Start-up problems in Virginia for a new line of composite decking and equipment failures at a manufacturing plant in Nevada cost Trex Co. Inc. about $10 million in the first quarter.
Production of the new Enhance Basic decking line proved a challenge until the profile was modified with "less pronounced scallops" on the underside to improve the throughput.
Trex promoted the scalloped profile at the International Builders' Show in February, saying it engineered cost out of the equation for homeowners wanting to upgrade from pressure-treated wood decking to composite decking made from recycled polyethylene plastic film and reclaimed wood fiber.
The scalloped profile uses less material and the savings are being passed on to consumers to close the spending gap with pressure-treated lumber.
However, ramp up to production was hampered by manufacturing inefficiencies in Virginia until the profile was redesigned, along with equipment failures in Nevada that took down two extrusion lines for 30 days.
"These costs adversely impacted our first quarter by $10 million. While start-up costs are to be expected, this has been a challenging ramp up and the magnitude of these associated costs was greater than we had anticipated," Trex President and CEO Jim Cline said in a quarterly conference call April 29.
In Virginia, lead times have increased beyond Trex's usual two weeks, and in Nevada, the company moved to an allocation program through the end of July to ensure a more balanced distribution of product to western states.
Demand continues to be strong, Cline added.
"Unfortunately, we are not going to be able to fully satisfy all of our good customers," he said. "And it is unfortunate that we're there, but we're doing everything we can to make sure we're able to do that. One of the changes that we did make was to change that profile on the scallops. That was not without considerable expense, but it did enable us to get to the kind of throughput that would help our customers get through this season in a more orderly fashion."
Despite the setbacks, first quarter sales increased 5 percent to $180 million, which was consistent with expectations.
Cline offered guidance for the second quarter of consolidated sales at $195 million to $205 million, which is a decline from last year to reflect the impact of operating inefficiencies, lower-than-planned finished goods inventory at the end of March, and suboptimal production level in Nevada.
"We continue to dedicate significant resources to increase production throughput," Cline said. "In essence, 2019 will bear the cost of the investment in the Trex company's long-term growth, with the highest cost behind us and progressive improvement expected as we move through the year."