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Assessing home improvement spending amid COVID-19

Bryan Fairbanks, Trex CEO, joins Yahoo Finance to discuss home improvement spending amid COVID-19.

Video Transcript

- So the US presidential decking business is a $6 billion industry in North America. Let's bring into the stream, Bryan Fairbanks. He's the CEO of Trex. They don't use wood in their decking. It's a wood alternative decking and railing company. It's good to have you here. And I regret the decision to go with wood on my mom's deck. She's in South Florida, and even though it was treated, I'm not kidding you, that sun down there, within about four or five years, it started to rot again. So I haven't even bought your product yet, but you don't have to sell me, but sell me-- why is your product perhaps superior than wood?

BRYAN FAIRBANKS: Sure. We've been in the market for over 25 years with our Trex composite decking and railing products. They're designed to last for a very long time in very harsh environments. We have a 25 year durability warranty as well as a 25 year fade and stain warranty. So it really addresses all of the weaknesses that you would have with a lumber deck at a very affordable cost.

- Hey, Bryan, it's Seana. How big of a jump have you seen in demand for your product this year?

BRYAN FAIRBANKS: Yeah, this year has been a good year for Trex. The past five years, we've been growing at an average of 13% to 14%. And this year, it looks like we'll have growth of about 16%, including the guidance that we've provided for the fourth quarter.

- How much of that because of the pandemic though with people wanting to be outdoors more and the need to be outdoors more-- how much of that is driving your business, do you think?

BRYAN FAIRBANKS: We've seen some tailwind in the short term related to COVID, but we really look at over the longer term with the opportunity to convert more of those wood decks just like your mother's deck. About 80% of the market today is still wood decks and every 100 basis points of conversion is worth $50 million. So it's a significant market opportunity that will be there well after COVID is gone

- I want to tell you, too, in the case of my mom's deck, you know, the cost difference between wood and non-wood alternative wasn't that great. So I'm curious with your product, is it recycled plastic or what is it made of? And what is the cost difference?

BRYAN FAIRBANKS: Yeah, our product is made with 95% recycled content. It's approximately 50% plastic and 50% wood. With the launch of our enhanced product line last year, you can purchase Trex composite decking for about two times the price of wood and then for a little bit higher end aesthetic, for about three times the price of wood. So it's very affordable to most people who are installing wood today. We also have higher end, higher aesthetic, higher performance product lines of Trex Transcend that sells for a little bit of an increased price over what I already talked about.

- Bryan, demand right now continues to outpace your supply. To what extent has this or has it at all, let me eat your growth?

BRYAN FAIRBANKS: This year's growth could have been larger if we had more supply. In July of last year, we announced a 70% improvement in our capacity. And that improvement would start coming on midyear this year. And we saw 20% growth in the third quarter. And we've got added to 30% growth in the fourth quarter of this year. The larger amount of that capacity will start coming on at our Virginia facility in January of 2021, so we're excited to get that capacity up and going and meet the needs of this growing market.

- If I've got this right, the shares closed down today a little over 14%. I'm curious I would think that you would stand to benefit from the fact that lumber prices are going to start going up with a lot of people wanting to build. What am I missing here?

BRYAN FAIRBANKS: Yeah, we absolutely benefit as lumber prices go up and we close that gap. Instead of being two times the price of wood, it's something less than that. But we don't really worry about that as much over the longer term. It's that overall market size opportunity. And if wood goes back to its normal historical price, the market research and everything that we've done with our product leads us to believe that the growth will be there for us.

- Brian, any worry just about the fact that we don't have another stimulus package, just how that could affect consumer spending and whether or not it may cause some consumers to either not place orders with you or to push off those orders?

BRYAN FAIRBANKS: We find the majority of our consumers are not in the areas or not in the career areas that have been hardest hit within the pandemic. We tend to have more of the white collar workers. And there hasn't been as much of an impact on it. So I wouldn't expect there to be a significant impact if an additional package were to be delayed longer.

- Bryan Fairbanks is the CEO of Trex. It's good to have you here. I will be showing this interview to my two older brothers who outvoted me when it came time to redo mom's deck. And thank you for supporting the decision that I lost many years ago. All the best to you, sir.

BRYAN FAIRBANKS: Thanks for having me this me this afternoon. Appreciate it.