Construction companies have seen steady profit and sales growth recovery since 2009, but 2013 figures indicate their rate of growth is slowing, according to data from the financial information company Sageworks.
Despite some signs of slowed growth in 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 majority of construction companies are privately held, so their performance is critical to the overall industry and the economy, Sageworks pointed out. Another key indicator of the industry, the Housing Starts report from the U.S. Census Bureau and Department of Housing and Urban Development, showed that new housing starts in March were at a seasonally adjusted annual rate of 946,000, down 5.9 percent from March of 2013.
“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,” said Bierman.
Eleven of the top 25 fastest-growing industries are construction and housing-related, and their recovery has been strong despite weather and supply-chain concerns that may continue to affect residential construction in particular, Sageworks pointed out.
The average net profit margin for U.S. construction companies increased strongly since the lows in 2009 and continues to achieve a strong growth trajectory. Sales have also increased since 2009.
“The good news for the construction sector is its above-average sales growth,” said Bierman, comparing construction to other industries.
However, sales growth rates have flattened recently. “March 2014 housing starts were down nearly 6 percent compared to March 2013, so sales growth for private, residential construction companies may not continue at the same rate in the future,” said Bierman.
Net profit margins for the construction industry, on a regional basis, have nearly returned to their pre-recession levels. Last year, private construction companies in the south more than doubled their net profit margin from 2008.
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 notable improvements in its profit margins, with 2013 showing the highest margins in the past decade.