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The Market Picture Begins to Clear for the Top 400 Contractors

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Is the construction industry finally coming out of the recession? Among contractors, it depends. For those in the industrial, manufacturing and petroleum sectors, work is picking up. In the power markets, pipeline work is growing as permitting advances. But in the public infrastructure and buildings markets, contractors are scrambling to get their share of a diminished yet stable workload.

The slow turnaround in the construction market can be seen in this year's ENR Top 400 Contractors list. As a group, the Top 400 generated $282.14 billion in contracting revenue in 2011, an increase of 8.8% from 2010's $259.41 billion. This contrasts with the record $338.38 billion in 2008 contracting revenue reported by the group in our 2009 Top 400. However, 2011 represents a step in a positive direction.

Domestic contracting revenue for the Top 400 rose 5.9% in 2011, to $220.49 billion, while international contracting revenue jumped 20.3%, to $61.65 billion.

The contrast between the private-sector markets and those dominated by the public sector in the domestic U.S. market are distinct. Manufacturing, which rose 82.7% in 2011, shows the strongest domestic turnaround. The telecommunications market, which has been led by growth in data centers, also surged, rising 28.7% in the U.S. Other big gainers on the domestic side were power (up 15.5%), petroleum (up 14.4%) and industrial process (up 13.8%).

The domestic infrastructure markets were less active. Contracting revenue in the U.S. transportation market rose 7.0%, hazardous-waste contracting rose 4.1%, and water supply work was up 3.6%. Still, it's better than 2011, when sewer and wastewater contracting revenue fell 20.7% from the prior year.

Bechtel, at the top of the ENR Top 400 for the 14th straight year, had a record year in 2011. It booked $53 billion in new work in 2011, including $47.2 billion in construction and engineering-procurement-construction contracts, according to its annual report.

"We closed on some huge projects in the commodities sector, particularly in [liquefied natural gas] projects in Australia and in mining and metals in South America," says Bill Dudley, Bechtel's president. He says 2012 is shaping up to be another good year. "We are not going to try to top 2011 in sales, but it should be a solid year. The size of the jobs seems to be getting bigger."

Fluor Corp. also experienced a big year in 2011, and that activity seems to be continuing into 2012. CEO David Seaton, in a recent analysts' conference, noted double-digit growth in both revenue and profits in its oil-and-gas, industrial and infrastructure, and global services segments. Backlog again hit a new company record—$42.5 billion, up 14% from a year ago and up 6% over last quarter. "We really see opportunities across all our market segments. International capital programs rule the day, but a strengthening U.S. market would be a plus," Seaton says.

Consolidation

While consolidation among contractors is not as high as among design firms, there were several notable acquisitions among the Top 400. Tutor Perini led the way in 2011. It spent about $600 million on purchases, including Wisconsin-based Lunda Construction, Mississippi-based Anderson Cos. and Evansville, Ind.-based Frontier-Kemper Construction—all of which were on last year's Top 400. Tutor Perini also acquired several subcontractors, including GreenStar Services Corp., New York City, and Fisk Electric, Houston.

These acquisitions drove a 48% revenue increase, to $912.5 million from $615.3 million, in the first quarter of 2012, compared to Q1 2011. "Our integrated service capabilities—including program management, specialty contracting and civil construction—continue to increase our control over price," said CEO Ron Tutor in a recent analysts' conference. The firm also noted that acquisition costs generated a net loss of $1.2 million in the same time frame. Tutor says Tutor Perini's building and civil groups will use the firm's newly organized specialty-contractor group to use an integrated bid approach for large-scale work.

Another active firm was Balfour Beatty US. It acquired Howard S. Wright (HSW), Seattle, and the water group of Fru-Con. "HSW brings us a whole new type of project with their relationships with national customers," says Robert Van Cleave, CEO of Balfour Beatty US. For example, he notes that HSW is doing a 60-store rollout for Les Schwab Tire Stores.

Further, the acquisition of Fru-Con's water group opens up an entirely new geographic area for Balfour Beatty US. "Most of our work in the water sector was in California and the West Coast," says Van Cleave. "In Fru-Con, we saw the opportunity to bring our water practice to the East Coast."

Flat Buildings

The largest market for U.S. contractors is also the most problematic: Revenue for the Top 400 in the domestic general building market rose only 0.25% in 2011, to $109.4 billion. This uptick is a far cry—by 33%—from the $165.0 billion the Top 400 booked in 2008. Public buildings work is declining as revenue shortfalls and deficits widen among municipalities. Contractors wonder if the private sector will take up the slack.

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