Trex's Mysteriously High Margin: A Occupation Organisation Analysis Occupation For You...

Apple is a definitively high margin manufacturer. Everything virtually that fellowship screams high margin.

The materials feels expensive as well as (frankly) is expensive. But yous are willing to pay for it because (a) it defines your identity as well as how yous experience virtually yourself, (b) actually does run pretty good as well as (c) has really practiced ways of keeping contest out - then yous can't purchase a truthful substitute.

On overstep of that Apple has software sales which (typically) are fatter margin than manufacturing.

Let's while out merely how high margin.

Here is Apple's 2017 2nd quarter results (link). Note these results are unaudited as well as inward millions of dollars.

Reported sales were $52,896 million, Gross Profit was $20,591 million, as well as Operating Income was $14,097 million.

These are stunning numbers (especially because of their size) but lets while them out every bit percentages...

Gross margin was 38.9 percent.
Operating margin was 26.7 percent.

Just stunning numbers.

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At Bronte nosotros convey the (justified) persuasion that whatsoever manufacturing fellowship amongst margins fatter than that needs to a greater extent than or less explaining.

So allow me acquaint you Trex Company.

Trex makes decking. Plastic decking. Outside many houses inward middle America is timber deck oftentimes amongst a barbecue - or at to the lowest degree a grill - sitting at the end. This is a house for barbecue, socialising as well as - of class - beer.

The beer is really important.

The deck is too a frustration for owners because exposed to the conditions the deck needs to live maintained regularly - as well as at a minimum oiled every twelvemonth or so.

Sure the frustration tin plough over notice live showtime past times to a greater extent than beer. And I estimate that makes it okay.

But these days yous convey an option - yous tin plough over notice convey imitation timber decking. The imitation timber is made of plastic as well as the sales pitch is that it looks merely similar timber but all yous postulate to do for maintenance is sweep it.

Plastic decking is sold every bit a superior option to timber.

There are lots of suppliers. There is Trex Company, Fiberon, Azek and others. Beyond that Home Depot as well as Lowes convey their ain menage brands (eg ChoiceDek available exclusively at Lowes).

So amongst enough of contest for a edifice production where most people volition non know the build names (and where the purchase is large as well as then yous powerfulness want to store it) yous would await lowish margins.

But yous would live wrong. The margins are stunning.

Here is the terminal quarterly effect (link). This fourth dimension the numbers are inward thousands of dollars rather than millions...

Reported sales were $144,806 thousand, Gross Profit was $65,169 thousand, as well as Operating Income was $41,900 thousand.

Again nosotros should while them out every bit percentages...

Gross margin was 45.0 percent.
Operating margin was 28.9 percent.

Whoa - Trex Company - amongst lots of contest - is fatter margin than Apple.

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So what is happening here? How the hell does Trex do it?

There is your concern puzzle for today.

And if yous are a journalist amongst a middle-America shell at that topographic point is a dandy floor hither for you. This 1 is merely made for the USA Today or non-business mainstream media.





John

Disclosure: brusque a petty Trex (which traded badly on these results).

This is non a death-grip brusque similar tell Home Capital Group. But it is a origin of to a greater extent than or less amusement. I similar puzzles similar this.