Unknown: During the covid 19 pandemic, Americans stuck at
home started to take a hard look at their surroundings. And that
has led to a home improvement boom. Furniture retailers, pool
companies and others have seen demand soar and share prices
rise pool installer leatham said its sales for the first quarter
of 2021 were up 191% year over year. High End home goods and
design company our h said its revenue for the first quarter of
2021 was up 78%. It was down 19% a year ago. And many customers
are also deciding It is time to build a deck. skyrocketing
demand combined with historically high lumber prices
lead to very good fortune for a couple of publicly traded
companies that make a rather humble sounding product. Fake
wood decks. Strictly speaking, these are composite decks and
polymer decks. Composite decks are typically made of plastic,
often with wood fiber and sawdust mixed in polymer or PVC
decks are pretty similar but made entirely from plastic. They
typically have two layers a core made of plastic sometimes
combined with wood flour or sawdust, and a cap that seals
the product and achieves the look that simulates wood. Two of
the biggest names in this space are trucks and a zek. Together
they control about 75% of the composite decking market, which
is in turn about 20% of the entire $8 billion decking
market. A third brand fiberon has about 10% share wood
alternative deck makers say their products often look nearly
identical to wood and last for decades much longer than a
typical wood deck. They are also building themselves as an eco
friendly option trucks his product is made almost entirely
from recycled materials and aiza has been working to boost its
products recycled content. Both are commonly available brands
that were growing sales even prior to the pandemic due to
growth in the housing market and aging housing stock and an
increased interest in alternatives to wood, which may
look great but can cost more money and energy to maintain
over its lifetime. And both asyik and trucks say there is
room to grow. So do some of the contractors who install decks
both wood and wood alternatives, but these materials are
expensive and they are not without their drawbacks. How
much share can these players grab how many people would pay
for a fake wood deck. The total decking market is growing at a
rate of about 6% per year composite decking has been
growing at a rate closer to 10% per year. And some companies are
doing better than that. Tracks is the market leader with about
50%
whereas the tracks company has grown at about 16% average over
the last five years. Mostly because of our actions on
converting wood into composite buyers and bringing more
attention to the industry, making sure that we're educating
those consumers that there are affordable products that will
perform for 25 years plus on their deck rather than
installing wood, which will probably have to be replaced
between 10 and 15 years at the high end.
trek started in 1988 when a businessman named Roger
Wittenberg blended sawdust with recycled plastic to make a park
bench. The company started producing composite decking in
1993. Trucks then went public in 1999. Its sales have roughly
doubled in five years from 440 point 8 million in 2015 to 880
point 8 million in 2020. Over the same time net income has
grown from $48.1 million in 2015 to 175 point 6 million in 2020.
In the fourth quarter of 2020. Trucks his sales grew 39% over
the same quarter in 2019. That is notable because the final
quarter of the year is when winter and the holiday season
are setting in and construction tends to slow down by mid July
of 2021. The company shares had risen more than 700% in the past
five years. aciac is second in the industry and markets itself
as a more premium product line. It was founded in 1983 as a
manufacturer of plastic sheet products for commercial and
industrial applications. It later expanded into low
maintenance high performance residential building products.
ASAP branded trim came out in 1999 and decking and railing
followed in the 2000s timber tech. Its main decking brand was
founded in 1997 and bought by a Zack then called CPG in 2012. It
went public in June of 2020. And its sales have grown from 632
point 6 million in 2017. To 899 point 3 million in 2020. But the
company has been losing money it had a net loss of 20 point 2
million in 2019 and a loss of 122 point 2 million in 2020.
In each of the categories that we play, it's really important
for us that we have technology that gives you a better
aesthetic and allows you to have more design flexibility and and
so we tend to be the visual We have more, we have more types of
products. And and in each of the categories, we're differentiated
that way, our outdoor living business, which includes decades
really over the last 10 years is at a 14% gross break. And so
really independent of which window you look at whether it's
five years or 10 years, we've seen really, really strong
growth, you know, for the category, especially, coming
into the pandemic.
Nevertheless, as like shares have risen since the company's
IPO. Both trucks and a sec make use of recycled materials 95% of
what goes into trucks as decking comes from recycled materials.
The company buys wood and secures recycled polyethylene,
mostly from plastic bags wrap and canisters from its roughly
32,000 collection stations at stores and distribution centers
across the United States and Canada. It converts this into
decking through a process it closely guards
most organizations most manufacturing, they want a very
clean, very consistent stream coming into the front part of
the manufacturing line. And I'll give you a consistent product at
the end of the line. We do the opposite, we get a highly
variable raw material stream coming in the beginning of the
line. And we'll give you a highly consistent, highly
valuable product at the end of the line.
as Eric says it uses up to 80% recycled content in its kept
composite decking, and approximately 50% recycled
content in its kept polymer decking it's investing in
raising the recycled material content of its product. For
example, the company recently bought a PVC recycling facility.
There are a few reasons why demand for these lumber
alternatives is growing. The first is an increased interest
in outdoor living a trend that has been growing for years but
that accelerated during the covid 19 pandemic. The American
Institute of Architects annual home design trends survey shows
that interest in outdoor living has been extremely popular in
recent years. In its most recent survey in the first quarter of
2021 Architects saw a dramatic uptick in spending on outdoor
living space over a year earlier. About 74% of architects
surveyed reported requests from clients related to outdoor
living spaces. That is about a 20% jump over the same quarter
in 2020. The uptick is notable in part because outdoor space
improvements have been popular among clients for years. In
addition, the millennial generation is beginning to move
out to the suburbs and seek homeownership. The second reason
is long term cost effectiveness versus wood. The price of
composite decking is generally quite a bit higher than a
similar wood product. Trucks estimates that composite decking
will have a starting cost of $30 per square foot including
installation, whereas lumber recent dramatic price swings not
withstanding starts at about half that treks has tried to peg
the price of its product at no more than twice the cost of
lumber. These companies say wood alternatives won't need the same
amount of maintenance, no stripping, sanding or
refinishing and are far more resistant to fading. Both a Zack
and trucks say their composite or PVC products will last
decades. At the same time, COVID related demand spiked lumber
prices began to skyrocket, they shot up 275% during the pandemic
before finally backing off in May of 2021.
There were two things that we needed to do to increase that
conversion rate. First was have a product that sold for two
times the price of what didn't have to be right at the price of
wood but two times of the price of wood, whereas about a $600 up
charge for the average deck. That was where the consumer is
able to say Oh, okay, I can afford that that makes sense.
And once the consumer sees that they can do that are actually
willing to move up to a higher level of aesthetic as well.
While wood
has a natural charm to it, many customers are not terribly
thrilled with the maintenance. Even before the pandemic
composite decking was still winning converts,
composite boards can withstand years of sun and snow and won't
fade rot will become termite food. So when comparing
composites versus wood, there's really no competition, which
material is better. Over the 25 year lifetime of a composite
deck. The maintenance savings versus wood is in the 1000s of
dollars.
The third reason for rising interest is aesthetics. Using
composites and PVC allows for a wide variety of looks. For
example, a Zack has several collections with different names
like vintage and harvest, that give clues as to what kind of
wood the material is mimicking.
We've got an ability now with newer technologies that you can
really design the environment you want, whether that's you
know, a would look a more modern look. And in many cases and in
our case, almost all cases it's really indistinguishable from
from the natural equivalent, with the one exception of it's
going to look the same for 30 to 50 years, and it uses recycled
materials and its construct
Eric Perkins is a contractor in North Carolina who also has a
YouTube Shannon with his brothers called Perkins brothers
builders. He has been sponsored by trucks in the past but
currently has no such relationship with any decking
company.
Yeah, some of the older products really looked like plastic
decking, they were like gray speckly looking boards, and all
the companies have done a great job to really make it look more
realistic, make it look more like woodgrain and multi
coloured of a you know, wood, natural wood wood look, you are
gonna pay a price for that. And so some people are willing to do
that and they, the clients that we've had have really loved it
and but it's one of those things it's you know, do I want nicer
cabinets or do I want a nicer looking deck finish.
For a deck that gets a lot of sunlight, a composite or PVC
deck will resist fading, but composite decks also get pretty
hot since the material is so dense, PVC does not get as hot
but it will be more expensive and has its own limitations.
If you have a dark color so you know buyer beware if you're
going to get trucks or other composite decking, and you're
gonna put it in direct sunlight and you live in Mississippi, you
might want to think about getting the lightest color
possible. Obviously that'll stay a little cooler. The companies
in this space think composites can take a lot of share away
from wood they already have in other categories in siding. For
example, wood only commands a 13% market share. fiber, cement,
vinyl, PVC and other materials have all been taken over that
segment of the market treks has been betting on continued growth
for some time. In June 2019, the company announced a multi year
capital investment plan worth $200 million. At the time
executives said the plan was a response to faster than expected
conversions from lumber to composite decking. As part of
the plan trucks built a new 200,000 square foot factory. The
new building, which opened in January 2021 is part of the $200
million plan designed to achieve a 70% increase in decking
capacity. Trucks also made upgrades to production
facilities in Nevada would accounts for about 78% of the
overall marketplace in trucks, especially things that can steal
more of a share from lumber. There are about 60 million decks
in the United States and about half of them are thought to be
past their useful life. While a Zack also wants to grow with
stalking business. It is also thinking of how it can cluster
decking products within a larger outdoor product portfolio.
We think that that this category is going to continue to expand
we deal with porches which is the front of the house as people
look at the backyard. It's not just deck people are doing much
more on surfaces. You know, I mentioned patios, that there's
just a lot of opportunity as people focus more and more
outside. You know for companies like us as as we continue to
invest not only in the decking side of the business but the
stuff around the outside of the house that provide that
sustainable low maintenance beauty.
Both companies are leaning into sustainability and recycling in
part because both believe social responsibility is a high
priority for a lot of customers today, especially younger ones,
just as treks has been the pioneer in the composite decking
category. It has also led in the use of recycled materials. In
2020. It used 362 million pounds of recycled plastic and another
547 million pounds of reclaimed wood. That said a sec is
committed to catching up to its rival. Within the last year it
completed a lifecycle assessment and found that its composite and
PVC products have lower total carbon footprints then
sustainably harvested pine 15%, lower for wood composite and 5%
for PVC in fiscal year 2020 is like used 400 million pounds of
recycled material to make its products mostly recycled plastic
with some recycled wood flour. It wants to raise that to a
billion pounds annually by the end of 2026. It's important not
to oversell the sustainability angle says Eric Perkins. But if
they look good last a long time and provide minimal worry they
might continue their spread across the country.