Trex sales stumble; commercial unit divested

Trex Co. Inc. finished 2022 shy of its record-setting $1.2 billion in sales following an inventory recalibration and a loss on the divestment of its wholly owned subsidiary, Trex Commercial Products Inc.

The Winchester, Va.-based composite decking manufacturer posted sales of $1.1 billion for 2022 with a profit of $185 million compared to sales of $1.2 billion and a profit of $209 million in 2021.

Trex's lower sales were due partly to distribution channel partners pulling back on the amount of inventory held because of concerns about softening consumer demand due to rising interest rates and expectations of a general slowing in the economy.

For the fourth quarter, consolidated sales were $192 million compared to $304 million in the prior-year quarter.

Still, the results "exceeded our expectations," Trex President and CEO Bryan Fairbanks told investment bankers in a Feb. 27 conference call. He said the fourth quarter was the first quarter to benefit from the actions taken last July to reduce production levels, reduce its employee base and implement cost-efficiency programs.

Trex's cost structure now aligns better with the lower sales volumes caused by the distribution channel's inventory recalibration.

"We expect to decrease our balance sheet inventory to more normalized levels throughout 2023, which will improve cash flow," Fairbanks said. "As we've noted in prior calls, we've elected to run our facilities with the assumption of a $1 billion revenue run rate for the year."

The newest facility, in Little Rock, Ark., is undergoing a modular build-out. Trex is taking its time on its third plant and has pushed back the target date for completing the $400 million project.

Fairbanks said he sees a "gradual manufacturing ramp starting with processing of recycled materials and then moving to decking manufacturing currently estimated to start in early 2026."

Trex decking is made of recycled polyethylene and reclaimed wood.

Trex officials also said the company is strategically focusing more on its residential decking business. They had announced on Dec. 30 that they would part with the commercial unit, which sold metal rails for stadiums and arenas, after it operated at a $2 million loss on sales of $35 million for the nine months that ended Sept. 30, 2022.

Trex Commercial was sold to Minnesota-based Sightline Commercial Solutions LLC for $8.25 million. The divestiture resulted in a $15.4 million non-cash loss.

Fairbanks credited the commercial unit with helping Trex capitalize on a new trend and launch its own rod rail systems and glass railing systems. The employees were offered jobs by the new owner, he added.

"The divestiture reflects our decision to focus our resources on the most profitable opportunity for our company and its shareholders, namely, accelerating conversion to composites from wood and further strengthening our industry leadership," Fairbanks said.

Trex entered 2023 with inventory levels that align with market expectations and steady consumer demand for decking and railing products, Fairbanks said.

For example, at the February International Builders' Show, Trex unveiled a new deckling line called Signature that was designed to mimic the look of interior hardwoods. Trex is promoting the line as the most authentic wood aesthetics to date.

Fairbanks told investment bankers Trex brings "the most relevant products" to the market.

"This has positioned Trex as the primary beneficiary of positive long-term trends towards outdoor living," Fairbanks said. "In addition, Trex is the most widely available and purchased decking and railing brand in North America and around the world."

Based on its 2021 sales, Trex is the sixth largest pipe, profile and tubing extruder in North America, according to Plastics News' latest ranking.

While the economic backdrop remains uncertain, Fairbanks expects Trex to fare well thanks to the repair and remodel sector.

"As many homeowners are priced out of moving, they tend to invest in their existing homes and pursue renovation, especially those that add long-term value like a Trex deck," Fairbanks said. "Despite our general optimism, we are moving forward cautiously to ensure that we emerge from this period as an even stronger company."