Trex Co. Inc. sales climbed 9 percent to $131.6 million, giving the deck maker an “exceptionally strong” start to the year and momentum that it plans to maintain, in part, with an advertising campaign that asks consumers: Why would anyone build with wood anymore?
The Winchester, Va.-based company, which extrudes its decks from a mix of reclaimed wood scraps and some 1.5 billion of recycled polyethylene bags a year, had a record first quarter in terms of sales and gross profit, which came in at $57.6 million. Net profit was $23.4 million.
As it enters its peak selling season, Trex is going after the wood decking and railing market that accounts for 84 percent, or 2 billion linear feet, of the product sold. The industry has seen engineering advancements of composite wood decks that offer advantages in terms of durability and low maintenance, and Trex claims, aesthetics, sustainability and value.
“Trex's appeal to consumers who are attracted to green building alternatives is likely to be an increasing draw for us as sustainability becomes more integrated into consumer lifestyle choices,” CEO Jim Cline told investment bankers during a quarterly conference call.
“Last quarter we mentioned we are refocusing a significant portion of our marketing and branding campaigns to drive accelerated conversion from wood decking and railing to Trex alternative-wood products.”
Some of the new ads, which include television spots, were launched in April and all emphasize that Trex is made from 95 percent recycled materials. The campaign comes at a time the North American Deck and Railing Association projects some 40 million decks are more than 20 years old. Competition to replace those aging decks is getting fierce with some decking manufacturers offering back-end rebates of 10 percent to 15 percent.
“We've been a little bit surprised about the aberrant behavior of the competitors with these back-end rebates,” Cline said. “They have been fairly significant in nature and relatively unsuccessful in gaining additional sales but they certainly have been effective at holding existing customers to their product category. Our reaction has been not to respond in kind. We think it is disruptive in the marketplace to the rest of the customers because what happens is everybody is worried about whether or not the next guy is getting a better deal.”
Trex officials, however, are watching for chances to penetrate the private label market for decking.
“We're certainly very interested in the opening price point, typically through major retailers,” Cline said. “They do have a bid process they utilize and Trex will be very active in that bid process.”
In addition, the company is looking out for acquisition targets that would make an ideal fit.
“We certainly are open to acquisitions,” Cline said. “We have been reviewing those alternatives. I would expect most we would be interested in would be related to outdoor products and they would be rather modest in size as opposed to transformational acquisitions.”
For the second quarter, Trex expects to stay 8 percent ahead of last year with sales of about $145 million. The television, print and digital ad campaigns will run through the third quarter.
