The economy may have hit rock bottom in 2002, but several publicly traded engineering, consulting, and contracting firms managed to turn in a better margin and return-on-equity performance than in 2001.

For its annual report titled “Mixing Up the Numbers,” FMI Corp., a Raleigh, N.C.-based management consulting and investment banking firm, looked at 71 E&C companies, including 14 architectural, engineering, and consulting firms; 38 construction companies; and 23 construction materials suppliers. Four of these firms were included in two groups. The firm compared the average annual returns for E&C companies' stock and the S&P 500 Index from January 1995 to May 2003 (see Chart).

The report reveals that E&C stocks are more volatile than those on the S&P 500, which delivered an 8.7% return. The engineering companies had the strongest annual return at 8.2%, followed by the contracting firms with a 7.4% return, and the materials suppliers with a 5.7% return. The report also showed that the engineering and construction group's average return on equity (ROE) was 9.4% in 2002 vs. 7.6% in 2001.

While this group's stocks peaked during the first six months of 2001 and 2002, the stock for the contractor group hit its peak in mid-2000 when the consolidators were at their top performance levels. Many of the industry consolidators that joined the public market from 1996 to 1999, however, are now out of business, bankrupt, or undergoing material restructuring. As a result, the median stock industry volume plunged 13% for the specialty contractor group, which reported a — 22% ROE in 2002.

While the contractors and engineers reported different financial results for 2002, the overall performance of the construction industry in 2002 was similar to that of 2001. Total construction put into place was about $850 billion in 2002, which is down from the $862 billion record year in 2001, according to FMI's Market Research Group. FMI forecasts a continued decrease in construction markets for 2003 due to a cooling in the residential building sector, which posted record numbers for the last few years.