This Building Supply Stock Falls 29%. A Weak Housing Market Isn’t the Only Factor.

Trex is the leader in composite decking, but it is having to compete for market share. (Courtesy of Christie’s International Real Estate Aspen Snowmass)

Key Points

• Trex reports third-quarter adjusted earnings of 51 cents a share, missing estimates.
• The company lowers its full-year sales outlook to $1.15 billion to $1.16 billion and expects a 250 basis points decline in gross margin in 2026.
• Trex shares drop sharply on weaker sales, increased competition, and a sudden decline in third-quarter spending.

Shares of Trex plummeted Wednesday after the decking and railing company reported weaker-than-expected quarterly sales and earnings and slashed its 2025 and 2026 guidance.

Trex posted adjusted earnings of 51 cents a share for the third quarter, below analysts’ consensus estimates of 57 cents. Sales climbed 22% from last year on an organic basis to $285 million, but fell short of the $302 million Wall Street had anticipated.

The company lowered its fourth-quarter outlook due to continued weakness in its repair and remodel segment and expectations that distributors would reduce inventories. Full-year sales are now expected to total $1.15 billion to $1.16 billion, down from a previous range of $1.21 billion to $1.23 billion. Trex also expects gross margin to decline 250 basis points in 2026.

Trex stock was down 29% on Wednesday, putting the stock on pace for its largest single-day drop since 2005, according to Dow Jones Market Data. Shares have now dropped 52% this year and 76% from their all-time closing high on Dec. 10, 2021.

Sales have stagnated at Trex since the height of the post-pandemic housing boom in 2021. But the sluggish home-improvement and residential real estate markets are less of a concern to Wall Street than Trex’s specific challenges, including growing competition and a sudden drop-off in spending in the third quarter.

Competitors are ramping up their marketing spending, said CEO Bryan Fairbanks on a conference call, and Trex is following suit. This “marketing war” represents an entirely new model for the industry, said William Blair analyst Ryan Merkel in a research note Wednesday. The firm downgraded Trex shares to Market Perform from Outperform.

“While rising competition could be temporary due to weak demand, we fear it could cause a negative re-rating for Trex near term,” Merkel wrote.

Investors are likely to conclude that investments and narrower profit margins are required to stem losses in market share, said Reuben Garner, an analyst Benchmark Equity Research. Whether or not that’s the case, the third-quarter print only raises more questions, Garner said.

“To date, it has been hard to discern any actual share movements
negatively impacting Trex,” Garner wrote in a research note. But the revenue miss and distributors’ decision to reduce inventories appear “unique to Trex at the moment.”

Benchmark reiterated a Buy rating for the stock, but slashed its price target to $40 from $80. The onus is now on Trex to show it can grow faster than the overall composite decking market in the years to come, the firm argued.

Write to Nate Wolf at nate.wolf@barrons.com