Trex Company Inc (TREX) 2005 Q1 法說會逐字稿

Welcome the the Trex Company first quarter conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Ms. Fried. Please go ahead, ma'am.

Thank you, everyone, for joining us today. With us on the call are Bob Matheny, Chairman and Chief Executive Officer of Trex Company, and Paul Fletcher, Chief Financial Officer. The Company issued a press release yesterday containing financial results for the first quarter. This release is available on the Company's website, as well as on various financial websites. A replay of this conference call will be available through May 4th. The call is also being webcast an the Investor Relations page of the Company's website, where it will be available for 30-days.

Before we begin, let me remind you that statements on this call regarding expected sales performance, operating results, projections of net sales, earnings per share, and anticipated financial conditions, constitute forward-looking statements and are subject to risks and uncertainties that could cause the actual results to differ materially. Such risks and uncertainties include the extent of market acceptance of the Company's products, sensitivity to general economic conditions, and the highly competitive markets in which the company operates.

The Company's report on 10-K, filed with the S.E.C. in March, 2005, discusses some of the important risk factors that could cause actual results to differ from those expressed or implied on this call. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I'll turn the call over to Mr. Matheny. Bob?

Thank you Harriet, and good morning. Last evening we announced our financial performance for the first quarter of 2005. Revenue of $90 million resulted in again of 18% over the same period last year. Our earnings per share were $0.56 cents, $0.07 cents less than a year ago, and several cents higher than our forecasted estimate of several weeks ago. The improvement in results versus our earlier forecast can be attributed to conservative manufacturing cost estimates.

As we've stated in our prior communications, we continue to believe 2005 will prove to be another strong year for the Trex Company, and we reiterate our prior -- guidance for growth in revenue and earnings to be in the range of 18% to 22%. Both contractors and consumers have enthusiastically received our new product introduction.

Accents has taken an leadership position in our deckboard offering surpassing Origins by a significant margin. Brasilia's introduction continues to exceed our expectations, and should prove to contribute strongly to this year's performance.

This has been supported by a very positive editorial on the -- on our products, including brand leader awards from custom home, and builder magazines, and an Editor's Choice Award from Pro Sales Magazine. Railing and accessories were also stronger this year than last, and typically improve as the year continues.

2005's communications campaign is well underway with our new consumer theme of "Create Your Space." Now Paul Fletcher, our Chief Financial Officer, will highlight our financial performance. Paul?

Good morning. As you are aware, a press release was issued last night, and the numbers I will reference are contained on the last two pages of the release, headed Condensed Consolidated Statement of Operations, Condensed Consolidated Balance Sheet, and Condensed Consolidated Statement of Cash Flow.

In the first quarter of 2005, net sales were $89.9 million, compared to 2004's first quarter net sales of $76.3 million, an increase of 18%. Our 2005 early- buy program has been very successful in positioning Trex for a strong year. In addition to the many consumer marketing activities we undertook in the quarter, we have been working very closely with our distributor partners to add new dealer outlets, and to promote Trex decking and railing products.

Early demand for our new Brasilia decking and our new Artisan railing products have exceeded expectations. Net income in the first quarter of 2005 was $8.4 million, or $0.56 cents per diluted share, versus 2004's first quarter net income of $9.3 million, or $0.63 cents per diluted share.

Gross profit of $33.3 million represents 37% of sales, which compares unfavorably to the first quarter 2004's gross margin of 39%. This decline in margin was primarily a result of the higher cost of plastic raw materials, and production inefficiencies, which occurred due to the manufacturing ramp-up of our new product.

The gross margin in 2005's first quarter was favorably impacted by the price increase we implemented last year, which took effect in May of 2004, as well as the product mix during the 2005 first quarter. In the first quarter of 2005, SG&A expenses totaled $19.4 million, compared to $4.1 million in the first quarter of 2004.

The primary factor in the year-over-year increase was branding expenses, including the new more extensive advertising campaign we implemented this year, "Create Your Space." In addition, growth in staffing, research and development, and information technology contributed to the increase.

As a percentage of sales, SG&A expenses represented approximately 22% in the quarter. We continued to expect SG&A expense expenditures to be in the range of 21% to 23% of sales for the full year. As we have discussed before, SG&A expenses will fluctuate quarter-to-quarter and are affected most by our marketing spendings. As of March 31, 2005, total debt amounted to $82.3 million, an increase of $2.1 million from December 31st, 2004.

In January, 2005, we swapped the floating interest rate exposure on 80% of our outstanding Mississippi bonds. We utilized two swaps with an average term of six-years, and an average fixed rate of 3.04%. Total cash balances declined to $9.7 million at the end of the quarter from $44.9 million at December 31, 2004, primarily due to changes in working capital.

Accounts receivables increased to $68.8 million at March 31st, from $22 million at December 31, 2004. Our 2005 early-buy program included extended credit terms which come due between April and June of this year. Total inventories declined from $44 million at December 31, 2004, to $39 million, primarily due to a decline in finished goods inventories.

Capital expenditures in the first quarter totaled $15.6 million, and were driven principally by the build out in installation of equipment in our new Olive Branch, Mississippi plant. Proceeds from the December, Mississippi financing, were used to fund expenditures for the new plant and are netted against the investing activities on a cash flow statement. Bob?

Thank you, Paul. From the operating dimension, we had both successes and challenges during the quarter. Revenue was up 18%, which was satisfying, especially in light of this year's approach with our distribution partners. Last year in surveying our down-stream partners at the dealer level, it was voiced by some, that the volume thresholds were galaxy and five star status, required higher purchase levels than desirable. Consequently, this year we have relaxed those requirements, which thus, have built in a downward bias in our first quarter sales.

On the other hand, we have developed a program to -- excuse me -- to allow secondary dealers, those who wish to carry an array of composites, an opportunity to participate in the early-buy program in a more significant way. This has proven to be very successful and helped drive our first quarter revenue. These efforts will continue all year and should provide additional sales volume beyond our normal base.

It is early, but encouragingly, many of our distributors report experiencing record Trex sales out to dealers so far. With our pull-through efforts and extensive lineup of deck, rail, and accessory products, we are in an excellent position to capitalize on category growth, and the continued conversion from wood to composites.

Moving to the cost side of our business, we had many challenges during the quarter. Wood pricing has remained stable, but our other major raw material, polyethylene, has continued to climb. Pricing has increased by 12% over the fourth quarter, but has stabilized in the last several weeks. We had anticipated a lower cost-stream to come on in March, and in larger volume, but that that has just begun this month. Our expectation that this should provide some stability, not necessarily reduce costs.

Manufacturing performance for the quarter turned out to be unsatisfactory. There are many contributing factors. Last fall we spent perfecting the manufacturing process to make Brasilia. The scale of the commercialization was done in Winchester, Virginia, and by year-end, the Winchester plant was nearing internal certification of the process. As we transferred the knowledge to our Fernley, Nevada, plant for both Brasilia and other process improvements, we found that the different wood species caused more processing problems than anticipated, and production yields fell far short of our goals all quarter.

As we mentioned in our last call, weather primarily in the West, caused significant problems both bringing in raw materials, and shipping out finished goods. We also have seen lower yields, especially Fernley, as a result of lower quality polyethylene. On the positive side, our Winchester plant has finished the quarter, doing exceptionally well, and that has continued on through April. Our expectation to have firmly running, our new processes very well soon.

On another positive note, I am happy to report that our third plant in Olive Branch, Mississippi, is on time and on budget. First line is in the process of starting up, and has made commercially saleable goods. We expect to have the second and third lines ready for use by early summer. As some of you may recall, we have the capability to add an additional three-lines without adding more building space in Olive Branch. Three installed lines at Olive Branch, along with two lines we have installed in Winchester, but not started, will give us nearly $400 million in revenue generation capacity by the end of 2005.

Also during the quarter, we re-refined our Brasilia railing process. This took slightly longer than we anticipated, and thus our first quarter sales results do not reflect any significant volume. However, we are now shipping both colors of Brasilia Trex Brasilia rail components, and our new, light, Artisan railing system.

Our Artisan production was brought on in late March, thus very little was shipped in the quarter. We continue to receive very positive feedback on their styling and ease of assembly, which is key to ensuring that contractors offer these new railings to homeowners. We expect as the year goes on, these products will help drive our growth and become a significant portion of our railing sales.

Reception to our new ad campaign, "Create Your Space," has been positive as well. The campaign now is in full-swing with our television ad on six networks, and our print ads in approximately 20 consumer publications, and 15 trade publications. Everyone loves the ad. We received extremely positive feedback, but, more importantly, we have experienced year-to-date increases in our Internet and television driven inquiries, of roughly 50% over 2004. In response to these consumer inquiries, we send various pieces of literature designed to help the homeowner through the deck purchase process, as well as referrals to our professional retailers and Trex-Pro partners. This heightens the importance of ensuring that these trade partners represent Trex well.

To that end, we are nearing completion of a review of these channel partners, with regard to proper merchandising knowledge, and advocacy of our products. This will be a continual focus area to maximize the results of our investment in new programming and merchandising elements. The most visible of these new programming elements, is our partnership with the Dewalt Company and Roush Racing for the NASCAR Nextel Cup series. While we still hope for better race results for our driver, Matt Kenseth, we are quite pleased with the results of the educational and relationship building benefits of our race program. So far, we have hosted approximately 400 current and potential customers at races, with the benefit that they return home, educated and energized to increase their Trex business.

Through our Dewalt Rolling Thunder deck display, over 5,000 people so far have experienced Trex deck and railing. With these efforts and more to come, working with our partner Dewalt, we have the opportunity to expand awareness and support Trex -- support for Trex with both construction professionals have homeowners.

In addition to racing, we have other programming elements that are targeted at remodelers, homebuilders, dealers, and specifiers. Each design provides training and the rewards that are tailored to those business segments. From a sales perspective, during the last few months we have been very busy with pool development, as we try to build demand ahead of the deck season. Our field sales team has shown Trex at nearly a hundred events across North America. We have worked to strengthen and expand our relationships with decking contractors. We have the largest group of affiliated contractors of any composite manufacturer.

We have been working to expand our retail presence and distribution on many dimensions, and are pleased with our increased presence in more stores across the U.S. and Canada. We have also invested significantly in new merchandising and collateral, to aid our retail partners in their sales efforts, and have strengthened our in-store presence. In sum, all of these programs, our consumer advertising, our marketing, our selling efforts, and our award winning products, are all aligned to position us for what we believe will be a very successful year. Now Paul and I will entertain any questions you may have.

[OPERATOR INSTRUCTIONS] Your first question is from David Campbell with Thompson Davis.

Good morning, thank you.

Good morning.

Hi, David.

I have a couple of questions for you. First of all, I would like to talk about polyethylene prices. Paul, what were -- what was your weighted polyethylene price in the quarter, and was that better or worse than you expected?

It was about on track. It was approximately 10% higher than the December quarter, 2004.

Okay , and that was roughly what you expected it to be?

It was a little higher during the quarter. We saw that alleviated, Bob said, towards the end of March, but for the quarter, it was slightly higher than we expected.

Okay, it seems like prime polyethylene prices had moderated during the first quarter, but I guess the recycle market continued to increase. Did you notice any differences there?

I think, Dave, it's probably catching up. That would be my -- my guess, or belief, actually.

So what is your assumption over the balance of this year for polyethylene prices?

Well, we've assumed they're not going to go down. As I said, we had a -- we put together a fairly large stream and have forecasted it to come in at better pricing and starting in March, and it has taken us a little longer to get it started, but I am hoping that just stabilizes things. I am not looking for that to really reduce the costs. It may, but we have not built that into our assumptions.

Okay, Paul, you also mentioned that you are adding some new dealer outlets. Can you elaborate a little bit on that, how many you're planning to add and what the opportunity is?

Well, during our early buy program, one our initiatives is to add new dealers as well as become more important at our existing dealers. We added over 200 new dealers this year, in the early buy program, that did not participate last year.

Okay. And what's the total number of dealers again?

In excess of 3,000.

Okay, and how many out there are there that you think you can add?

Well, we've talked about the universe being in the 5,000 and 6,000 total. I think there is still significant opportunity to add to our base.

Okay, and how is the Home Depot business?

It is just really getting started. It -- we have re-outfitted 130 or 140 stores we were in, and we are in the process of rolling out into another 200 to 300, for a total of somewhere between 300 and 400 stores. And that will take another probably, I think, month to get it, to get everything merchandised properly, and refitted. They had to do -- Home Depot actually had to allocate some capital, not just for us, but in that section of their store which they did, to reoutfit parts of their store there.

Are they carrying their private label product alongside of Trex now?

Yes.

Okay, thanks very much.

Thanks, David.

Your next question comes from Joel Harvard with BB&T Capital Markets.

Thank you, ma'am, good morning, everybody.

Hi, Joel.

You know like the nuts and bolts here, Bob, I think you said y'all are -- you've got two more lines now put in place at Winchester, but they are still dark. Does that mean that Virginia is still at 15 running, and that's total lines, you know, including the accessory, et cetera?

Paul better answer this question. I am getting -- one of the reasons I'm hesitating is -- are these lines that we run Artisan on are very, very much different. They don't cost as much, but they run slower.

So --

Joel, another way to look at it is, Winchester has two-thirds of the capacity, 200 million of the 300 or 320 million that we have today.

Yes

Besides here in Virginia.

And that's dollars, or pounds capacity?

That's dollars.

Okay, all right. And Bob did I understand that the first line in Mississippi is open, and you expect to have the second and third running by the end of June?

Well I should really summarized. I think we could have them running by the end of June, but I am not so sure we need them, or we will. One of the largest challenges is not really building the line or the building, it's hiring and training the people --

-- staffing it, right.

and you want to -- Joel, you may recall, we rushed a little more than we should out in Fernley four or five years ago, and made some product that we put in the market that we were not very proud of, so we are going through the whole certification process of the product and the line, and I think we will go a little bit slower and make sure that people are comfortable with what they're doing and --

All right. So number one is operating today, y'all will continue to tweak it, maybe number two, maybe number three get up and running by Q2, but you see by year-end being at three or four still? I think y'all have commented on that previously.

Yes

That's correct.

Okay, good enough. What I'm really getting at is trying talking my way around gross margin. Y'all -- it was tougher year-over-year, but better than the sort of mid-quarter update suggested would be the case. Either of you, I would welcome comments on how much of the -- how do we say this? The less-bad-than-expected margin impact was raw material variance versus manufacturing variance.

No, I think, Joel, some of the benefit comes about, as Bob mentioned, Winchester's performance in the quarter was -- was better than expected, especially late in the quarter.

Yes. We do have the benefit we talked about mix, and we do get a slight benefit that was not anticipated from the Accents and Brasilia line over the Origins line. There are a lot of process problems out west, and kept -- quite frankly, we were -- we are unable to make improvements in the short-term, which was somewhat of a surprise, although, towards the end of the quarter and the last weeks, it has gotten better, but that has been more of a struggle. That and polyethylene costing, it has gotten a little bitter and stabilized in the last several weeks.

All right. Y'all gave the price variance from Q4 to Q1. What was the impact year-over-year on poly?

It was up over 45%.

-- 45, okay, there, now, make sure I understand, the manufacturing side, is Artisan only being produced in Virginia?

That's correct today.

Well, that's incorrect.

I am sorry.

Our partner in our -- the licensor --

-- yes, yes, okay.

-- is Anderson, and Anderson is actually is co-manufacturing some product for us and has been, I guess, since December. The vast majority of the production, though, will come from Winchester.

-- but they're --

In the first quarter, what was sold -- made and sold actually was coming out of Anderson's facility up in Minnesota. Our lines in Virginia really didn't start to roll until late March.

And you think again by year-end '05, you'll be making most of it for yourself, or all of it?

Well, I think no. We have an agreement with them that they will make product for -- I think it's two or three years for us, and our goal is to sell out everything from both plants.

Okay.

And keep investing.

Okay, as far as Accents and Brasilia, are those being made in Nevada, as well?

Yes.

Okay. And that's where you are saying maybe there's a little slower ascent of the learning curve on the new manufacturing?

Correct.

Okay. And make sure I understand, you are comfortable now that entering Q2 they've gotten the bugs worked out, and you're acceptable through foot level there?

They are doing a lot better, they are not where they need to be.

All right. keep --

Not where -- they're not where we want. Winchester is really rolling, and that's where we want them.

Good.

And we'll get there.

Okay --the -- looking here on the SG&A side, the five-plus million, how much of that would you characterize as, sort of normal creep, or by extension, how -- I know you said the majority was related, but is it -- were you up X- hundred thousand and sort of normal SG&A overhead every year?

You know it is -- it is coming across all areas of the business,. You know the majority of it is in branding, sales and marketing is approximately 1.6 million, so there is still -- there is a lot of creep, as you call it, whether it's --

Well, a lot of it Research and Development

a lot of it is both having to staff, and beside that, we also have spent some money in the IT area, are beginning to spend money in the IT area, where we've been putting it off.

It is really across all areas of the business as we grow.

Paul, are you experiencing any extremely uncomfortable [Inaudible] type issues from a cost standpoint?

Not at all.

Okay, good deal.

It's expensive, but -- as you know, -- we knew it going in, and we were in front of it early, and it was a lot of work, so yes, the cost was -- was high, but it was not unanticipated.

Okay, the -- just a couple of more, guys. The new source initiative that you referenced, Bob, I do not want to get into competitive issues, but what -- as far as by name or where it is coming from -- but what percent of your poly needs do you think this program can supply as it gets fully implemented over '05?

I'm going to wait, because Paul's calculating.

It could be similar to a -- a denplex, a wash plant, which is somewhere between 10% and 15%, depending on which one you look at. So it is in that neighborhood.

That's where we're targeting, Joel, on a monthly basis for this year. Well, just a little color there. Is this a -- is this just a new customer, or is this an entirely new type of product? In other words, is there any manufacturing variance challenge in blending this in?

We're not -- we're not going to reprocess. It's going to come densified, but it's a set of new customers.

Okay.

It's going to be delivered densified.

Okay. I'm sure there's more I'm curious about, but I'll let somebody else ask. Thanks, guys

You're welcome.

Your next question comes from John Baugh with Legg Mason.

Good morning.

Good morning.

Hi, John.

Can you help me with the -- by my calculation, your revenues for the sixth-month period ended March, which incorporates, obviously, the fourth quarter. Your revenues were up, I think, $3 million year-over-year, and your receivables, obviously, were up something like $47 million from year-over-year and I know looking at your balance sheet quarterly is a nightmare, but getting back too your point about the extra dealers you put on there, did you change terms, as well, with anybody. Was there anything else goes on, or were all of the incremental receivables opening it up to these 200 extra dealers?

Well, it wasn't the dealers, John. The distributors were all provided in our program this year in certain circumstances was not a take -- have the option of a discount or terms, so we relied heavily on the incentive of extended credit terms during the early- buy program. What our distributors tend to do though John, is to your point. They tend to -- not tend, they do -- they turn around and provide if we give terms, they will give those to the dealer --

-- or even add to it . Sorry Paul!

-- and sometimes they supplement it which makes it attractive to the dealer; take product December, January , February, even March sometimes.

When we look at the number for the end of the June quarter, the receivable balance, will that be, obviously it should be up I guess, if sales are up dramatically, but, I'm not up [Indiscernible] or it will decline I'm assuming from this level, but will it just come [Indiscernible] will it come back into --

Ninety-five percent of the receivables come due in the next 45 days, so in the normal course of the collection process, they will -- it will turn into cash. Now, clearly, at the end of June, you will not have the extended term programs. The receivable balance at the end of June, will represent our normal 15-days of DSO from June. Now, end of June will be very heavy, so you will see receivables representing the current activities.

Got it, that is what I was asking, perfect! The other thing, what -- you sound awfully excited about Brazilia, Accent, railings, what kind of feedback are you getting? If you could be any more specific, I guess not a whole lot of decks are being built today, but the process is rolling. What -- is there anything additional you can add that lends to your enthusiasm?

Well, today is a good day here John. ([Indiscernible] just not working. At this stage, a lot of things are anecdotal, but, the antidotal kinds of things we are getting back are pretty over-overwhelmingly positive. I mean, there has not been anything negative and it is across the entire country and it;is for, as I said -- our Accents, as a percent of sales has gone up dramatically, which is what we expected and wanted.

And Brazilia deckboards we got out in the first quarter but we were not able to get much railing out . But -- so the railing part of it did not really contribute to the first quarter sales, but, people for the first time with Brazilia are saying "I do not want the deckboard alone, I want the railing too, and you do not hear that, or have not heard it that with Accents or Origins.

And the Artisian has been sold through very quickly from what we can tell that is out there, so we are, as I, say most of this is antidotal but it is from across the country, it is from all different levels of the distribution channel, from really, from the consumer, but more from the Trex-Pro, from the dealer, or the distributor, and it is all very, very positive.

Okay, thank you. And lastly, pricing. You went up 80%, I assume there was not an issue getting that through, can you give me a flavor for what your competition in general did, and did it vary by who was more chemical compound versus a wood? Just give me some flavor for your strategy and position your price increase versus the completion.

Well, our goal was to not go up as much as we did, we felt with when polyethylene prices went, we really had to so something, so we did, as you said, eight %. Pricing is very different from what we can see throughout the country by competitor. It is also very difficult to tell at times, because a lot of times, a price a dealer will quote you if you call up on the phone, and what they actually sell to the contractor, for can be somewhat different.

But, with what we have garnered out of the public domain, and from other kind of competitive intelligence, it would appear that most people have gone up significantly more than we have in the last 12-15 months. And this may not manifest itself on the street in the sence that you the consumer, you go in and see that there is a big gap between our price and somebody else's price, but if you do not see that big gap with us being lower, then I would tell you, the dealer -- the dealer's margin has become larger, which should provide them incentive to sell our product a little more vigorously. And so that is okay too.

So I think from a price prospective, we have pretty much done what we wanted. It would have been nice if we could have held the line a little bit more on pricing, but as I said, with the big jump in poly prices in the last, I don't know, 80 or 90 or 120 days, why, we felt compelled back in February to add to the three % that we had announced.

And you announced that when -- when did you announce the additional three, Bob?

Well, we came out with three % back in the last year and then Paul --

-- in late January we announced an additional five and allowed customers to order ahead of that price increase. The price increase is effective April 1st.

Got it. Okay, and last question, promise. So from the end of January which is when you announced the additional five, I assume polyethylene went up even more, you said 10% weighted average for the core, but it still went up one even after that increase correct?

A little bit.

Okay, thank you very much.

Thank you.

You are welcome.

Your next question is from Mike Carlotte with Palmyra Capital.

Hello, good morning guys. My question has actually been answered. Thanks

The next question is from Keith Hughes with Robinson Humphrey.

Thank you. How much was Brazilia in the quarter in terms of revenue?

Approximately nine and a half % Okay, so that was very similar to what you saw in the fourth quarter. With the production issue we talked about earlier --

Keith, it was about seven in the fourth quarter.

Seven in the fourth quarter. Okay, did you have problems shipping given these production issues? Or was this issue ramping-on as we head to the deck season?

No, we had some difficulties out West with -- with Brazilia and some with Accent, so I think it affected our sales a little bit. The other thing is Keith, which we had a lot of trouble with the Brazilia railing, and so we were way behind and I think we are caught up or close to being caught up with getting Brazilia railing out in the first quarter. And as I said, a lot of customers, which is unusual, said "We want both.", because I guess they feel, and I think they are right, that they can sell that as a package --

Right.

More so than some of the other products.

Is the, or do you have a feel right now for how many dealers are carrying Brazilia? What percentage of your overall dealer base are carrying it?

Not at all.

Not at this point.

Okay, and finally, will that be sold at Home Depot any time soon?

Our offerings will be Origins at Home Depot this year.

Making special order Accents at this point, this year Brazilia is not available as special order.

Okay, thank you.

You are welcome. Your next question is from Steve McNeil with [indiscernible) and Associates

Good morning. Just a couple of laundry list items here. Can you break down the unit volume for the quarter for the differ -- for Accents? You said Brazilia was nine and a half %.

Accents, this is of total sales now, was approximately 45% of total sales.

That is revenue or unit volume? Dollars?

That is volume.

That is volume, okay. And same for Brazilia?

That is the nine and a half%.

Okay, in price for the quarter, was -- of the 18%, if you can break down the revenue increase, the 18% is related to the price in volume?

Well, it broke down fairly evenly between volume, price and mix, actually.

All right.

Mix being the -- Brazilia being 50% more than Accents, Accents being 50% more than Origins on a - a revenue per pound basis.

Okay, so 15 , all right. And then, the actually [Indiscernible], you guys had thrown out a couple different stats on poly, I'm just confused. The poly in q1 of '04 was $0.17 cents roughly. Right?

Yes.

So does that mean, I think you said the year was up 53%?

I think Paul said --

Greater than 50%

So, the total cost was about $0.26 cents, does that make sense?

Yes.

That is a good number to use? Okay. All right. I'm just wondering back on the gross margin issue, given the richer mix of products, I would think, I realize the head-wind here is the poly costs, but given the richer mix of products, that we would actually start to see margins start to benefit, so maybe you can put some color -- well on a full year basis, but --

The margins -- the percent margin is not going to change much. The gross profit dollars go up because we are somewhat margin indifferent.

It's slightly better -- it is slightly better, you have a price increase April 1st; you have efficiencies coming as the pans improve on the new products; and so you have some plan economics in terms of absorption being favorable, if all goes well the rest of the year, to add to your thought of margin improvement.

So do you expect year-to-year to have margin -- gross margin improvement versus the 40.4% from '04, where you sit today?

No, I think our guidance is still -- we are -- not knowing where poly is going to go, I think we are comfortable with a similar gross margin.

Kind of flat? Okay. All right, fair enough. Thank you very much.

You are welcome.

[OPERATOR INSTRUCTIONS] Our next questions is from Steve Chartly with [Indiscernible] Iinvestors.

Just on the -- just wanted a little bit more explanation on reducing the required stock that dealers hold? I guess I thought that sales reps might be a little bit higher and this is impacting it, but how do they participate in the early-buy program if they are going to be holding less stock. Is it something where they can place the order now for future deliveries?

Yes, Steve, I'm sorry I confused you. We have thresholds -- we have different levels of dealer participation and in the early-buy program, the higher the level, the more points at sale point of purchase material you might get. Where you are on a website, different things like that [Indiscernible), advertising is directly affected by that, and in years gone-by, the last two or three years, we ratcheted up to get those things, you had to buy more truckloads in the first quarter or in the first four months.

There were dealers out there -- we surveyed our dealers exhaustively last summer, and what came back were a couple of things. One was, our larger dealers felt that to get the benefit, they were having to buy too much in the first four months of the year. The other thing that came out of it, was there were dealers that carry an array of products, and I'm not sure exactly why, but they want to carry a whole array of products. And so they -- they actually bought in last, or didn't buy in, as Paul talked to these some 200 dealers that actually bought in this year, and so we have -- we have changed our program to be more attractive to those people and yet be fair to the people that really participate at a much higher level.

So by doing that is why I say our sales in the first quarter we have this built in kind of bias down, actually, so I was quite happy with the 18%. Now, they can buy at any time from their distributor and, in fact, that's going on right now, they'll buy more product as they sell it out, and so -- so I think things went well, and I think reaction back from the dealers was very positive.

Yes, okay; . I think I understand then. This doesn't really affect the early-buy, that's a benefit to the distributors?

Right.

And the dealers that are getting sold through to just don't have to carry as much inventory as they did in the past to get the promotional help that you provide to them?

Correct.

Okay, . Thanks.

You are welcome.

Your next question comes from Greg Powell with Bernstein.

Hello, good morning.

Good morning.

I was a little curious about the contract you had with -- you have with Anderson. Have you guaranteed them a volume?

With the contract, yes, but it's -- I wouldn't categorize it as significant.

Okay. And then did the early-buy program end in March this year?

No, it's gone through April.

April.

Which is -- I thought on the last conference call, you said it was going to end in March.

I don't -- I don't believe so. It was -- You may be confusing the price increase.

The deliveries, you could orderer and spread your deliveries out from an early-buy standpoint over a four-month period. Which is consistent with last year. Right. But you only recognize revenue on delivery, right? Correct. Well, yes, when we load it on a truck, it leaves our plant, that's when we invoice and count the revenue.

Okay. Okay. Thanks a lot.

You're welcome.

There are no further questions at this time. Please please proceed proceed with your presentation or any closing remarks.

There thank you very much for your time and attention. I think we're off to a great start on the sales side, and we've got a little catching up to do on the manufacturing side, but that's coming along very well, and, as I said, I want to just leave you with a thought that we strongly believe that our revenue and income are going to grow in that range, 18 to 22%. Thank you again.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation ask and ask that you please disconnect your line.