State of the Industry Survey
by Chris King
February 5, 2010
Exclusive Survey Results Show Contractors Are Hopeful for Long-Term Gains
2009
is a year a lot of people are happy to have in their rear-view mirror. As the
year drew to a close, some economists pointed to hopeful signs of a nascent
recovery, while others expressed disappointment that the economy didn’t rev up
more in the fourth quarter of 2009.
With a lot of question marks about the overall economy and the construction
industry going into 2010, we wanted to see how roofing contractors felt the
economic environment would impact their businesses.
Late
last year, Architectural Roofing & Waterproofing and Roofing Contractor
again turned to contractors to take the pulse of the roofing industry in an
exclusive survey sponsored by GAF Materials Corporation.
Architectural Roofing & Waterproofing and Roofing Contractor magazines and
BNP Media Market Research conducted a research study to gauge roofing
contractors’ sense of the commercial and residential roofing markets. We wanted
to see how contractors fared in 2009 and how they expected their businesses to
perform in 2010 and over the next three years. The research study was conducted
from Nov. 10 though Dec. 31, 2009. BNP Market Research contacted 15,529 roofing
contractors for the Web-based study, and 297 respondents completed surveys
online for a response rate of 2 percent.
Specific
research objectives of the State of the Industry study
included:
• Measuring sales volumes in 2009, 2010, and over the next three years.
• Determining trends among different product categories.
• Evaluating current and expected inventory levels and manufacturer
relationships.
• Assessing the business conditions and employment levels in the roofing
industry.
• Indentifying key problems contractors currently face.
An overview of the results shows that while 2009 was more difficult than
expected, contractors are generally optimistic about their performance in 2010
and over the next three years.
The
Contractors
Surveyed
An overwhelming majority of participants were high-ranking members of their
companies; 79 percent of respondents listed their title as owner, president,
vice president or CEO, while another 18 percent were managers or supervisors.
The companies they work for were pretty evenly spread across the country, with
27 percent from the South, 26 percent from the West, 25 percent from the
Midwest and 22 percent from the Northeast.
They represented companies of all different sizes. While the companies in the
survey averaged 55 employees, half of the respondents employed 10 people or
less. More than a quarter employed four or less.
Gross annual sales for these companies averaged $4,773,225 in 2009, down from
$4,994,939 in last year’s survey. Nearly three-fifths (58 percent) reported
annual sales of at least $1 million in 2009.
Type
of Work
The companies perform a mix of residential and commercial work. About one-fifth
of study participants exclusively do residential work, while another fifth only
do commercial work. The remaining 60 percent do some combination of both
residential and commercial work.
Figure 1 lists the percentage of roofing contractors involved in each sector of
the market. Seventy-seven percent of respondents do at least some residential
replacement work, 69 percent do residential repairs, 66 percent do commercial
replacement, and 67 percent do commercial repairs. About half of respondents do
some residential new construction (48 percent) and commercial new construction
(49 percent).
The chart in Figure 2 shows the amount of revenue contractors derive from each
of these market segments. On average, 38 percent total revenue comes from
residential replacement and 23 percent from commercial replacement. Thus 61
percent of total revenue comes from some form of replacement, and another 18
percent comes from commercial and residential repairs. Commercial new
construction accounts for 13 percent of revenues, while residential new
construction accounts for 8 percent.
Sales
Volumes
Our survey results confirm that for many 2009 was a tough year, as more than
half of the contractors surveyed had annual sales come in below 2008 totals.
However, they expect better results in 2010 and beyond.
As Figure 3 shows, 53 percent of respondents saw sales drop in 2009, while 27
percent saw an increase. Twenty percent had sales stay bout the same. The
results from 2009 are worse than those of 2008, in which 39 percent experienced
lower sales than the previous year and 45 percent saw increases. Last year was
also worse than predicted. In last year’s survey, 30 percent expected a
decrease in sales in 2009, while 53 percent actually saw a decline; 49 percent
expected sales to increase in 2009, and only 27 percent posted increases.
Most are optimistic that sales volume will increase in 2010 and over the next
three years. More than half of participants expect sales to increase this year,
while 24 percent expect them to decrease and 25 percent expect them to stay the same
(Figure 4). The long-term outlook is even better, with more than three-quarters
of contractors surveyed expecting sales volumes to increase over the next three
years (Figure 5).
Sales
by Product Type
As Figure 6 shows, steep-slope asphalt and single-ply roofing products
accounted for the biggest share of contractors’ business last year. On average,
29 percent of revenue came from steep-slope asphalt products and another 29
percent came from single ply. These were also the top two categories in last
year’s survey, which had steep-slope asphalt at 32 percent and single ply at
26. The 3 percent drop in steep-slope asphalt coinciding with the 3 percent
rise in single ply brought the two into a tie for the top spot in 2009. The
survey shows more contractors are installing single-ply systems; 68 percent
installed them in 2008 compared to 73 percent in 2009.
Breaking down 2009 sales by product category, almost every segment saw a
double-digit differential between those seeing a decrease and those seeing an
increase in sales (Figure 7). Far more contractors saw a decrease than saw an
increase in all product categories except single ply and metal roofing. Metal
was the only category to have more contractors experience increases rather than
decreases in sales. In fact, metal was the only product in positive territory,
with a net differential of plus 6 percentage points. Single ply was the
category with the next best performance (a differential of minus 4 percentage
points).
The steepest declines were seen in low-slope asphalt (minus 26 percentage
points) and concrete tile (minus 33 percentage points).
Business Conditions
Questions centering on business conditions, prices and employment levels seem
to confirm that 2009 was a tough year. Two-thirds of respondents thought
business conditions were worse in 2009 than they were in 2008. However, only 30
percent expect them to decline this year, while 33 percent expect them to stay
the same and 36 percent expect them to improve.
Contractors seem resigned to price increases, with more than three-quarters of
participants reporting the cost of doing business rose in the past year.
Three-quarters of contractors expect costs to continue to rise in 2010.
The survey shows employment levels dropped again in 2009, with 64 percent
reporting the number of employees in the roofing industry declined from the
previous year’s level. About two-thirds predict employment levels will stay the
same or increase in 2010, while 35 percent expect employment numbers to
drop.
Asked to identify the biggest challenges facing roofing contractors in the year
ahead, participants listed a variety of concerns. The most common responses
focused on increased material costs and lowball bids and pricing wars inspired
by increased competition. Insurance/health care costs were the third most common
concern mentioned, followed by simply finding enough work and the poor overall
economy. Despite the slowdown in construction, contractors listed finding
qualified employees as the sixth most common challenge, followed by government
regulation/intervention.
FMI’s Construction
Forecast
Heather Jones, Construction Economist for FMI Corporation, shared some of the
data from FMI’s most recent construction forecast. “The outlook for put in
place construction for 2010 remains bleak,” she said. “Total construction in
2010 will be down 4 percent after declining 13 percent in 2009. While 2009 was
likely the bottom in terms of percent decline, 2010 will be the bottom in terms
of dollar volume. Residential construction is expected to begin recovering in
2010. Nonresidential construction will decline 15 percent in 2010 after
declining 10 percent in 2009. Non-building construction will continue to be a
positive contributor, increasing another 5 percent in 2010, driven mostly by
conservation and development construction. The residential sector is expected
to begin to recover in 2010. Single-family put in place construction will
recover at a slower rate than single family housing starts. The number of
square feet per start is declining, meaning that new homes are getting smaller.
They are also getting less expensive. The average and median new home sale
price is decreasing. The first time home buyer credit and recessionary
environment were contributing factors to this decrease. Multi-family construction
has been impacted severely by tight credit and will not recover until credit
loosens. Residential improvements construction is expected to increase slightly
in 2010 as consumers make improvements rather than moving up, and the age of
the housing stock requires improvements.
“The nonresidential sector will see another year of double-digit decline in
2010. Health care, educational and transportation are the only segments that
will remain near flat. These segments are less dependent on the general
economy. Public safety construction will be the only segment likely to see
actual growth. This growth is driven mainly by military construction. The
lodging, office and commercial segments are highly cyclical and will experience
severe declines in 2010. Manufacturing construction, which has remained strong
mostly due to refinery work, will turn down as many of these mega projects are
completed.
“The economy may show some signs of improving, but it is just the beginning of
the downfall for nonresidential construction. Nonresidential construction
typically lags the general economy by about 18 months. Intense competition that
has been bringing down prices has been reported. This is good for owners, but
not so good for contractors. Nonbuilding construction will remain positive for
the forecast period with power and conservation and development leading the
sector.”
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