EC&M’s Top 50 Electrical Contractors lay the tracks for increased revenue in a slowly improving economic climate
Many of the firms in the sixth annual listing of EC&M's Top 50 Electrical Contractors were relieved to see the tail end of 2003 (to see a complete listing of The Top 50 Electrical Contractors in PDF form, click here). Last year's report recorded a meager 1.4% average gain in sales and a loss in sales for half of the companies. In contrast, in 2004 electrical and datacom sales for almost three-fourths of the companies in the Top 50 rose (some skyrocketing by 40% to 60%) by an overall average of 11.6%, fulfilling the prediction made by 86% of last year's Top 50 companies that the economy was likely to improve. In addition, in last year's surveys, more than half of the respondents characterized 2003's economy as “stagnant.” In a sharp turnaround, when describing 2004's business climate, almost half of the Top 50 firms labeled it “fair” and another 22% went so far as to call it “strong” (Fig. 1). Could this be the start of an economic recovery for the electrical construction industry?
Perhaps a more objective indicator of the construction industry's turnaround in 2004 is the employment number from the U.S. Department of Labor's Bureau of Labor Statistics (BLS). According to the bureau's “Industry at a Glance: Construction” study, the total annual construction employment for 2004 was 6,964,000, far surpassing 2001's previous record high of 5,332,000 (Fig. 2). Mirroring the nation's totals, 48% of EC&M's Top 50 reported an increase in the number of employees (Fig. 3). There were also fewer extended mass layoffs in the construction industry. The BLS reported 870 extended mass layoffs in 2004, down from 943 in 2003 (Fig. 4). Of the Top 50, only five firms reduced their workforce by more than 10%.
In 2003, Forth Worth, Texas-based Walker Engineering, Inc.'s (No. 29) founder Charlie Walker bought the company from Building One Service Co. for $7 million — five years to the date after selling it to them for $100 million. At that time, there were initial layoffs: 25 out of 750 employees. A year later, after a 41.2% gain in electrical and datacom sales, the firm hired an additional 125 employees for a total of 950 corporate, field supervisory, and field personnel. Its forecasted sales figure for 2005 is $138 million. Vice President Dutch Wickes credits the company's sales and employee gains to an increased workload. “It's really just a factor of being more aggressive and going and getting work,” Wickes says. “We've had a couple of big jobs that we were successful on.”
Bid often and bid aggressively was how most firms took advantage of 2004's bounty. Overwhelmingly, firms answered that their main initiative to improve business in 2004 was establishing or strengthening relationships with customers. Many firms put into play strategic plans for expansion into larger regional or national territories while others entered new fields, providing services to markets such as wind power, nanotechnology, or security (Fig. 5). For EC&M's Top 50 Electrical Contractors, 2004's improved economic climate seemed to be an especially opportune time for electrical contractor firms with a wide reach, literally and figuratively.
Branching out. “Location, location, location” can be as important to electrical contractors as it is to realtors. While construction employment for the nation has risen overall, certain states have been quicker to recover than others. The BLS reports that the largest year-over-year percentage gains in 2004 for seasonally adjusted construction employment were in Nevada (11%), Idaho (10%), Arizona (9%), and Kentucky (7%) and that construction employment dropped year-over-year in Colorado (-3%), Louisiana (-1%), and California (-0.1%). For the firms in the Top 50, especially those in the top 10, the best way to offset any differences in regional economies is to be able to provide services to a wider territory. In 2004, 32% of the Top 50 firms added branch offices in order to cultivate a larger regional or national presence. Only a handful of firms reported selling or closing branch offices (Fig. 6).
Last year brought new territories to Infra-Source Services, Inc. (No. 2). The company moved its corporate headquarters from Aston, Pa., to Media, Pa., and three acquisitions extended its geographic reach to eight new states, which increased its workforce at year-end by nearly 45%. However, the company did divest RJE Telecom, Inc., a telecom craft services provider, in September. Homer Purcell, senior vice president of business development, ascribes the company's growth to an improved market for the company's construction services as well as strategic acquisitions. “We were fortunate enough in 2004 to enjoy both organic growth and enhanced opportunities from the acquired businesses,” Purcell says. “We saw in 2003 the need to extend our services nationally to better serve existing and new customers. Expanding geographic reach is a key strategic objective that we began implementing in 2004. A major acquisition last year, Maslonka & Associates, a specialty contractor based in Mesa, Ariz., with operations in Oklahoma and California, extended our customer base in the transmission market.”
InfraSource's principal business segment — Infrastructure Construction Services — includes utilities; heavy industry such as petrochemical, processing, and refining businesses; and government. In 2004, the company extended its services throughout the southern, southeastern, southwestern, and western United States. In addition, operating unit M. J. Electric, Inc. currently is involved with providing electrical and instrumentation services for the Currant Creek power plant in Mona, Utah, and with similar projects in Las Vegas and San Francisco.
Opening branch offices in states with higher construction spending is one way to accrue extra revenue. Fostering repeat business with national companies and implementing a successful and aggressive public relations campaign is another. Los Angeles-based Bergelectric (No. 6) closed the year with a 33.5% gain in datacom and electrical services sales. It opened two branch offices, one in Sacramento, Calif., and another in Chandler, Ariz. However, the firm also received national attention for winning the Associated Builders and Contractors, Inc. 2004 Excellence in Construction Award and AGC's Construction Safety Excellence Grand Award. Vice President Steve Buhr explains the company's ability to bring in increased sales by not only increasing its geographic territory, but also capitalizing on media attention. “That type of national presence has helped us,” says Buhr. “We expected a good growth in 2004 but it exceeded it considerably far more than we expected. A lot more calls started coming our way.”
In the case of Freeport, Ill.-based Morse Electric, Inc. (No. 46), one door closed while another one opened. Janesville, Wis., exercised its right of eminent domain by widening a street in front of Morse's facility. The city annexed most of the property, leaving no space for parking and without offering any sort of appeasement. So Morse sold the building and moved to Beloit, Wis., which welcomed the firm.
According to Brian Scott, treasurer, Morse decided to make the best of the situation by implementing changes at the back end of the move. “We consolidated some of our operations into that facility,” Scott says. “Instead of running three or four warehousing facilities to service our field employment base, we went to one central warehousing facility in Beloit. It didn't end up closing any of our facilities; it just took some of our people out of our facilities and put them in that one. We did have some decline in the office because of that, but that decline was offset by some increase in the field.”
In fact, Morse reported a 6% increase in its number of employees from 2003 to 2004. Scott attributes the increase to the improving economy. Many of the new employees are in the field employment base, hired because of the increased workload in 2004. “We're being cautious and we're making some plans,” Scott says. “We've looked at some additions in our support staff to kind of handle some areas where we feel there's going to be some upswing. But we're doing it very selectively and very slowly. We want to be very cautious and understand that the plan is going to come through and be sustainable. We're using the buzzwords ‘sustainable’ or ‘not sustainable.’ If it can be sustained, then we're starting to selectively add in positions to support that.”
Finding new niches. With new acquisitions in new territories comes — the firms hope — a greater demand for services in their traditional markets. The most useful strategy for opening branch offices is to create a greater regional or national presence, yet still bid on projects in familiar markets. Therefore, the purpose of extending geographical reach isn't necessarily to start offering services in new markets, but sometimes it may be beneficial to the firm to keep an open mind.
In 2004, 36% of the Top 50 extended services in new markets. The Top 50 reported that they traditionally focus on providing electrical and datacom services to industrial, commercial, and health-care facilities. According to the firms exploring new fields, providing services for photovoltaics or wind power, security, utility, and government or military niches has been the most common way to expand their customer base. In some cases, the companies were looking for additional work, divining rod in hand, so they either acquired companies in new niches or retrained their own field personnel. In other cases, the work in new fields came to the company as an offer too good to refuse.
Mableton, Ga.-based Inglett & Stubbs (No. 21) saw a 62.2% gain in sales largely due to military work, a market they entered in 2004. Jeff Giglio, president/CEO, is optimistic that providing services for this new field will keep his firm in the black. For 2005, the company predicts a 5.3% gain in sales over 2004's record year. “We just started doing a little bit of service work,” he says of the U.S. military contracts. “As a result of that, they liked what we were doing and kept adding more and more to us. We plan on it being at that level for a couple more years.”
Cache Valley Electric Co. (No. 32) in Logan, Utah, entered the security market through an acquisition in Salt Lake City. The smaller firm had already hired Cache Valley for some contracting work, so when the idea of expansion into the security niche came up, it approached Cache Valley. “They had a great niche and a great reputation,” Jim Laub, Cache Valley president/CEO, says. “They had opportunities to expand but they needed our clout to take that next step. It was a good acquisition. They're doing excellent now. They're growing and everybody's happy.” In 2004, Cache Valley experienced a 20.4% gain in sales and hired 141 employees.
Cautious optimism. According to the U.S. Census Bureau, the value for construction put in place for 2004 was approximately $1 trillion, a 9% gain over 2003. In 2004, EC&M's Top 50 accounted for $8.4 billion. Almost one third of the survey respondents attributed last year's gains in electrical and datacom revenue to an improved economy. In fact, 18.6% of respondents claimed that a slow economy was still to blame for decreases or increases smaller than they expected (Fig. 7 on page 46).
The Top 50 contractors are optimistic, yet cautious, about the possible turnaround of the construction industry's economic climate. Skeptical about topping 2004's banner year, 10 of the 39 firms that reported a 2005 sales forecast anticipate a drop in sales, and only 12 are expecting a year-to-year sales gain of more than 10% (Fig. 8 page 48). The prediction for 2005 is for an overall average gain of only 5.5%.
The executives at Bergelectric aren't expecting to exceed their sales goals by the same margin in 2005 — they've predicted $300 million, $1 million less than total sales for 2004. But Vice President Steve Buhr does think growth will continue, especially with the national presence his company cultivated in 2004. “We're not making any big moves this year to further the growth,” Buhr says. “We're still trying to get over the growth from last year and stick with it. But we're riding the climate we currently have, and we still see a good work climate out there. The work is continuing because there are other parts of the country where the same work is available.”
Electrical contracting firms are reluctant to call the increased sales in 2004 a full-blown recovery. Brian Scott from Morse Electric thinks it may only be the beginning of a turnaround and that calling it an actual “upswing” might be premature. “I think it's a trend to start to see an upswing. I think we'll see more of that as we get into the tail half of '05. Then we'll start to see if that really truly is an upswing or if it's just a moderation and really not coming too far out yet.”
Morse's predictions for 2005 sales are hopeful. It forecasts $60 million in electrical and datacom sales, a 15.6% gain over 2004. “Our hunch is that we're going to see a slow trend up,” Scott predicts. “We're going to see the construction industry come up.”
Sidebar: The Top 10
In its sixth year in the top three of EC&M's Top 50, Emcor Group, Inc. comes full circle to No. 1, a position it hasn't held in the listing since 2000. The firm reported $1.2 billion in electrical and datacom services sales in 2004, a 0.9% increase from the previous year. With more than $4.7 billion in total annual revenues, the Fortune 500 company specializes in designing, installing, operating, and maintaining electrical and mechanical systems for power generation and distribution, lighting, voice and data communications, plumbing, and HVAC systems. Although 80% of its sales come from projects in the United States, the company also works in Canada and the United Kingdom. Through about 70 subsidiaries and joint ventures, it provides services to its commercial, residential, institutional, health-care, and utility customers. In 2004, Emcor also began providing services for facilities in the nanotechnology field.
In its forecast for 2005, Emcor Group predicts its electrical and datacom services will drop by 14.7%. However, the 5% decrease in sales it predicted for 2004 went unrealized. Currently, the company isn't reporting any major plans to enter new market segments or expand service territory. It expects to keep its 26,000 employees busy (6,213 in the electrical segment) by continuing to establish and strengthen relationships with its clients.
Taking InfraSource Services, Inc. from its No. 9 ranking last year to its current No. 2 spot was a 26.4% gain in electrical and datacom sales from 2003 to 2004. The company attributed the gain to organic growth and growth through acquisition. The firm described the 2004 business climate as “strong” and claimed that the utility, industrial, and power plant market segments were the most lucrative. The firm employed 4,200 people nationally at the end of 2004, a 45% gain from 2003. This is its third year in the listing.
InfraSource Services made major acquisitions in 2004. The self-described provider of infrastructure construction services for electric power, gas, telecommunications, and energy-intensive industries in the United States made several additions to its stable of companies that provide end-to-end T&D installations: Maslonka & Associates, a Mesa, Ariz.-based electric transmission and construction services provider; EnStructure, the Farmington Hills, Mich.-based construction services business of Semco Energy, Inc.; and Utili-Trax, the Ramsey, Minn.-based construction business of Connexus Energy. Its other holdings include Houston-based Dashiell/Dacon; MJ Electric in Iron Mountain, Mich.; East Haven, Conn.-based Electric Services, Inc.; New Berlin, Wis.-based InfraSource Underground Services; and Blair Park/Sunesys in Warrington, Pa.
Since its induction to EC&M's Top 50 at No. 25 in 2001, Henkels & McCoy, Inc. has been on the rise. The firm's 2004 sales of $249.6 million in electrical and $153.2 million in telecom was a 27.5% increase over its 2003 level. Its traditional market segments include utility, industrial, commercial, institutional, health-care, sports and recreation, and government or military. However, its major project for 2004 was in emergency restoration. In the aftermath of the storms that knocked out power supplies and downed utility poles, shutting down gas stations, grocery stores, and air conditioning in South Florida, southern Alabama, and the Florida panhandle in late summer 2004, Henkels & McCoy dispatched workers and equipment from as far away as Pennsylvania, New Jersey, and the Midwest to help its company affiliates restore power services. Working with local utilities and competing contractors, the firm's crews stayed there for weeks, often working more than 16 hours a day, in order to restore power to the area. Henkels & McCoy has a long history in emergency restoration, dating back to the Great Hurricane of 1938, when it was first called on to help restore power to large parts of Connecticut and New England.
While still holding strong in its sixth appearance in the Top 50, Mass. Electric Construction Co. reported a 12% drop in sales from 2003 to 2004, with $326.5 million in electrical and datacom services. Yet it jumped three spots to land at No. 4. A branch office in Denver was added to the company's list of 12 other offices, including locations in cities such as Boston; New York City; Miami; Colorado; Dallas; and San Leandro, Calif. Mass Electric Construction Co. is a wholly owned subsidiary of Peter Kiewit Sons of Omaha, Neb., an employee-owned company.
The national electrical contractor specializes in mass transit; railroads; high-tech production facilities for plastics, semi-conductors, and pharmaceuticals; electrical power generating and distribution facilities; major “intelligent transportation systems”; and communications networks. The company reports that in 2004 it began providing services for the photovoltaics and wind power market segments.
Despite suffering the largest year-to-year percentage decrease in electrical and datacom services revenue among the Top 50 firms, MYR Group, Inc. hung on to the No. 5 spot for the third year in a row. Sales for electrical and datacom services in 2004 were $320.4 million, down 26.8% from its 2003 total of $437.8 million. By year's end, the workforce for the holding company of electrical and mechanical contracting firms totaled 2,329, a reduction of 23.3% from 2003's total of 3,036. This drop was due in part to the sale of two subsidiaries, Seattle-based D.W. Close Co. and Pittsburgh-based Power Piping Co. The company attributes its drop in sales to decreased spending in the construction market. Its forecast for next year is $400 million, a 24.8% increase from 2004.
Bergelectric Corp. posted the highest year-to-year percentage increase in the top 10, jumping from 14 in last year's ranking. Sales for the specialty electrical contractor totaled $301.7 million in 2004, a 33.5% increase from the previous year's total. The firm bested its 2004 sales goals by greater than 10%. It credits its national presence, fostered by opening branch offices in Sacramento, Calif., and Chandler, Ariz., and winning the Associated Builders and Contractors, Inc. 2004 Excellence in Construction Award and AGC's Construction Safety Excellence Grand Award and “Best of the Best” title for its increase in sales.
Decreases in the cost of safety liability also contributed to the firm's success. From 1996 to 2004, Bergelectric went from just a little more than 500 employees and a 7% lost workday rate to 1,700 employees and a 0.4% lost workday rate. In that same period of time, the company cut its property, liability, and automobile loss history from $2.5 million to less than $55,000 despite expanding its business from three to 16 states.
Despite a 3.4% drop in electrical and datacom services revenue, Xcelecom, Inc. moved from the No. 11 spot to No. 7, finishing the year with $337.2 million in total sales, of which $283.5 million was in electrical and datacom services; the remainder was in mechanical and fire-protection contracting. The firm says it met its sales goals, but that the margin was still very depressed. It notes the economy is improving, particularly outside of the U.S. Northeast region, but gives the credit for meeting its sales goals to various initiatives: scaling back or closing operations in weaker markets, including commercial, industrial, and power plants; shifting resources to stronger markets, such as utilities and gaming; and increasing training and management development efforts. For 2005, the firm predicts a 15.7% year-to-year increase in electrical and datacom revenue, forecasting $328 million in electrical and datacom sales, with total overall sales at $380 million.
Sales for electrical and datacom services dropped 22.3% to $282 million in 2004 from $363.1 million in 2003 for Fisk Corp. Yet, for the third year in a row the firm weighed in at No. 8. The firm says this decrease was due in part to competition from non-union contractors and a slow economy in the mission-critical market. Fisk provides a variety of building systems services to the electrical construction and maintenance services industries, mostly focusing on the residential, health-care, and airport market segments.
In September 2004, former owner Larry Brookshire bought back Fisk to once again become its president and CEO. Brookshire sold the company, founded in 1913 by John R. Fisk with $25, to Tyco Electronics in 2000. Fisk's subsidiaries are OneSource Building Technologies in the United States and Australia and Pinacl Solutions in the United Kingdom.
Rosendin Electric, Inc. jumped four spots after experiencing a 13% year-to-year increase in revenue for electrical and datacom services in 2004, finishing the year with $260 million in sales. For its success, Rosendin depends on repeat business and diverse market opportunities. Its focus lies mostly within the health-care, power plant, and wind power markets. In fact, last year the 100% employee-owned electrical engineering, power, and communications provider was chosen by U.S. Wind Farming, Inc. (USWF), a public renewable energy developer and operator, for construction, operation, and maintenance of a nationwide series of small distributed (15MW) wind turbine agricultural renewable energy cooperatives. Rosendin runs 6,100 worldwide wind turbine installations comprising more than 4,000MW of capacity.
Moving up two spots to No. 10, the largest privately held electrical contractor in the United States, Cupertino Electric, Inc. (CEI) reported $257 million in electrical and datacom revenue in 2004, down 1.5% from 2003 but still within the range of the company's sales goals. For 2005, the company predicts that sales will slightly decline by 2.7%.
As the largest electrical contractor in Silicon Valley, CEI, along with its subsidiaries Cascade Controls and Ceitronics, designs, builds, and commissions the electrical infrastructure requirements for many telecommunications and data centers. Its data center expertise emphasizes maximizing floor space, accelerating the construction and commissioning schedule by developing a design/build model, and providing turnkey energy solutions, especially in parts of the western United States where the energy distribution system can be unpredictable.
Sidebar: The 51st Electrical Contractor
Since its incorporation in 1982, General Electrical Mechanical Industrial, or GEM Industrial, has experienced a steady rate of growth. Based in Walbridge, Ohio, the single-source industrial contractor did $1.5 million in total sales its first year. In its second year, the company reported $9 million in sales.
By the '90s, the company was averaging $90 million in sales, building up to $95 million in 2001 and its record-breaking total of $112 million in 2002. In the next year, however, the company's total sales fell to just $64 million, a 42.8% drop. Total sales for datacom and electrical services, usually 30% of the firm's total sales, were down to $13.1 million.
The company's rank in EC&M's Top 50 listing chronicles its rise and fall. Its sales numbers in 2001 placed the firm at No. 22. Two years later, its dismal 2003 sales caused the company to fall out of the ranking altogether.
“2003 was a hard year for everyone in Ohio, I think,” says Diana McVicker, marketing assistant for GEM Industrial. “No one was doing a lot.”
In 2004, the firm reported a 3.2% profit, with $102 million in total sales; $30.6 million of that total came from electrical and datacom services, a 133.5% gain from last year's showing in the same market segment — an impressive year that landed the company just outside the Top 50. Unlike other firms, GEM didn't acquire new branch offices or reach out to new markets to improve sales figures for 2004. Aside from slowly beginning to market its services in Cleveland, the company simply waited out the economy, focusing on its traditional markets: industrial and commercial construction. “As far as this past year, it was mainly economy improvement,” says McVicker. “There was a lot more to bid.”
The Ohio construction economy did show improvement between 2003 and 2004. According to the BLS, the industry employed 236,800 construction workers statewide in December 2004 (seasonally adjusted), up 2,500 from December 2003.
However, GEM is realistic about its sales for 2005, predicting just $93 million in total sales, with $27.9 for electrical and datacom services. The company realized it's still a tight market and persistence is the key to success.