Winchester, Va.-based Trex Co. Inc laid off about 150 employees in the third quarter to align its production levels and cost structure with decreased demand for composite decking.
Employees at the company's two manufacturing sites in Virginia and Nevada were notified Aug. 25 about the layoffs, which were in response to distribution and dealer partners filling orders by drawing down inventory rather than reordering.
Trex's sales channels had built up about $200 million of inventory based on expectations for volume growth in 2022 following record sales of $1.2 billion in the 2021 calendar year.
However, in late June, Trex experienced a sudden reduction in pro-channel demand as partners adjusted their inventory levels to prepare for an economic slowdown.
In the third quarter, Trex generated sales of $188 million compared to $336 million in the prior-year quarter.
The company needed to "rightsize" its cost base, President and CEO Bryan Fairbanks said in an Oct. 31 conference call with investors.
"During this period of inventory destocking, we took measures to align our cost structure with the current demand by decreasing production levels, rightsizing our employee base, and focusing on cost-efficiency programs," Fairbanks said. "Concurrently, we retained our most experienced manufacturing talent, enabling us to efficiently ramp up production as demand rebounds. In addition, we refocused our efforts on production improvements that we were less able to pursue while operating at full capacity."
Trex employs about 2,000 people companywide, so the layoffs eliminated about 7.5 percent of the workforce.
In September, Fairbanks told The Winchester Star, "some very good team members are leaving us, and we know our actions are felt by the communities that we call home. However, we firmly believe that this move is necessary for the long-term success of the organization."
Fairbanks said on the earnings call that he thinks the economy is in a "moderate" recession but opportunities remain for composite decking in general and Trex products in particular to take market share from wood decking products.
Trex decking is made up of 95 percent recycled content from industrial wood sawdust and recycled polyethylene plastic film, such as shopping bags, cereal box liners and protective shipping films.
The company launched a new Transcend brand product with heat-mitigating technology late in the second quarter that Fairbanks said has been favorably received in the market.
"The great majority of Trex buyers are financially stable and are cash buyers who will be less impacted by higher interest rates and inflation," Fairbanks said.
Trex also partnered with two additional distribution locations in Texas in September and October to expand the availability of Trex products in fast-growing markets
Company officials said the "inventory re-calibration" should be completed by the end of 2002 and new product launches are planned for 2023.
In addition, Trex continues to build a third manufacturing operation "at a measured pace" in Little Rock, Ark.
"Arkansas remains a key aspect of our growth strategy due to its strategic advantages, including increased proximity to a central raw materials, a strong pool of qualified and skilled labor, adjacency to major transportation hubs and is situated near key growth markets for wood conversion," Fairbanks said.
The facility will also support our long-term growth opportunities in the international and cladding markets, he added.