Back on Track After Two Years of Reversal
Snapping a two-year revenue losing streak, ENRs Top 200 environmental firms bounced back in 2004. The firms registered $33 billion of environmental work overall in the 10th annual survey, a 5% increase over 2003. Several firms predicted in last years report that the 2004 revenue numbers would be positive. There was a sound basis for their optimismnearly half reported an increased backlog.
This years backlog numbers signal that the rally can be sustained; 106 firms reported increased orders compared to 97 last year. Not surprisingly, handling the added work requires more people. Only 16 of the Top 200 reported work force reduction in 2004. The year before, 83 companies jettisoned more employees than they hired. Even as staffs expand, however, margins appear to be getting thinner. More than two-thirds of the firms say they are profitable, about the same as last year. But the 5.4% margin is down half a percentage point.
ENRs initial survey in 1996 defined an environmental market for the Top 200 that totaled slightly less than $20 billion in 1995. For the next six years, the revenue line grew annually, breaking the $30-billion barrier in 2001 with $32.8 billion. Two flat years followed, with the revenue number dropping to $31.4 billion in 2003.
|Tanks a Lot. Provincetown, Mass., batch reactor aims to expand city treatment plants capacity. (Photo courtesy of Metcalf & Eddy)|
There are several factors that could short-circuit a new growth spurt. Most prominently, the cost of the wars in Iraq and Afghanistan continues to rise, with no end in sight. It is diverting money that might otherwise be channeled into rebuilding and refurbishing U.S. infrastructure.
The countrys water and sewer network is overdue for an overhaul. The U.S Environmental Protection Agency says the water side alone will require $277 billion over the next two decades to bring it up to snuff. The American Water Works Association says removing the gasoline additive methyl tertiary butyl ether (MTBE) from contaminated drinking water supplies in 36 states will cost somewhere between $25 billion and $33.2 billion, and possibly more than triple that estimate. Funding? Not any time soon.
Conditions also may be aligning for an economic "perfect storm" that could halt Gross Domestic Product expansion in its tracks and take environmental spending with it. The high prices of oil and other commodities continue to threaten to kick off an inflationary spiral while the U.S. stock market remains stalled in neutral. Many small investors are diverting capital from Wall Street and into a real estate market that is being described as a growing bubble.
Many in the environmental market say that the Bush administration has shown minimal enthusiasm for environmental issues. The Environmental Protection Agencys budget restrictions prevent EPA from aggressively pursuing enforcement actions and Clean Air Act lawsuits filed by states during the Clinton administration are working their way through the federal court system.
Recent new-source-review rulings have been going against the federal government (ENR 6/27/05 p. 7). Judges are finding for utilities, allowing retooled and expanded old coal-burning powerplants to sidestep tighter emissions restrictions that new plants would face, thereby limiting the market for scrubbers and other pollution control devices.
|Tunnel Vision. U.S. firm provides project management for Chinese hydro plant. (Photo courtesy of Black & Veatch)|
The Bush administration also has turned a deaf ear to warnings about global warming, despite overwhelming consensus among scientists that the phenomenon exists. The White House has actively opposed U.S. ratification of the Kyoto Agreement covering greenhouse gasses and any aggressive approach to the issue. Congress has taken only small steps in that direction. A Senate energy bill proposes requiring utilities to derive 10% of their power from renewable energy sources by 2020. The U.S.despite being the worlds largest fossil fuels consumer and greenhouse gas emitterremains a long way from adopting an energy policy that addresses those facts. Differing versions of an energy bill from the House and Senate currently are being reviewed in conference, but reconciliation will not come quickly.
The coupling of energy and environment issues may come from the boardrooms of forward-thinking companies rather than from inside the Beltway. Fairfield, Conn.-based General Electric Corp. is giving high visibility to sustainability and environmental issues and recently became the latest big multinational firm to incorporate global warming into its strategic planning.
While continuing to try to minimize its financial exposure in the Hudson River cleanup, GE has developed strategic alliances with MWH (No. 9) and has entered the water treatment business as a membrane manufacturer.
|Ups and downs. DOE spending pushes nuclear rebound, but water sinks more. (Photo courtesy of The ERM Group)|
Against this conservative backdrop, the 5% revenue gain by the Top 200 is impressive. The increase would have been even greater had Siemens AG participated in this years survey. Last years leader, U.S. Filter Corp. reported $4.2 billion in revenue. The Palm Desert, Calif., hazardous waste and water/wastewater treatment equipment and services purveyor, split itself in two. French-owned Veolia Water North America purchased roughly half and Siemens bought the other half (ENR 6/27/05 p. 7).
Veolia, with just under $2 billion in 2004 revenue, currently is ranked No. 3. Had its German-owned competitor opted to report an estimated $2 billion in earnings, the U.S. market newcomer would have challenged Veolia for the No. 3 spot. The Top 200 overall growth rate in 2004 would have been more than 11% instead of just 5%.
"Despite all the rhetoric, the federal government is spending money, especially on its big [Dept. of Energy] cleanup sites," says Craig Weaver, president of Bechtel National Inc. Energy & Environmental. After U. S. Filters departure, Bechtel moved to...