Trex (NYSE:TREX) raised its full-year sales and earnings outlook after reporting record third-quarter revenue, as demand for its composite decking products and initial shipments to new distributors drove a 26% increase in sales.
The company reported approximately $360 million in third-quarter net sales, with growth driven primarily by volume. About $30 million of the increase, or 11 percentage points of growth, came from initial inventory shipments to distribution partners, Chief Financial Officer Prith Gandhi said.
Chief Executive Officer Adam Zambanini estimated that underlying demand grew about 15%, compared with approximately 6% growth for the overall decking market and 9% for composite decking. He said the distribution load-in was roughly in line with Trex’s expectations and should be considered when comparing results with 2027.
Higher Outlook and Broader Demand
Trex now expects full-year net sales of $1.296 billion to $1.306 billion, representing 11% growth at the midpoint. It also raised its adjusted earnings before interest, taxes, depreciation and amortization outlook to $355 million to $360 million.
For the fourth quarter, the company expects sales of $175 million to $185 million, including approximately $5 million from the remaining distribution load-in. Zambanini attributed the higher outlook to underlying performance rather than those initial shipments.
The company expects full-year adjusted gross margin of 37.5% to 38%, adjusted selling, general and administrative expenses of roughly 17% of sales, and capital expenditures of approximately $100 million.
Zambanini said third-quarter growth was broad-based, with double-digit gains across entry-level, mid-tier and premium decking. Railing also posted double-digit growth, while fasteners benefited from higher decking sales.
Trex is seeking to expand by converting wood users to composite decking, gaining share from smaller brands and building its presence in PVC decking and other outdoor living products. Zambanini said PVC sales remain small, but the company plans to expand its range of profiles in 2027. Trex’s long-term ambition is to reach $2 billion in annual revenue by 2030.
Margins Pressured by Freight and Startup Costs
Third-quarter adjusted gross margin was 36.9%, down from a year earlier, while reported gross margin was 36%. Gandhi cited labor inefficiencies, higher depreciation and freight costs, as well as rapid growth associated with the company’s wood conversion strategy.
Incremental inbound freight expenses exceeded $4 million in the quarter, primarily because of higher diesel prices. Gandhi said adjusted gross margin would have been 38.2% had diesel costs remained comparable to 2025 levels. Trex is discussing a temporary diesel surcharge for its home center business and evaluating longer-term ways to reduce fuel-price exposure.
Adjusted gross profit dollars rose 13%, and adjusted EBITDA increased 10% to approximately $100 million. Adjusted EBITDA margin was 27.7%.
Gandhi said the full-year forecast implies fourth-quarter gross margin of approximately 34% to 35%. He expects higher production to improve fixed-cost absorption, with a greater proportion of decking in the sales mix also providing a benefit compared with the prior-year quarter.
Little Rock Ramp and Distribution Transition
Trex said a mechanical issue at its Little Rock, Arkansas, manufacturing facility affected the ramp-up of some equipment and increased startup costs during the quarter. Zambanini said the issue has been resolved and that half of the facility’s decking capacity remains on track to be operational by year-end.
He expects work on the ramp to continue through the first quarter of 2027, with operations moving closer to the efficiency of Trex’s other plants during the second quarter. Benefits from improved utilization and efficiency should become more apparent in the second half of 2027, he said.
The company completed initial inventory placements with new distribution partners during the third quarter with minimal disruption. Quarter-end channel inventory was comparable with the prior year, including inventory held by the former distributor, Zambanini said. He added that Trex was seeing early conversions from smaller brands through regional distributors.
Gandhi estimated that, after adjustments for the load-in and discounting by the former distributor, both quarterly sell-in and sell-out growth were in the teens. On a trailing 12-month basis, the adjusted estimates were approximately 8% and 9%, respectively.
Cash Flow and 2027 Priorities
Trex generated approximately $135 million in third-quarter free cash flow, repaid $83 million on its revolving credit facility and bought back $55 million of shares. Through Oct. 31, it had repurchased $97 million against a $150 million target for the second half of 2026.
The company did not provide 2027 guidance. Gandhi said margins should improve next year if demand remains healthy and Little Rock reaches efficiency levels consistent with the rest of the network. Zambanini said Trex has a pricing strategy for 2027 but has not communicated its timing, emphasizing that increasing factory volume remains a priority.
About Trex (NYSE:TREX)
Trex Company, Inc is a manufacturer of composite decking and outdoor living products. Its offerings are designed as alternatives to traditional wood and include residential and commercial decking, railing systems, outdoor lighting, and related accessories.
The company’s products are marketed under the Trex brand and include decking lines such as Trex Transcend, Trex Select, and Trex Enhance. Trex composite products are made primarily from recycled wood fibers and recycled polyethylene plastics, supporting the company’s focus on low-maintenance and environmentally oriented outdoor building materials.
Founded in 1996 and headquartered in Winchester, Virginia, Trex serves customers through a network of distributors, dealers, retailers, contractors, and building professionals.
