What's happening:Shares of alternative recycled decking manufacturerTrex Co. Inc. are down 13% as of this writing. That puts the stock down about 6% so far in 2015, after being up more than 20% for much of the past few months.
Why it's happening:Trex "missed" quarterly earnings guidance when it reported the second quarter, though it would be better to describe the miss as being on the part of analysts.
Trex's guidance for the second quarter was for $136 million in sales, and the company produced $136.8 million in revenue, and $0.58 in earnings per share. Wall Street analysts, on the other hand, were estimating $137.5 million in sales and EPS of $0.60. So Mr. Market's interpretation is that Trex came up short, while the reality is that analysts just missed the mark.
Trex's guidance for the third quarter is also playing a big part in the stock's drop today, as the company is guiding for basically flat sales growth from last year's Q3. However, it's important to consider the context of the 2014 third quarter, which followed a terrible second quarter that was affected in almost every market by severe weather, pushing a significant amount of business last year into the third quarter.
In other words, it's a classic case ofno good deed goes unpunished, and Trex shares are paying the price of last year's unseasonably strong quarter. Frankly, this is short-term focus on the stock price distracting shareholders from the long-term opportunity ofthe business.Yes, the prospect of flat sales next quarter isn't exciting, but the fundamentals of the business are arguably the strongest they have ever been, the U.S. housing market is gaining momentum, and international growth is just getting started. Sounds like the market -- as per usual -- isn't looking at the big picture today.
If you're looking for more on Trex, keep an eye out for the full earnings coverage later today.
The article Trex Co. Inc. Stock Down 13% Pretty Much Because Wall Street Guessed Wrong originally appeared on Fool.com.
Jason Hall owns shares of Trex. The Motley Fool recommends and owns shares of Trex. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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