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Privately held construction firms’ growth strong
Raleigh, N.C., October 1, 2013—Industry data from Sageworks, a financial information company, show that residential builders and remodelers make up one of the fastest-growing groups of privately held companies in the U.S. Privately held building construction (NAICS 2361) companies had average sales growth of 17.5 percent for the 12 months ended Aug. 31, based on a recent financial statement analysis. The category includes general contractors, builders and design-build firms for both single-family and multi-family buildings, and it includes both new construction and remodeling.
“Aside from the strong sales growth, these companies have a relatively healthy 4.6% net profit margin, rare for an industry that typically sees razor thin, or even negative, margins,” said Sageworks analyst Tim McPeak.
The increases among builders, along with sales growth at private home furnishings retailers and reports of soaring heavy-duty pickup truck sales, reflect the continued housing recovery, which some economists expect will continue.
Scott Cresswell, a partner with The Bonadio Group, a CPA and consulting firm that has seven offices across western and upstate New York, said that sales volume has been strong enough that some construction firms are facing a shortage of skilled workers. 
“Among my clients, I’m seeing an absolutely crazy labor shortage, especially in that market where people are building stick-frame homes, because there are not a lot of carpenters out there,” Cresswell said, noting his construction clients are mostly in New York and elsewhere in the Northeast. “I have seen some uptick in the number of single housing units being built by the clients I deal with, but my clients that do multifamily are exponentially off the charts with new work.” 

Overtime work is generating bigger paychecks for some workers, according to Cresswell, but most firms don’t seem to be facing pressure to raise wage rates. That may be partly because many construction workers are simply relieved to be back at work after the housing market’s collapse, he added.

McPeak said data on privately held companies don’t yet indicate that labor shortages or rising costs for some materials are eating into profits. Instead, the biggest “dangling sword” appears to be interest rates, he said.
Cresswell said some of the recent spending in the housing market is driven by people trying to move quickly before interest rates rise. “If the Fed’s going to do something to make those rates go up, which it sounds like it’s going to do, I think that’s going to curtail the growth that people have been seeing,” he said.
McPeak said trends in interest rates and sales among construction firms will be important to watch in coming months. “Interest rates are built off expectations, and the expectation of everyone is we’re going to start to see rates rise,” McPeak said.
Before the Federal Reserve surprised market-watchers last month by delaying plans to ease its monetary stimulus, the National Association of Realtors chief economist reported signs of a big drop in potential buyer traffic during August.
Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.
About the Data

Sageworks possesses a proprietary database of privately held company financial statements aggregated by industry. 
Sageworks aggregates private-company financial statements from accounting firms, banks, and credit unions through a cooperative data model with their clients. The data is segmented and can be queried by 1,400 industry codes, 70 financial metrics, company size, and geographic location.
About Sageworks
Sageworks is a financial information company that provides financial analysis and industry benchmarking solutions to accounting firms. Sageworks’ data and applications are used by thousands of banks and accounting firms across North America. Sageworks provides industry data on private companies to U.S. accounting firms at no cost. The company has been named to the Inc. 500 list of the fastest growing privately held companies in the U.S. and to the Deloitte Technology Fast 500.
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