Trex's nearly $14 billion opportunity over the next 5 years

Trex CEO Bryan Fairbanks says customers are really focusing on building up their outdoor spaces, so much so, he says the company sees a $13.7 billion opportunity over the next five years. When it comes to why the company issued a five-year forecast, Fairbanks tells Yahoo Finance Live the company wants to "ensure that our investors understand the bigger part of the story is ahead of us."

Video Transcript

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- As home buyers face an affordable housing shortage, is the answer investing more in the property that they own and outdoor spaces? And well, Trex thinks so. The company which creates wood alternative, composite, decking, and railing saw stronger than expected sales numbers in the second quarter driven by a resilient consumer. And they're optimistic on the horizon, forecasting a $13.7 billion addressable market over the next five years at its annual investor day. Those details came forward. Ongoing strength in the outdoor living category drive the company's optimistic outlook for the years ahead.

Trex CEO, Bryan Fairbanks, joins us now alongside Yahoo Finance's Julie Hyman. Hello, hello. So we outside is what you guys are clearly saying, and customers are gravitating towards building up that outdoor experience. When you look across the spend levels that they're comfortable investing in their current homes, what are these averaging out at and these types of projects that they're taking on?

BRYAN FAIRBANKS: Yeah, thanks, Brian. We continue to see that the consumer is looking to build additional space on their existing home or upgrading decks that they already have. It gives them a low cost way to add square footage and really follows with the trend of people wanting to spend more time outside. And that's part of the reason we're so optimistic as we look out over the next five years.

JULIE HYMAN: Well, we were talking about that before you came on here, that you guys have not done a five-year forecast before. So what went into that decision and what gave you the confidence that you have that kind of visibility out for that kind of time horizon?

BRYAN FAIRBANKS: Trex has been an extremely successful company over the past years. We've delivered double-digit top line growth and expanding growth at the bottom line beyond what we've done at the top line. We want to ensure that our investors understand the bigger part of the story is ahead of us. There's almost a $14 billion addressable market for us to go after. Decking, railing, and other adjacencies. We have the opportunity to continue that growth from a double-digit perspective and grow to $1.8, $1.9 billion as we get out through 2028 and double our EBITDA in that time frame.

- When you think about sourcing the recycled material that you're also infusing into the operation and into the projects as well, what does that sourcing look like for you? How are you able to make sure that that is sustainable in itself and making sure that you have enough of the supply in order to meet demand that's growing?

BRYAN FAIRBANKS: We take great pride in our ability to be able to use 95% recycled and reclaimed products within the materials that we use. Very difficult to do, it's part of the culture of the company. We've been doing it for over 30 years now.

We source materials from all over the country and up into Canada. We generally source it directly from the person or the manufacturer that's making that waste, bring it direct to our facility. And in some cases, we can process it directly into the manufacturing line. And in other cases, we have to do some pre-processing so it's in the right condition to work with.

JULIE HYMAN: I think we talked about this a little bit last time, plastic bag bans in many jurisdictions means there aren't as many of them. But I seem to recall them last time, they're still plenty, right?

BRYAN FAIRBANKS: We did talk about that. Plastic bag bans, it doesn't help necessarily. It's a great opportunity for grocers and anybody's who are using them to make sure they come back to Trex. If you see a collection bin at a grocer, chances are that material is coming back to Trex. At the end of the day, only about 5% to 10% of what we source is those plastic bags, so it's not a big part of what we source. And if it continues to expand, there's plenty of other opportunities for recycled materials.

- You've mentioned a lot of the North America operations, the opportunities there, what about international and how are you looking at continuing to scale up the business too?

BRYAN FAIRBANKS: We see great opportunity internationally. There's no leading brand in the international markets. We've been playing in the international market since around 2012 time frame. It's less than 10% of the business. Today, many of those markets are more challenged economically than where the US is today, the US and Canada. As we see those economies rebound, especially over in Europe, we see great opportunity to bring that Trex brand and really drive that outdoor living much like we're doing here in North America.

JULIE HYMAN: Are you seeing any kind push back on price and folks making different choices when it comes to decking materials based on price?

BRYAN FAIRBANKS: We've got price ranges for our decking and railing products for every type of consumer. We have our entry level products, our enhanced basics and naturals about two times the price of wood. So for an additional $600, you can be putting Trex down. Or you can go up to our higher aesthetic, higher durability and performance products, our Trex transcend lineage products, as well as our signature product which has that look and feel of real hardwood. So we're really trying to hit all product segments.

JULIE HYMAN: But I guess what I'm asking is even that entry product you said is double the cost of wood, so your biggest competitor at least at that point would be wood decking, presumably. So especially as people are very inflation-aware right now, are you seeing particularly that product be affected by that price sensitivity?

BRYAN FAIRBANKS: We really aren't because we've been able to keep that relationship of that entry level product being two times the price of wood. Market research clearly showed us that the consumer was willing to trade up as long as that price was 2x wood. Wood trades for about $1, a linear foot to $1.10, and our basics product sells for about $2 a linear foot. And the key with that then, bring them in show them they can afford a Trex deck.

Now, let's upsell to our enhanced naturals product line, which has a little bit higher aesthetic. So for another couple hundred dollars, you're moving up one more rung within the product line. We've seen that strategy continue to be very effective, even though prices have gone up over the past couple of years.

- All right, I don't need a deck just yet, but maybe a hockey stick. Maybe a hockey stick, I can start off there. I believe in the Trex product there, why not? Thank you so much for joining us here on set. Appreciate it. Bryan Fairbanks is the CEO of Trex and Yahoo Finance's Julie Hyman.