Composite deck maker Trex Co. Inc. set sales and earnings records for the third quarter of 2014 and is on track to see revenue reach $388 million for the year, which would be the highest ever for the firm.
A new product line — selling recycled polyethylene film — could add even more to the bottom line for the company in 2015.
Winchester, Va.-based Trex is one of the nation's largest buyers of recycled PE film, particularly stretch wrap, which it uses to make its plastic lumber.
The company used to sell the excess film but recently started up a manufacturing line to turn the film into PE pellets. Three more lines will be added next year.
Sales of the raw material have been minimal to date but that is expected to change.
“Right now it's a question of waiting for the additional equipment to get here and get it installed, and if all goes according to plan you'll see it move the needle in the second half of next year,” Trex Chairman, President and CEO Ronald Kaplan said during a quarterly conference call on Oct. 27.
Trex won't have to buy additional plastic for its first four PE pellet lines but it probably will in 2016 as plans move forward to build another four lines. Sales of the raw material could reach $50 million to $80 million in three to four years.
Kaplan said Trex is on a seven-year “winning streak.” For the third quarter of 2014, net sales increased 32.2 percent to $95.5 million compared to $72.2 million for the prior year. The company reported net income of $8.9 million.
“We have the best outdoor living products, unparalleled distribution, unmatched brand recognition and lower cost structure. We have been executing in all of these areas. The numbers prove it,” Kaplan said.
Despite a relatively soft market, Trex sales were strong for the third quarter and that has continued through October. Kaplan said a revamped pricing strategy that uses a good, better, best platform contributed to market share growth.
Kaplan said Trex is outpacing the overall deck market, which he figures is increasing by low to mid-single digit numbers.
“We're growing at two to three times that rate so it obviously is coming at the expense of someone else in the marketplace,” he said.
Some of the gain is at the expense of wood decks, which Kaplan describes as a march northward by 1 to 2 percentage points a year.
“Don't forget in 1999 composites represented only 3 percent of the decking market,” he said. “Right now it's probably approaching 35 percent.”
In the last quarter of 2014, Kaplan said he expects net sales to reach $70 million, which would represent year-over-year growth of 10 percent. In addition to increased market share, Trex is making money through licensing, selling light products on Amazon.com, and sales of steel deck frames called Elevations.
"There's a lot going on here," he said.
Trex also plans to talk to distributors about new products on Nov. 4, and a new branding campaign is planned for 2015. In addition, the board of directors authorized a repurchase program for up to 2 million shares of common stock.
