With prosperity comes responsibility. That's the lesson electrical contractors in this year's Top 50 list learned in 2005 (click here to see Top 50 chart). For the second year in a row, sales for electrical and datacom services grew in record numbers, totaling more than $7.3 billion. The average gain measured 16.6%, well above last year's average gain of 11.6%. Almost half of the 50 firms reported a percentage change of more than 10%, and only 10 firms accounted for a negative percentage change. In addition, more than three-fourths of the firms met or exceeded their sales goal for 2005 (Fig. 1), with only seven missing it, mostly by a very narrow margin. The average net profit of the electrical contractors that provided that number — more than one-third — equals 3.1%. In fact, two firms even reported net profits higher than 8%, an almost unheard of number in an industry plagued with high overhead. Even more optimistic is that more than half of the firms described the business climate in 2005 as “strong,” with 28% at “fair,” and only 12% labeling it “weak” (Fig. 2).
Many of the firms attribute their continued good fortune to increased productivity in the field, larger contracts, better pre-construction communication on the part of the engineers (leading to better quality plans and specs), improved project management, surety availability, and successful branding and advertising campaigns. Several firms launched training programs for their rank and file as well as supervisors, which improved both the work practices in the field as well as safety numbers.
But despite impressive sales and record net profits, firms are concerned by rising costs — specifically the fluctuations in materials, fuel, and labor prices — and availability that make putting together accurate project budgets and meeting tight schedules difficult. Ironically, the post-hurricane reconstruction efforts in the Gulf Coast that have provided an almost unlimited amount of work have also put an added strain on the nation's fuel supply, workforce, and material resources.
However, the higher cost of doing business may come from increased competition among contractors. Several firms blame general contractors, owners, and developers that award projects to competitors based on lowest price — rather than best value — for cutting profit margins. In addition, rising interest rates have caused a downturn in the residential market, putting more pressure on other core markets to fill the gaps (Table 1 for a listing of the eight hottest and coolest market sectors as identified by the respondents to our Top 50 survey). In 2005, some firms even went as far as bidding on projects in new vertical markets in order to take advantage of one or two more lucrative niches (Table 2).
Present and future challenges In a healthy economic climate, it would seem that current challenges would be few and far between. However, when asked to name challenges faced in 2005, the contractors in the Top 50 list came up with an impressive list. An overwhelming majority cited the shortage of labor, particularly the shortage of skilled labor and experienced project managers and supervisors. Along with the costs of carrying employee benefits and pensions, firms now find they must invest in workforce development and training programs to attract younger employees to the industry and also teach them skills and safety procedures.
Rounding out the list were increased competition (union contractors were especially adamant about citing competition from non-union shops), managing sales growth, implementing safety initiatives, a slowdown in field productivity, decentralization vs. centralization, long-term construction schedules, slow payment, rising fuel prices, and weak vertical markets.
2006 outlook In 2006, many firms expect the shortage of skilled laborers and supervisors to continue, and many expect an inevitable shortage of pre-construction planners on the engineering side, including CAD operators and estimators. The firms also don't expect any relief from the rising price of materials, especially copper. In addition, pessimism regarding general contractors' ability to meet schedules and payments will continue into the rest of this year.
While these factors won't spur a downturn in the industry any time soon, they will affect net profit in the near future. Therefore, many firms are re-examining the way they bid on projects, as well as their business strategy. In these boom times, some firms have taken an aggressive approach to regional or nationwide growth. They've opened new branches, acquired established companies, or hired more permanent employees. Others tend to act more conservatively, concentrating on handling the newfound prosperity in a more managed way in an effort not to overextend their business. A dozen firms with less than 500 employees on average in 2005 were able to compete with much larger firms (click here to see Table 3).
Without proper budgeting and management, profitability is almost impossible to maintain in an era of expanded volume. With whichever course of action they take, 20% of the firms on this year's list expect an increase of more than 10% in sales of electrical and datacom services — only eight expect any sort of decrease in the next year (Fig. 3). Also contributing to their confidence is legislation passed in 2005: The Energy Policy Act of 2005, with tax refunds and bonuses for lighting and other energy-efficient buildings, and the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), which authorizes the federal surface transportation programs for highways, highway safety, and transit for the five-year period between 2005 and 2009. Both free up spending for new and retrofit projects in the private and government sectors, allowing the firms on this year's Top 50 list to keep increasing sales.
Top movers Since the debut of the Top 50 list in 2000, 20 firms have earned a spot on the list all seven years (Table 4). EMCOR Group, Norwalk, Conn., has remained in the Top 3 since its initial showing in 2000 (Fig. 4). Truland Systems Corp., Reston, Va., debuted at the bottom of the list at No. 49, but this year commands the No. 21 position.
More than half the firms rose at least one position, while three held their position from last year, and 11 dropped at least one position (10 firms were not listed last year). Both Baton Rouge, La.-based The Newtron Group and MMR Group gained nine spots, landing at Nos. 14 and 19, respectively. Miller Electric, Jacksonville, Fla., and Walker Engineering, Fort Worth, Texas, jumped seven spots to Nos. 17 and 22, respectively. Rising six spots are Parsons Electric, Minneapolis, at No. 20 and Hatzell & Buehler, Wilmington, Del., at No. 29.
First appearances This year three firms make their initial appearance in the Top 50. Rogers Electric, Alpharetta, Ga., debuts at No. 33 with $87 million in electrical and datacom sales. On average, in 2005 Rogers employed 1,000 workers. The company focuses on commercial work. It is licensed to work in 47 states.
At No. 47 is Whippany, N.J.-based Star-Lo Electric, which reported $60 million in datacom and electrical sales and an 8.7% net profit. With 380 employees on average in 2005, the company is licensed to work in New Jersey, New York, and Pennsylvania.
The company specializes in new construction (90%) in the industrial, commercial, and mission-critical markets, but last year also branched out to the health care and sports and recreation sectors. Finally, Van Ert Electric, Wausua, Wis., rounds out the list at No. 50 with $53 million in electrical and datacom sales. With offices in Wisconsin and Michigan, the company focuses on the industrial, commercial, and mission-critical markets, as well as a design/build component and power quality and coordination studies.
Note: The information used to generate this report was obtained through an exclusive EC&M survey and original research. If you would like your company added to our survey mailing list, please contact Staff Writer Beck Ireland at email@example.com.