2013: A Look Back And Ahead Trex knows about taking existing materials and making them better.
The leading maker of wood-alternative decking and railing is unique in its use of only recycled materials. And Trex (TREX) targets the aftermarket — selling directly to homeowners looking to upgrade their properties.
Trex's growth rebounded in 2012 as the housing recovery picked up steam. Its stock is near a 7-1/2-year high set on Nov. 29 .
Ronald Kaplan, who took over as CEO in January 2008 amid a deep recession and subprime meltdown, says he's "never felt better" about market conditions.
Kaplan recently told IBD what housing trends mean for his industry in the coming year.
IBD: Decking and railing sales rely in large part on how confident consumers are. What's your assessment of consumer sentiment
Kaplan: Things are generally looking up. We watch consumer confidence and disposable income. I take the broad view. I think we will be somewhat better than a year or two ago but nothing like 2004 or 2005.
IBD: Trex decking is viewed as a luxury, discretionary item. How is that sector of the market doing
Kaplan: All decks are discretionary items. In general the higher up the income spectrum you go, the more recession-proof it is. But the people we cater to aren't millionaires. The average deck is about $25,000. There are 40 million wood decks out there, so our target market is large.
IBD: Until recently, you sold exclusively in North America. How is the drive to globalize coming
Kaplan: The percentage of our sales internationally is still very small. But a few years ago we sold only in the U.S., Canada and Mexico. Now we are in 27 countries.
IBD: Europe has struggled with a debt crisis. What are you seeing based on your new offices there
Kaplan: I'm not well-versed on the European economy, but we are taking market share. Our sales there aren't based on any resurgence (of Europe's economy) but on Trex's introduction into new markets.
IBD: What's your strategy to break into those new markets
Kaplan: Our primary strategy is an export strategy at this point. I'm well-versed in building factories internationally, but that's not our track at the present. We're operating (U.S. factories) at 30% capacity.
It's a low level, but Trex has extraordinary capacity. Over the last several years, we've increased throughput by about 30% and our production rate is at an all-time high. By enhancing the capacity of our factory, we've increased our (gross) margins (before a one-time charge) to in excess of 30%.
Our strategy is to do whatever we can to get better production with existing assets. And we can double the size of Trex capacity and throughput without any significant capital expenditures.
IBD: Do you have a timetable for doubling capacity
Kaplan: We're shooting for 50% market share. We have the opportunity to achieve that in the next few years, which would require (doubling capacity). But I have not set out any specific deadline.
IBD: Are you using any new technologies in production
Kaplan: We relentlessly pursue low-cost production that uses all recycled polyurethane. All of our competitors use virgin resins. We intend to get deeper and deeper into the waste stream. We're working on new technologies to do that, and will roll them out this year.
IBD: What's your outlook for the housing market in 2013
Kaplan: I follow the trends. And the trend line is upward.
Sales of existing homes are important to us because most remodeling is done within two years of the sale of an existing home. We're introducing a new line of lower-cost decking and railing to compete at the opening price point.
IBD: You're branching out from wood-composite products, correct
Kaplan: Yes, it's a new aluminum railing called Trex Reveal. Between the Select (wood composite line) and Reveal railings, we're opening up new market opportunities.
IBD: Any other thoughts on 2013
Kaplan: I'm coming up on my fifth anniversary (as CEO), and I've never felt better about the condition of the market.