Like a household on a tight budget, our TCP100 survey shows many concrete producers are choosing not to invest heavily in new equipment. Two-thirds of the producers answering our survey said they would spend less on capital expenditures this year compared to 2010.
A decrease is not surprising. The U. S. construction industry spent $19.8 billion on capital expenditures in 2009, according to the most recent report by the U.S. Census Bureau. This is a 52% drop from $40.8 billion in 2008.
Silvi Concrete of Fairless Hills, Pa., exemplifies the quandary. The Philadelphia-area producer plans to spend near $2 million in equipment this year. But much of this is for Silvi's other business. “The mining division is holding up better than the ready-mix division,” says company co-president Larry Silvi.
Silvi Concrete bought a competitor, American Concrete in South Plainfield, N.J., in April. Silvi bought a new loader and truck scale for that operation. The remainder of the spending is for its mining and aggregate business. Rebuilding the New Jersey Turnpike is a large area project, but it benefits Silvi's mining business more than the concrete sector.
“We're doing a lot of maintenance to keep our plants in good shape, but we're not buying very much on the ready-mix side of things,” Silvi says. “I have 30 ready-mix trucks sitting for sale if you know anyone who wants to buy them. You take a piece of equipment to auction and you get nothing for it. It's almost better to hang on to it for a couple of years and hope the auction prices come up.”
But while a house still needs upkeep and occasional replacement of its roof, windows, and furnace, concrete plants can not run smoothly forever without new batch plants, trucks, conveyors, and other machinery. For example, Ferrara Bros. Building Materials, Flushing, N.Y., plans to purchase a new batch plant in 2011.
Adjusting spending plans
Some producers have already changed their spending plans. In its quarterly earnings statement released in early August, Birmingham, Ala.-based Vulcan Materials revised its capital spending plans for 2011, from $125 million at the start of the year to $100 million. But this would still be more than the $86 million the company invested in 2010. This amount is for all of Vulcan's businesses, including concrete, aggregates, and cement.
A year after exiting bankruptcy, U.S. Concrete “continues to focus on minimizing capital investment expenditures in order to maintain liquidity.” The Houston-based producer will focus only on maintenance and repairs in 2011. Its $6.3 million in expenditures in 2010 was less than half of the $13.9 million the previous year.
When will companies start buying in greater numbers? Silvi says if a producer's piece of equipment was 15 or 20 years old when the recession began and it is still operating five years later, “either you are going to spend a lot of money maintaining it or you'll need to replace it. It depends what your bottom line looks like and how comfortable your bank feels with you.”
So while producers wait for demand to increase again, the TCP100 survey shows some are willing, perhaps grudgingly, to buy what they need. Turn the page to see who is buying what in 2011.