Trex Co. Inc. is manufacturing and selling polyethylene pellets made from recycled plastic into the plastic bag, film and sheet markets, Chairman, President and CEO Ronald Kaplan announced Aug. 4 along with second-quarter results.
The new venture contributed minimally to net sales of $121.3 million, which were up 23 percent from the prior-year period for the Winchester, Va.-based company that claims to be the world’s largest maker of wood-alternative decks and rails.
So far Trex has one extrusion line for its new commercial product fully operational at its Winchester facility. Initial shipments are going to about 10 customers made up of brokers and end users. However, Trex officials said they see 500 to 600 potential customers for the resin and they expect sales to hit $50 million to $80 million a year in three to four years.
Kaplan said Trex’s entry into the resin industry comes after eight years of developing a process that converts a wide variety of recycled PE into a pellet that the company uses to manufacture its decks and rails.
“We have always purchased more recycled polyethylene than we need and sold the excess,” Kaplan said in a quarterly conference call. “We are now converting that excess into a pellet that partially displaces virgin and off-spec resin in the manufacture of bag, film and sheets. The net result is that OEMs lower their cost of goods sold and Trex increases its profitability.”
Trex started limited production of the PE resin in late April but Kaplan would not disclose at the time which industry was being served. He would only say the company was leveraging its core strengths of recycling and extrusion. Trex decks are made of a blend of 95 percent recycled wood, namely sawdust, and recycled plastic bags, such as shopping bags and newspaper sleeves. A 500-square foot Trex deck contains about 140,000 recycled plastic bags.
Kaplan said Trex’s plans to get into the resin market are on course. The purchase of long-lead time equipment has been approved and three additional production lines will be completed in the first half of 2015. Trex projects $20 million of capital spending company wide for 2014.
“We think big. We start small and we ramp up as fast as we can,” Kaplan said.
He also said orders for the company’s other products, particularly the “bread-and-butter line” of Transcend decks, have been strong.
Trex reported net profit of $15.2 million for the quarter. That compares to net sales of $98.6 million and net profit of $13.2 million for the second quarter of 2013, when the company made a $1.7 million adjustment as part of a settlement in a class-action lawsuit related to mold and color problems.
Third-quarter net sales are projected to reach $92 million, which Kaplan said would be a 27 percent increase over the prior-year quarter.
Trex products are manufactured in Winchester and Fernley, Nev., and stocked in more than 6,700 retail locations. The company also has a dormant facility in Olive Branch, Miss. In May, Kaplan said consideration was being given to reopening the plant but he did not give any update on Aug. 4 as to whether a decision had been made.