The continued prevalence of energy projects across the Gulf Coast is one of the main reasons specialty contractors are seeing largely stable or increasing workloads in Texas and Louisiana.
Also, the steady influx in 2014 of new residents seeking to fill the region’s plentiful job openings means more work for contractors. The need for more service infrastructure to support a growing population has bolstered new construction, as evidenced by the number of health care facilities, office buildings and apartment complexes, along with energy work, that were cited by the top 10 firms as their largest projects to break ground in 2014.
The 100 companies that responded to this year’s Top Specialty Contractors survey reported a total of $8.17 billion in regional revenue in 2014, up $746.7 million over the previous year. That growth was double the gain seen in the previous year’s survey.
Adapting to Markets
Electrical sector work held steady for The Newtron Group. The firm’s regional revenue reached $280 million for 2014, little changed from $282 million in 2013, and putting Newtron at No. 7 in the ranking.
“Inexpensive and readily available natural gas has been the larger driver to our business over this past year,” says John Schempf, vice president of operations at Newtron. “Our midstream work has been steady, and we were not too exposed to the oil exploration business, which has helped insulate us a bit from that downturn.”
Schempf adds that Newtron’s backlog continued to be strong from a capital projects standpoint. “Even though some of our locations in Louisiana and Texas realized smaller backlogs, other offices were able to compensate with larger backlogs. Both our Baton Rouge and Houston offices experienced record volume years.”
Schempf says that the remainder of 2015 looks good, with a steady stream of projects in the works, combined with a healthy backlog. “The current prospects are solid, but we have some concerns as it relates to mid-2016 and beyond once the projects on our current backlogs are completed.”
Newtron also has several projects coming up that will run through the end of the year and into 2016, with plenty of work out for bids.
Demolition and materials recycling remains a strong sector as well. Cherry Cos., which specializes in demolition and recycling concrete, asphalt and stabilized material, sees the markets it serves remaining stable, says Leonard Cherry, president of the company.
“However, we do anticipate a slowing supply of recyclable materials,” he says, but the firm expects an uptick late in the first quarter of 2016.
Cherry Cos. rose four spots to No. 18 in the ranking this year after posting regional revenue of $127 million in 2014, up roughly $30 million from the $94.6 million posted in 2013.
“In 2014 we saw a growth rate of 34%, and this year continues to be a solid year,” Cherry says. “[The company] is in line to meet budget and see additional growth. The goal for 2015 is to continue to infill and support operations to maintain quality service.”
Over the past year, the company has expanded its recycling centers and stabilized materials plants geographically to serve the growth in Houston and surrounding areas, Cherry explains. “This in turn provided us with more materials to recycle and more materials for new construction projects,” he adds.
On the mechanical side, TDIndustries is also having a good year. The firm reported regional revenue of $396 million for 2014, up about $3 million from the previous year.
The company is waiting for better margins to develop in competitive Texas markets, says Harold MacDowell, TD’s CEO.
“We chose to pursue markets outside the region while the local markets came back up,” he adds.
“TD has seen a strong improvement in performance in all of our market segments,” MacDowell says. “We are focused on incorporating lean [construction techniques] in all of our processes. This, combined with strategic improvements in marketing and procurement, is yielding great results.”
Because of the growth in Texas, “we have seen increased opportunities in design-assist and design-build by providing value-added solutions for constructibility,” MacDowell adds. “Often, owners are needing to begin construction before design documents are fully completed. Through the design-assist and design-build option, we are able to provide more constructibility value to owners through early involvement on their projects.”
As the year draws to a close, the region’s subcontractors may be facing a number of hurdles.
Schempf says that “the biggest challenge [for The Newtron Group] has been from general and mechanical contractors attempting to perform the E&I scope themselves instead of subcontracting the work to companies like Newtron. This activity has increased year over year.”
Another facet is the influx of new general and specialty contractors over the past year, Cherry adds. That “greatly affects the labor market for specific skills. The current downturn of oil prices posed additional challenges across all markets but mostly in our industrial demolition markets,” he says.
Skilled-trade shortages also continue to plague the region, MacDowell says. But TD is trying to mitigate those shortages by partnering with local schools, colleges and trade organizations to push for competencies training rather than degree-driven education. “Additionally, we are focused on training our own technicians through our educational and on-the-job programs,” he says.
Moving forward, MacDowell sees good prospects over the next 12 months. “We feel very good about our market and where it is headed,” he says. “Our concern is that the low cost of crude will begin to have a bigger impact on our backlog in 2016. In order for our market to continue to thrive, crude will need to trade at a higher price than $40 to $50 per barrel.”
Despite lower oil prices and increased competition, Cherry Cos.’s five-year forecast is for stable growth within the firm’s commercial, industrial and civil markets. However, a slowing in the residential market is expected in the near future, Cherry adds.