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Sageworks industry update: Construction
April 17, 2014 – Data from Sageworks, a financial information company, on the performance of privately held construction companies show that the industry has seen steady profit and sales growth recovery since 2009. However, despite the industry’s strong comeback from the recession, the latest Housing Starts report from the U.S. Census Bureau and Department of Housing and Urban Development shows that new housing starts in March of 2014 were down 5.9 percent from the year before, at a seasonally adjusted annual rate of 946,000. This continues a trend of lower-than-expected starts for the year so far.
Despite some signs of slowed growth in the Census Bureau data for the beginning of 2014, construction-related industries continue to expand more quickly than other sectors. “In the last 12 months, private contractors have successfully grown revenues by an average of more than 12 percent, which has consequently also improved profitability,” said Sageworks analyst Libby Bierman. “The challenge for these business owners, however, is the Census Bureau’s recently released, less-rosy data, which might be considered a leading indicator for residential construction projects.” Eleven of the top 25 fastest-growing industries are construction and housing-related, indicating that their recovery has been a strong one despite weather and other supply-chain concerns that may continue to impact residential construction in particular.
Overall Construction Industry
The average net profit margin for U.S. construction companies is up strongly since the lows experienced in 2009 and continues to experience a strong growth trajectory. Sales have also increased since 2009, according to Bierman. “The good news for the construction sector is its above-average sales growth” compared to other industries. However, sales growth rates have flattened recently. “March 2014 housing starts were down nearly 6 percent compared to March 2013,” Beirman said, “so sales growth for private, residential construction companies may not continue at the same rate in the future.”
Net profit margins for the construction industry, as examined by region, have nearly returned to their pre-recession levels. Notably, in 2013 private construction companies in the south more than doubled their net profit margin from 2008 levels.
View a map of the regions.
Residential and Nonresidential Construction
While profitability for the construction industry suffered during the economic downturn, residential construction began to rebound in 2010, whereas nonresidential construction did not begin to recover until 2011. Both sectors are still on an upward trend, but residential construction has seen more notable improvements in its profit margins, with 2013 showing the highest margins seen in the last decade.
Between 2007-2011, residential construction generally experienced a slower rate of sales growth than the overall construction industry. However, this trend reversed in 2012. Residential construction is now performing at a nearly 16 percent sales growth rate, compared with overall construction growth rate of 12 percent.
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About our 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.
Each annual data point in this industry update represents the average for all private companies in the given industry in Sageworks’ database that had a financial statement end during that year. For example, the sales percent change for 2013 is the average annual sales growth for companies in the given industry with a financial statement that ended in 2013. For definitions of the sales percent change and net profit margin metrics displayed, visit: www.sageworks.com/glossary.aspx
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