The TCP 100: The industry's top revenue producers serve as a strong footing for North America's economy

Concrete Producer, The, Oct, 2002

In the past few months, North Americans have experienced a love/hate relationship with an entity that everyone knows something about but few really understand. It's been evident when pollsters have conducted their surveys on the public's perception of the U.S. economy. But one message that respondents seem to be conveying is that they're searching for a return to the basics.

During the 1990s, many investors placed money in the world's greatest, safest, and most accessible marketplace, which created profits seemingly from magic. Unfortunately, thanks to some creative accounting procedures, some investors have seen the "profits" evaporate before their very eyes.

In a matter of a few months, investments in high-tech stocks turned into "high-wreck" stocks. It's reminiscent of a scene in the family room on the day after a toddler's third birthday party. The child is curled up on the couch holding a well-worn plush toy, and all of the battery-operated devices are left strewn all over the family room floor.

Similarly, if investors were to thoroughly research the publicly held companies on the TCP 100 list, they might look at investments in this industry as their portfolio's security blanket. Although this list doesn't report profits, operating margins, or growth, it's obvious that some of the companies are very successful, financially speaking.

One reason why many of the companies on the list continue to operate profitably is the fact that--like a well-balanced stock portfolio--the diverse concrete-production industry serves a diverse construction market. In uncertain economic times like these, this is a great advantage and a springboard to success.

Measuring a complex industry

In developing criteria for our rankings, we had to answer the question of how to fairly rank producers who produce concrete for seemingly diverse construction market segments. We considered criteria such as profit per cubic yard produced, volume produced, and total earnings.

We chose to focus on only one measure--annual revenue--because this industry primarily consists of privately owned companies. It's very difficult to verify how these companies meet the aforementioned criteria using independent sources. Also, many industry companies produce a wide range of building products, compounding the difficulty of measuring the financial performance of concrete items only.

The Fairfield Group, Fairfield, Conn., compiled data using sources such as annual reports, selected business databases, trade associations, telephone interviews, and company Web sites. The researchers studied companies that manufacture ready-mixed concrete, precast concrete, precast prestressed concrete, concrete masonry units, and other products such as roof tiles. As expected, many of the companies also produce other building materials, such as cement, aggregates, and brick.

A positive outlook

At the 7th Annual CMD Group/Construction Specifications Institute CEO Break fast held last June in Las Vegas, construction economist Bill Toal told the roomful of construction professionals that he antiipated a 1.6% drop in total construction for 2002 but an increase of 1.4% in 2003.

At the time, Toal reported that although some sectors of the economy remained weak, there were signs of recovery. Low interest rates kept consumer spending strong. Residential construction starts appeared more numerous in 2002 compared with 2001 than first forecast. Airport and school construction remained strong. And the public works sector will remain steady with funds from the U. S. Transportation Equity Act for the 21st Century (TEA-21).

Several companies in the TCP 100 are publicly held, and their quarterly financial statements support Toal's cautious optimism about the future.

Hanson PLC. In its Aug. 1 press release, the United Kingdom-based construction materials producer reported that its pretax worldwide profit was up 12.3% from 2001.

Hanson Building Materials America's operations didn't fare as well. The company reported a decline in 3.4% pre-goodwill profit, primarily due to "reduced aggregate demand and reserve depletion in Northern California." The company reported that the North American operations contributed 57.1% of the company's global revenue.

In regard to corporate development, Hanson's May purchase of concrete pipe manufacturer Choctaw Inc. signaled a major expansion in this product sector.

Alan Murray, Hanson's CEO, stated, "Assuming normal weather and no further weakness in the dollar, we would expect a marginal improvement over the 2001 performance for the full year."

Martin Marietta Materials. According to information posted on Aggregate Research Industries (ARI)'s Web site, the company posted second-quarter earnings per share of $1.09 vs. 82[cents] on fiat sales, in line with an earlier announcement. The rise reflects gains in both aggregates and magnesia specialties. Standard & Poor's projects $2.50 earnings per share in 2002 and $2.70 in 2003. According to Martin Marietta Materials, future capital spending will be well below the peak levels of 2001 and 2000, freeing up cash for debt reduction and stock buybacks.