For the first time since the results of the 2008 Industry Data Survey, we can finally say, “Thank goodness. Progress!” The release of the 2013 survey at the ConcreteWorks Conference in Las Vegas in September showed producers’ balance sheets have improved. But we were still not out of the woods last year: Although the industry significantly closed the gap in 2012, it still operated at a loss, although that loss was down almost two-thirds from the prior year.
And further, Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA), the measure of free cash a business generates, went from a revised negative number in 2011 to solidly in the black. The collective client financial data our firm gets to see in any given year indicates that 2013 has continued to demonstrate progress, and I am calling for the industry’s return to profitability this year.
Here is how the survey works. NRMCA member producers fill out a questionnaire with detailed, line-item data on their financial performance for the prior year. The questionnaires are all sent to an outside accounting firm, which processes the survey information and assures the privacy of all producers’ financial data. The report delivers detailed results sorted in a variety of ways: an analysis by size; an analysis by region, of which there are eight; by company area type, that is, rural, urban, and mixed; and a five-year trend analysis. In addition, the report compares the respondents to the Typical NRMCA Member, as well as the Upper and Lower Quartiles, from the standpoint of profitability. And if at least five producers from any state participate, an analysis by state is also included. Remember, while we call this the 2013 Industry Data Survey, this report is actually based on the industry results for calendar year 2012, the most recent full year available.
Rising selling prices
The big news is that volumes in 2012 were up significantly, and selling prices turned up for the first time in three years. Here are some key data:
- The average selling price of a cubic yard of concrete rose to $90.10 in 2012 compared to $88.39 in 2011, turning around a slide that began in 2010. Anecdotally, that rise appears to be continuing in 2013. We’ll find out next year if I’m right.
- Operating losses for the industry contracted to $2.18 per cubic yard in 2012, down from a loss of $7.23 per cubic yard in 2011, an almost two-thirds improvement, and reversing a trend that began in 2009, when the industry reported its first operating loss in decades. This amounted to a $632 million industry-wide loss last year, but a vast improvement over losses of $1.92 billion and $1.87 billion in 2011 and 2010, respectively, which were preceded by a smaller $793.9 million loss in 2009. Taken together, this recession has inflicted a total of $5.216 billion in losses on the ready-mixed concrete industry.
- EBITDA grew from a loss of $0.77 per cubic yard in 2011 to a solid, positive gain of $3.25 per cubic yard in 2012, a swing of more than $4.00 per yard and the best sign yet that the industry has its cost structure aligned with the realities of current volumes.
- Even the tumble in total production volume turned around, with 289.5 million yards produced in 2012, up from 265.7 million cubic yards in 2011, a gain of almost 25 million cubic yards. This is the first big improvement since the volume slide began in 2007, and came close to our prior prediction of 300 million yards for the year, a number we will achieve in 2013.
- As in past years, the huge difference between the Upper Quartile, or those producers whose profits fall in the top 25% of the survey, and the Lowest Quartile, or those producers whose profits fall in the bottom 25%, continues to be driven almost solely by the difference in their top line selling prices. In studying the results, the Lowest Quartile continues to demonstrate that they are good operators, so it isn’t a question of substandard operating performance. But we learned something new this year that we had never asked the accounting firm before, which is that companies falling into the Lowest Quartile rarely stay in that category. Over the last seven years, 107 discreet companies have comprised the Lowest Quartile, but only seven of those companies have remained in this category for more than three of those years. Similarly, over the last seven years, 173 discreet companies have comprised the Upper Quartile, and only 11 of those stayed in this category for more than three years. It appears most companies move in and out of both categories, and are most often found in the Typical Member category (the overall average). Here is a comparison of both groups’ key metrics:
- As in prior years, the difference in their top line selling price is where almost all of the performance edge lies: $83.77 per cubic yard for the lowest quartile, and $93.01 per cubic yard for the Upper Quartile, for an advantage of $9.24 per yard for the best performers.
- Operating losses for the Lowest Quartile were $8.34 per cubic yard, while the Upper Quartile earned an operating profit of $3.89 per yard, a difference of $12.23 between the two groups.
- EBITDA was a negative $3.70 per yard for the Lowest Quartile, compared to a positive $9.01 for the Upper Quartile, a difference of $12.71, which is actually greater than the difference between the two in 2011, further expanding the chasm between these two groups in terms of free cash flow.
- While interest always lies in the disparity between the Upper and Lower Quartiles, the Typical Producer, which is defined as the average of all producer respondents and does not take into account size or geography, saw good improvements in their metrics, with annual yards, yards-per-plant, and yards-per-truck all improved over 2011.
My late partner Bill Allen used to say that the Industry Data Survey was the single most important tool any concrete producer can use to benchmark the performance of his company against industry peers, and he was right. We hope you will participate next year.
Pierre Villere writes the Concrete Returns column and is president and managing partner of Allen-Villere Partners. E-mail firstname.lastname@example.org or telephone 985-727-4310. Visit www.allenvillere.com.
While I have described the mechanics of participating in the survey many times in the past, there may be readers who are not familiar with the report and the participation process.
Historically, participants are solicited each spring and financial personnel within the participating companies complete detailed questionnaires with the results of their prior year’s financial performance. This is then submitted to a third-party accounting firm to assure confidentiality.
The data from these questionnaires is compiled and circulated to the participants, each of whom receives a customized report that measures the performance of their individual business against their peers throughout the industry. The results are tabulated by region, size of the business, and by the top and bottom quartiles in terms of profitability.
In addition, for those individual states where five or more respondents participate, regional results are reported by state, which is even more meaningful for individual participants. The Business Administration Committee then presents the results at the NRMCA’s ConcreteWorks Conference & Expo, which was held in Las Vegas this past September. The results presented by NRMCA each fall is for the prior calendar year, so in this instance, the 2013 survey is reporting financial results for calendar year 2012.