Trex boosts profit while sales stay flat

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It’s not all bad news on Wall Street. Some companies are defying the odds and holding their own in a tumultuous economy. Those exceptions include Winchester-based Trex Co., the nation’s largest manufacturer of composite decking, railing and fencing. Trex saw its stock price rise more than 90 percent last year, from $8.64 to $16.46 per share.

“With the stock market crashing, it’s nice to have a stock that almost doubled,” says Trex President and CEO Ronald W. Kaplan.

That’s not to say that the 17-year-old company hasn’t had its share of trouble. After years of rapid growth during the housing boom, Trex felt the sting of the housing recession in 2007, losing $75.9 million.

Trex’s board of directors hired Kaplan in January 2008. He had been CEO of Continental Global Group Inc., a manufacturer of mining equipment based in Winfield, Ala.

In a companywide overhaul, Kaplan dramatically reduced inventory, staffing and capital spending. He also implemented productivity improvements (such as “lean manufacturing” principles), expanded distribution relationships and invested in a more aggressive branding campaign.

Trex’s sales through last year’s third quarter remained largely flat, but its profit soared. The company had $23.5 million in net profit during the first nine months of the year, compared with a loss of $34.9 million during the same period in 2007.(The company’s fourth quarter results were reported after this issue went to press.)

Not all Trex customers are happy. A class-action suit filed in January in Washington state alleges product defects. In a statement. Kaplan said the company has disclosed a manufacturing problem affecting a small percentage of products sold on the West Coast. Trex took a $45 million warranty reserve in the third quarter 2007, and Kaplan said the company would honor its warranty.

The Trex CEO expects demand for company products to remain soft in coming months, but he intends to increase its market share in an anticipated industry shakeout. “There are a lot of small competitors that will probably fall by the wayside,” he says.

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