Top 50: Tumultous Times for Contractors

June 1, 2002
The year 2001 may have been an odyssey of opportunity for some, but for most of the country's largest electrical-contracting firms, it turned into an economic oddity. It was a hard year for big business in the United States. For electrical contracting, it seemed the bigger the business, the bigger the financial woes. CEE News' Top 50 Electrical Contractor surveys came back full of such phrases as

The year 2001 may have been an odyssey of opportunity for some, but for most of the country's largest electrical-contracting firms, it turned into an economic oddity. It was a hard year for big business in the United States. For electrical contracting, it seemed the bigger the business, the bigger the financial woes.

CEE News' Top 50 Electrical Contractor surveys came back full of such phrases as “economic pressures,” economic downturn,” and “continued recession.” But the one word contractors most often used to describe business in 2001 was “flat.” The most popular word to forecast 2002 and beyond? “Flat” again.

Recession or not, some contractors found a way to profit and grow. Posting big gains in 2001 were Rosendin Electric Inc., San Jose, Calif.; Mass Electric Construction Co., Boston; and Morrow-Meadows Corp., Walnut, Calif. Capital Electric, Kansas City, Mo., and Fisk Electric, Houston, continued strong and steady. Fourth-ranked Quanta Services Inc., Houston, a contractor consolidator, reported a whopping 58% increase.

Contracting consolidators, those giant national firms that rose up in the late 1990s, took the brunt of the bad economy in 2001. Integrated Electrical Services Inc., Encompass Services Corp. and Quanta Services Inc., all of Houston, are struggling with debt and sluggish markets. Meanwhile, the telecom division of Bracknell Corp., Minneapolis, filed for Chapter 11.

The four consolidators, formed from hundreds of local and regional electrical, telecom and mechanical businesses, acquired successful contractors and planned to standardize office procedures and product purchasing to maximize profits. But it simply hasn''''t happened. The consolidators cite reasons that range from overextension of capital to a collapsing telecom market. Some analysts believe that the contractor consolidation is failing because financial people run the companies — not electrical contractors, who understand construction''''s ebb and flow.

One shining exception to the corporate contractor conundrum has been EMCOR Group, Norwalk, Conn., which made Fortune magazine''''s most admired companies list. EMCOR reported flat sales and a flat 2002 outlook, but remains the only publicly traded consolidator still turning a profit; at press time EMCOR''''s stock was trading at over $60 a share.

Encompass, like many companies, blames financial troubles on the collapse of its faltering telecom market, the tragic events of Sept. 11 and a general economic downturn. The company also predicts flat sales for 2002, with continued general economic softness and no recovery in telecom industry.

Things could get even worse for the consolidators, according to a report from Standard and Poor''s. Quanta Services reportedly is in a power struggle with its biggest investor, UtiliCorp United Inc.; Encompass is trying to get through 2002 without violating its lending agreements, like it did it 2001 and Integrated Electrical Systems and Encompass both had their credit ratings lowered early in 2002.

Power struggle or not, Quanta seems to be doing just fine. “We expect continued growth and demand for our services…though a continued economic downturn may lead to less demand,” said John Colson, Quanta CEO.

Perhaps the biggest surprise in this year''''s Top 50 report, is the Top Challenges list (see page 25). Last year, 59% of the survey respondents listed finding qualified personnel as the top challenge for 2001. This year, competitive bidding came in number one; beating the perennial-favorite contractor complaint — the skilled labor shortage — which came in second for the first time.

About the Author

Amy Florence Fischbach and Michael J. Harrington

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