When I presented the annual NRMCA Industry Data Survey results at the ConcreteWorks Conference in San Diego in the fall, one producer quipped that he feared several attendees appeared ready to jump out of windows. Fortunately, the threat was hollow, as we were on the first floor of the conference center.
I understand the feeling, because once again, the economic news for the industry is tough to hear.
In last year's article on the survey, I wrote, “Against the cruel reality of a market in contraction and an industry witnessing a transformation that represents the ‘new normal,' this may be the most compelling time to review the latest results. The stark reality is the industry's financial performance hasn't been this challenging in decades.” Nothing has changed for the better in the most recent results.
Results presented here are for the prior calendar year. So in this instance, the 2011 survey is reporting financial results for calendar year 2010.
Once again, many of our predictions from a year ago proved true when we saw the survey results, as we thought losses would increase as selling prices would come down, and volumes would remain fiat at less than 260 million cubic yards. This marks the third consecutive year of the volume trough, and we think we'll add a fourth year to that run in 2011 when we report those numbers next year.
Add to that a contraction in selling price of $5.63 per cubic yard for the Typical Producer (defined as the average of all producer respondents, not accounting for size or geography), and that means the industry reported the single biggest loss in its history.
Here are some of the key data:
- For the first time in decades, the selling price of a yard of concrete fell $5.63 per cubic yard compared to 2009, from $96.05 to $90.42.
- The operating losses for the industry expanded last year, growing from a loss of $3.07 per cubic yard in 2009 to $7.27 in 2010, increasing operating losses by an additional $4.20. The industry reported 257.7 million cubic yards of concrete delivered last year, a decrease of about 1 million yards from 2009. This represents an industry-wide drop in volume of more 44% from the record 458.3 million yards in 2005.
- The arithmetic is staggering. This means the industry shipped almost $1.9 billion in losses in the back of its ready-mix fleet last year.
When non-cash charges are eliminated and we look only at EBITDA (earnings before interest, taxes, depreciation, and amortization), the industry came very close to cash flow break-even, losing $0.34 per cubic yard, or about $87.6 million in total.
- The biggest story shifted from the free-fall in volume, which has stabilized and does not appear to be contracting any further, to the increasing losses being posted by the Lowest Quartile, or those producers whose profits fall in the bottom 25% of the survey. Their key metrics are troublesome, and raise serious questions about their financial health:
- Operating losses were $13.01 per cubic yard, while EBITDA losses were $6.46.
- Their accumulated operating losses for the last three years total $27.57 per cubic yard; EBITDA losses total $9.18.
- They suffer from a top-line selling price disadvantage of $5.37 per cubic yard less than the Typical Member, and a staggering $13.91 less than the Upper Quartile. These kinds of losses cannot possibly be sustainable over time.
The other big story this year is the health of the Upper Quartile. They are solidly profitable, particularly in contrast to the Lowest Quartile:
- They enjoyed profits of $4.04 per cubic yard, and a strong positive EBITDA of $9.06, which is a $17.05 difference compared to the Lowest Quartile, and a $9.42 difference compared to the Typical Member.
- Their solid financial performance is driven almost solely by their top-line selling price advantage, because their operating metrics do not differ materially from the rest of the industry. And in some cost areas, they actually underperform. They sold concrete last year for $98.96 per cubic yard, which is $8.54 more than the Typical Member and $13.91 more than the Lowest Quartile. This difference has a positive and direct impact on their bottom line.
Other key results show Typical Producers' annual yards, yards per-plant, and yards-per-truck are remarkably flat compared to 2009:
- Annual yards increased slightly, from 442,607 in 2009 to 462,920, a 4.4% increase.
- Annual yards-per-plant have fallen from 38,890 in 2009 to 37,675, a drop of 3.22%, further impacting the critical measure of plant productivity.
- Annual yards-per-truck increased slightly from 4098 in 2009 to 4206 for an increase of 2.57%. This reflects the rebalancing of the ready-mix fleet to a much smaller number of units in service.
Just as in 2009, the rest of the key data reflect the impact that lower volumes have on profitability, despite efforts by producers to cut costs, and the further impact of an eroding top line. Unfortunately, while volumes may be flat year-over-year in 2011, we project that top-line selling prices could easily contract another few dollars to several dollars per yard when we report the 2011 results in the fall.
Against the toughest economic backdrop in memory, I continue to promote the Industry Data Survey as the most important tool any concrete producer can utilize to benchmark the performance of his company against industry peers.
Pierre Villere writes the “Concrete Returns” column and is president and managing partner of Allen-Villere Partners. E-mail email@example.com or telephone 985-727-4310. Visit www.allenvillere.com.