Composite wood deck maker Trex Co. is preparing to enter new markets beyond its recently launched recycled polyethylene pellet business, which just became fully operational with four lines in service.
The Winchester, Va.-based company went on an engineer-hiring spree to bolster its research and product development and some of their work could be on the market next year, Trex Chairman, President and CEO Ronald Kaplan said in an Aug. 3 quarterly conference call.
“We've got other projects in the pipeline that are equally or more exciting than pellets,” Kaplan said. “Trex has become a technological powerhouse in our view and it‘s going to be bringing some exciting things to the table. When we're ready to talk about them, we will.”
Kaplan, who is retiring, hinted during his last call about what's on the drawing board for Trex, which is the No. 11 pipe, profile and tubing extruder in North America, according to Plastics News' ranking.
Trex had a record-setting second quarter with net sales up 13 percent to $136.8 million compared to the prior year. Net profit was $18.7 million. For the first half of 2015, net sales were up 16 percent to $257.8 million and net profit was $36.3 million.
Kaplan said some of the new products Trex will release will be in composite wood decking and railing, where the company has more than a 40 percent share of the market, but others are unrelated to that core business and the new pellet business.
“We have quietly assembled a team of over two dozen engineers whose mission is to advance our technical lead in manufacturing efficiency and product innovations,” Kaplan said. “This team is developing the next generation of composite decking and will propel us further into new industries.”
The products in development outside of decks and pellets will probably be released first — sometime next year. Trex will have to add capacity to bring all of the projects to market, Kaplan said.
“We bought land and we're going to need it,” he added.
Trex has been growing at a 12 percent rate and the budding pellet business is expected to start adding to the bottom line in the third quarter. Company officials have said pellet sales should reach $50 million to $80 million in three to four years.
“We told you it would begin to move the needle in the second half of the year and we stand by that,” Kaplan said. “Nothing has changed our view. The number of customers we're adding and sales we're adding are entirely consistent with our expectations.”
Trex has moved its price for PE pellets with the fluctuating resin market but Chief Financial Officer James Cline said other concerns have taken precedence.
“Go back and look where virgin polyethylene was at the end of the second quarter — I think it was $1.09 a pound — and since that time it dropped to low of 55-60 cents a pound and now I think it's up to about 80 cents a pound,” Cline said. “Our price has moved relatively consistent with that change but quite frankly we haven't been really focused on driving that price up as the market firmed up.
“We want to get people using these pellets. With only one line in production through a good share of the second quarter of this year, we were limited in our ability to supply products, so getting those customers lined up and testing the product and qualifying it was more important than making a couple extra pennies on it.”
In decking and railing, Trex is outpacing the composite wood market. Kaplan said the company's market share exceeds 40 percent compared to 30 percent when he started in 2008.
“Our target is 50 percent,” he added. “What's more important is that composites are taking share from wood. The category is taking share and we're growing within the category.”
His guidance for trailing 12-month sales through the end of the third quarter is $428 million.
