By: Catherine Kavanaugh
May 5, 2014
Last week Trex Co. Inc. started filling orders for a new alternative to virgin polyethylene that is being manufactured at its facility in Winchester, Va.
Unlike Trex, an alternative-wood decking, the initial buyers of the raw material are not in the outdoor products market, according to Ron Kaplan, CEO, president and chairman of the Winchester-based company.
During a quarterly conference call on May 5, Kaplan said the applications for its new product are related to an industry that is non-seasonal and non-cyclical. He did not identify the industry but he said company officials anticipate early sales will be brisk and reshape the company.
“We expect in 36-48 months that it would be a very significant portion of Trex’s overall sales and will change the complexion of Trex,” Kaplan said.
The first line will be in full production by the beginning of July. Then, company officials will determine how many more lines to start through 2015. Three to four lines will make up the first phase.
Kaplan expects the new product will boost sales and earnings this year and that consideration is been given to reopening the shuttered plant in Olive Branch, Miss.
“We contemplated that. We haven’t made any final decisions about that,” Kaplan said.
Capital spending on machinery for the new product will be increased next year following this year’s planned investment of $15 million, Trex CFO Jim Cline said.
For competitive reasons, Kaplan said they could not elaborate on their plans and expectations.
“I can tell you we’re in production. We’re making shipments. We’re making a profit. We’ve entered a new industry,” he said.
Conversely, Trex is slowing production of its recycled wood and PE deck and railing lines in the second quarter because it is carrying a high level of inventory. The deck-building season was delayed due to an unseasonably cold, snowy and long winter across much of the nation.
Net sales dropped $7.3 million to $100.6 million for the first quarter of 2013 compared to the prior year. Net profit was $12.3 million, which is down from $21.6 million for the prior-year period.
Kaplan said bad weather slowed orders by 26 percent between Feb. 24 and March 31 but that trend reversed at the beginning of April.
Quarterly sales took a bigger hit with the end of a tax valuation allowance in 2013. The increase in taxes represents almost 80 percent of the change in net profit.
For the second quarter, company officials are forecasting sales of $125 million, which is a 27 percent increase year over year.
Meanwhile, the company announced that it has donated 1,700 feet of Trex Transcend decking, which was installed as benches, at the National D-Day Memorial in Bedford, Va. The site is undergoing a restoration as the 70th anniversary approaches of the invasion of Normandy during World War II.