A plastic alternative to wood, used to construct outdoor decks, is driving sales for CPI Plastics Group Ltd. as the maintenance-free product catches on.
In the past six years, the Mississauga-based plastics company has expanded far beyond its origins as a custom-order plastic processor, at one time making mostly specialty parts for automobiles.
CPI also produces plastic film products, such as garbage and food storage bags -- notably, Strong Fit Outdoor garbage bags for Rubbermaid, which stores started carrying in June.
But it's the wood replacement product, called Eon, that is really taking off. Used as spa cladding -- to surround a hot tub, for instance -- and fencing, among other things, the main growth of Eon has been in the alternative decking market. CPI views this as their strongest opportunity to increase sales and grow as a company.
"It's a maintenance-free, easy lifestyle [product]" said Peter Clark, chairman and chief executive officer.
Decking system sales increased $7.8-million or 96 per cent in the last quarter ending June 30, to $16-million from $8.2-million in the second quarter of 2003. Year-to-date, decking sales are up 112 per cent.
While more expensive than wood, a deck made of Eon doesn't need to be stained or maintained and won't show the effects of the elements.
Mr. Clark said the company is hoping to become the No. 2 player in the North American alternative decking market in 2005 -- behind Trex Company Inc., the largest U.S. manufacturer.
Sales for CPI Plastics were $144.3-million in 2003 and profit was $4.4-million.
Mr. Clark said that sales growth for 2004 is expected to be more than the company's entire revenue five years ago.
He said that in the past year, U.S. sales have grown more than 100 per cent. The Eon decking is sold exclusively in Canada at Home Depot and the company is focused on expanding its distribution in the United States, having redesigned the Eon product in the past year and cut the retail price.
In April, the company purchased the Isle of Wight-based Extrudawood International PLC, to which it had paid royalty and licensing fees for technology used in manufacturing Eon.
Mr. Clark said the purchase was important because it means CPI now owns the technology. However, it added to the company's debt, which stood at $62.7-million last quarter, compared with $40.6-million a year earlier.
"We're at debt levels that we're not comfortable with," he said.
Mr. Clark said the company is focusing on decreasing the size of the debt, and to do this, will reduce capital costs.
Changes in the exchange rate have also posed a problem for CPI. But the most significant concern is that the cost of oil has caused the price of petroleum-based resin, used to make plastic, to rise to historically high levels. Mr. Clark said there will be new pricing of products -- though the company will try to avoid raising the price of Eon as they are trying to increase sales.
Shares of CPI rose to a 52-week high of $7.24 last September and hit a low of $5.10 in March, but have since remained steady. The stock closed Friday up 5 cents at $5.80 on the Toronto Stock Exchange.
Corey Hammill, an analyst at Paradigm Capital Inc., said rising resin prices are expected to cut into profit margins for the rest of the year, though he added that CPI has a hedging program in place to help offset the higher prices.
"Resin prices remain the only impediment to growth," he said.
Mr. Hammill noted that independent analyses such as a recent Consumer Report article, which ranked the Eon deck board as the best buy in backyard decking, will help foster brand recognition.
He said that as the price gap narrows between lumber, which is becoming more expensive, and alternative decking products -- typically more expensive, but coming down in price -- it makes sense that more consumers would consider a non-wood deck.
In a research note to clients, Robert Catellier of Clarus Securities Inc. wrote that increases in decking sales are important as they demonstrate market acceptance of the re-engineered deck board. As well, "higher volumes lead to operating efficiencies required to offset rising resin prices."
Mr. Clark said the key to increasing Eon sales is "getting the story out and getting the proper distribution channels."
"Where we are in a store, displayed alongside our competitions' product, we outsell them," he said.
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