Launch Slideshow

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It Was a Great Ride

It Was a Great Ride

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    Figure 1

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    Figure 2

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    Figure 3

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    Figure 4

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    Figure 5

As producers prepare for 2008, projections from various sources point to a 10% to 15% reduction in total sales volume as the housing bust hits bottom. This reduction translates into a contraction of 45 million to 70 million yards, depending if the housing industry begins a slow recovery by the end of 2008.

By comparing the National Ready Mixed Concrete Association's (NRMCA) Industry Data Survey results, producers can learn more insights than just price and profitability. There's value in tracking these multi-year trends. From these, managers can draw some reasonable assumptions about the state of the industry as 2008 begins.

Clearly, 2007 has been a fallback year for the ready-mix concrete industry in the face of the national housing slump. But the real question is, how do you plan effectively as events unfold?

The slowdown is also a sobering economic lesson for many managers who have not experienced cyclical declines. Many believed that the experiences of 2005 and 2006 were standard operating procedures, when the ready-mix concrete industry enjoyed its single greatest period of growth in both selling price and profitability.

It is in these times that the Industry Data Survey can be the most valuable tool in a producer's arsenal, pinpointing the areas of performance that can be improved as the industry braces for a challenging year. It is also from this wealth of information that managers can best plan for the next 18 months.

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These observations are based on the results of an annual survey conducted by NRMCA. The results of this voluntary survey amongst its member companies can be the single most important financial tool a manager can utilize to benchmark the performance of his company against his peers.

The trends going back many years always point to the same set of facts: A minor reduction in sales volume can play havoc on profitability. The downturn of 2001–02 illustrates this well. A combination of flat to a slight dip in volumes and the corresponding reductions in selling price to maintain market share caused industry-wide profitability to plunge to $1.58 per yard in 2002, or almost one-fifth that of 2006 (See Figure 1).



A very good year

Against the backdrop of a tough year for the industry in 2007, attendees of the NRMCA Fall Conference gained some insights from the 2006 survey. (The financial results from 2006 are reported in the 2007 survey). Here are some of the trends the data suggests.

  • The big story is selling price. In 2006, the average price of delivered ready-mixed concrete was $90.31 per yard. Compared to $80.98 in 2005, it was up a remarkable $9.33. It's purely a matter of market location whether in 2007 these selling prices have held firm (Figure 2 and Figure 3).
  • Here's where the historical trend helps. The average selling price was only $69.44 in 2004. Thus, the industry witnessed selling price growth of almost $21, or a remarkable 30%, per-yard in just two short years. Most experts agree that the pricing strength of cement and aggregates drove this growth. These factors are likely to help keep prices moving upward, albeit at a much slower rate as demand weakens.