Azek raises outlook on hopes of continued housing, remodeling boom

Building materials company Azek reported double-digit revenue growth in its latest quarterly report as a red-hot housing market continues to spill over into the home remodeling industry.

The demand, driven by a combination of low mortgage rates, low home supply and increased relocation activity amid the coronavirus pandemic, has Azek CEO Jesse Singh bullish about the long term.

“The focus on the house really gives us a long-term benefit because we really benefit from people investing in their homes,” he told CNBC’s Jim Cramer in an appearance on “Mad Money” on Friday.

Coronavirus lockdowns have spurred homebound consumers to spend more cash on remodeling their homes, including on decks and other outdoor amenities. The elevated spending led to a 28% year-over-year increase from pandemic levels in Azek’s sustainability-minded business in its fiscal first quarter, which ended Dec. 31.

The company, which sells recycled materials for residential and commercial buildings, reported $212.3 million of sales, up from $166 million last year. The residential business, which accounted for about 87% of total revenues, saw sales rise 37%. Azek reported $10 million in earnings for the quarter.

The quarterly growth also outpaces the 13% growth Azek reported in its results for the full year 2020, which ended Sept. 30. Total revenues were $899.3 million during the 12-month period.

The Chicago-based materials maker also boosted its outlook for the current fiscal year. Management now forecasts sales to grow between 14% and 18% in the current fiscal year, up from its initial projection of 10% to 14% sales growth.

Given that Azek primarily makes products out of recycled items, Singh said, it has been shielded from the rise in commodity prices, including the price of lumber, to the company’s advantage. As part of its earnings report, the company also announced a goal to use 1 billion pounds of recycled scrap and waste each year to manufacture its products by 2026.

“For us, that billion pounds is really a mission for the company,” he said. “It allows us and our employees to really be focused on making a difference in the environment, and it’s also our way longer term of also making a difference against climate change.”

Singh, who began leading the company in 2016 before taking it public last June, said there are multiple trends in the housing market that make him optimistic about the future, including the fact that more millennial homebuyers are entering the market.

Azek also benefits from home upgrades. It sells products for outdoor living that are made out of low-maintenance materials, Singh said.

Last year the company began a multiyear $180 million investment program to expand production capacity in the U.S., including adding salespeople and improving its marketing capabilities. Acquisitions of other businesses are also on the table, Singh said.

“We continue to evaluate the acquisition pipeline,” he said. “We do believe that there’s opportunity there to continue to expand on the outside of the home, maintain our margin structure, maintain our terrific value proposition, but also bring in some additive products, so we’ll continue to evaluate that.”

Shares of Azek closed 5% higher at $47.19 on Friday. The stock has rallied 23% thus far in 2021, giving it a $7.3 billion market valuation.