Last year was one for the record books for Trex Co. Inc., which saw net sales of its composite wood and outdoor living products grow 13 percent over 2014 to $441 million, outpacing the decking and railing industry.
Net profits were up, too, to a record $48.1 million compared to $41.5 million in 2014 for the Winchester, Va.-based company.
CEO Jim Cline said the business met 2015 goals to build Trex's leading brand position, strengthen its global distribution network, and leverage product development expertise.
“We are pleased to report these strategies resulted in record revenues and earnings for the fourth quarter and full year of 2015, and that we have entered 2016 with positive momentum,” Cline said Tuesday during a quarterly conference call with financial analysts.
Trex also entered 2016 a little lighter in terms of property. The company had 102 acres in Olive Branch, Miss., according to a flier from real estate services firm CBRE/Memphis. However, company officials signed two agreements in January to sell some of the property for $4.3 million, Bryan Fairbanks, vice president and CFO, told investment bankers.
Trex continues to hold onto another 62 acres of undeveloped land that remains on the market in Olive Branch, Fairbanks added. That's where the company started up a 200,000-square foot operation in 2005 but closed it two years later. About 115 workers lost their jobs as the company focused on plant operations in Winchester and Fernlee, Nevada.
Part of this year's focus will be new ads aimed at taking market share from wood decking — Trex recycles more than 1.5 billion plastic bags to make its decks from polyethylene and sawdust — as well as the startup of the third of four lines to produce recycled pellets.
Cline described recycled pellet sales as “growing but only modestly so far” because of the steep decline in oil prices. The price of virgin PE pellets dropped from $1.09 per pound to 60 cents per pound during the last 15 months, he added.
“We've identified a number of new applications for recycled pellets using our compounding expertise to combine our pellets with other polymers,” Cline said. “These new recycled products can provide a compelling value proposition for our customers while providing margins more consistent with our original business plan even in the current challenging price environment. We continue to view this market as a key opportunity for Trex.”
Sales of the new specialty pellet products should begin in the second quarter of this year.
While that ramps up, Trex is scaling back on its purchase and sale of excess scrap material in 2016. Cline said that will cut into sales by about $10 million over the year but with first-quarter growth forecast at 10 percent there should be no adverse effect on profit.
For its upcoming print, radio and social media campaigns, Trex is looking to gain market share from wood decking producers. Trex officials say wood decking sales make up 84 percent of the market by linear foot and about 30 percent in terms of dollars.
One of the ads geared for the western U.S. will compare the aging processes of a deck board made of redwood to a Trex deck plank.
“The optics are basically, you see all the maintenance required with the board, you see the susceptibility to warping, staining, as well as insects,” Cline said. “We believe that countering those types of ads are very important, will be meaningful, and will move the needle. And in reality, if you think about it, with 84 percent market share for wood, a single percentage point moving from wood to wood-alternative products yields a fairly substantial opportunity for the industry.”
The company also is opening a training facility called Trex University on March 1 in Winchester for customers, particularly associates of big box stores, to visit. Trex is stocked in 6,700 retail locations around the world and the training will provide specific market product information and consumer data. The goal is to get customers familiar with Trex products and their benefits over wood, company officials said.
Right now the market is growing in low-single digits for wood decking, mid-single digits for composite wood decking and double digits for Trex, Cline said. He offered sales guidance of $131 million for the first quarter of 2015, which is up 8 percent over the prior-year period.
