that channel. Thank you.
Well I think first and foremost it's about sales and we have.
The material amount of sales at both of the home centers. We also have long lasting relationships with the home centers.
They know what <unk> is going to do for them, we understand what their strategies are recognizing the strategy between the two players may be different from time to time, we fully respect that and we work with those management teams and it's been an important part of our growth as we go forward.
As is the pro channel great relationships in the pro channel, we understand what makes them tick and how treks needs to provide them services in a differentiated manner than we do the home center, so that everybody can grow effectively.
Okay got it thank you for that Brian and then.
Secondly, maybe not to throw too many numbers out there but.
If I'm, taking that EBITDA margin guide.
32, and 31 in the second half and then if I'm, taking that I guess, the gross margin from the press release.
You talked about 100 basis points and in Q3, which I guess would be 42.5.
And then your overall SG&A guide for the full year I think there is enough puzzle pieces, but it would seem to suggest that the gross margin would actually be higher in the fourth quarter relative to the third quarter. So I, just really wanted to double click on that.
Make sure we're kind of getting that Q3, and Q4 gross margin right or was the expectation that Q3 would actually be the peak gross margin for the year. Thank you.
Q3 will be the peak gross margin for the year and then Q4, you will see come down.
Okay, and then everything else, we can kind of fit in the puzzle exactly exactly SGA SG&A, we typically spend more in Q3, and then you start to see that also come down in Q4. So that's.
Another area, where you'll see some improvement from a margin perspective.
Okay. Thanks for clearing that up Brenda thanks, and good luck.
Thank you.
Our next question comes from Steven Ramsey with Thompson Research Group. Please go ahead.
Hi, good evening.
I wanted to clarify the new products being 22% of both trailing 12 months in Q2, only sales make sure I'm getting that data point secondly on that it looks like new products had tremendous growth.
Year over year, it maybe implies that non new products older products did not do as well maybe you can parse out those two things and the cannibalization rate that's within that aside from new products expanded the market.
Yes, I think it's important to recognize.
In many cases, new product, especially a decade, we're making sure that we're staying up with the styling trends as well as adding new features like he'd mitigating technology for our consumer.
As consumers. So it's fully expected that you would see some falloff in some of those older product lines as compared to the new ones that we're launching as a as a replacement.
Okay helpful and then directionally with the new product being such a heavy.
Load in 2025, not sure how it relates to 'twenty six but you expect to leverage SG&A in 2026 on a full year basis.
Given those factors.
Too early to say, there's a lot of competitive dynamics in the marketplace at this point and we'll provide additional color on that as we get closer to the 2026 timeframe.
Okay fair enough. Thank you.
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 everybody's questions today, and we look forward to interacting with many of you in the coming weeks good evening.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.