I'm no longer surprised at how well the nation's largest mechanical contractors seem to handle everything that's thrown at them. In the depths of the Great Recession, most of them are plugging along just fine.
A big reason is the depth of experience at major mechanicals. Mike Kotubey, president at Midwest Mechanical Group, Overland Park, Kan., notes that his firm has been around for 77 years.
Management at the Giants has seen recessions before and both succeeded and fell flat on their faces.
Remember Jamaica Water Products that evolved into JWP Mechanical Group, Rye Brook, N.Y.? It was the nation's biggest mechanical at more than $900 million in 1992. It filed for Chapter 11 in October 1993, then emerged as EMCOR in 1994.
“The lessons we learned in the JWP bankruptcy and reorganization in 1994 have stayed with us and guided us since,” says CEO Frank MacInnis.
“Our personnel, both corporate personnel and the vast majority of our 77 subsidiary presidents, are veterans at this,” MacInnis says. “We've seen this movie before. We know what to do to treat the changes in the economy as opportunities rather than challenges. In a recession, the strong get stronger.”
And it's not just the commercial/industrial/institutional contractors who know how to recession-proof their businesses. When Dave Slott and Don Karnes bought ARS/Rescue Rooter in 2006, their expansion plans didn't include increasing their penetration in Flint, Mich. They focused on the hot and humid areas of the country, from D.C. down around the Gulf Coast and west to L.A. They deliberately downsized their construction segment, once $125 million, to half that today. And like MacInnis, they credit their 62 branch managers in 25 states with knowing how to run a tight ship. As a result, the firm's top line has remained the same, even with the reduction in new construction volume, and their margins have improved.
“We're actually optimistic,” they told CONTRACTOR. “We see little signs of recovery. Things are starting to settle down in terms of consumer credit. We think that, at least for the stronger players, the next 12 months bode well as long as we have normal weather conditions and the overall economy starts to stabilize.”
Kotubey is seeing a lot of business in Oklahoma and Nebraska, and in general in the eight states that surround Kansas and Missouri. There's a lot of hospital work, he says, solar projects in Arizona, wind in Texas, water and wastewater projects, hospitals. Fitters are busy with power plant, pipeline and oil shale work.
Greg Hosch at Harris Cos. has started a division to chase green and sustainable construction and the geo-exchange market. He's also looking into federal work, as is Bill Murdy at Comfort Systems who is also working in the military construction market.
EMCOR has positioned itself to perform the full gamut of energy projects — wind, solar, fuel cells — but beyond that MacInnis thinks ethanol is coming back because the President will need the political support of corn state Congressmen and Senators. Hosch maintains that ethanol has gotten a bad rap for increasing food prices. A box of corn flakes contains about 14 cents of corn, he says. The rest is manufacturing, packaging, transportation and advertising. Plus, ethanol production these days takes a lot less energy and water than it used to.
Housing, high-rise residential, hotels/casinos and the commercial and office building markets are going to be dead this year. Residential contractors are pushing into the commercial market. Major mechanicals have to lean on talents and capabilities that separate them from the competition, whether it's the ability to weld stainless steel or install medical gas piping, having a host of LEED-APs on staff, or solid bonding capacity or BIM capabilities. Service departments are still doing well, especially if they have some kind of green offerings.
The stimulus package might not result in projects this year, but it probably will in 2010. The Giants are positioning themselves for the work.
If the recession has a silver lining, it's that there's an upside to higher unemployment. There's a lot of talent on the market, plus the competition for quality college graduates is not as stiff. It's a good time for contractors to increase their bench strength.
Saying that they have declined to participate in the recession has become a hackneyed phrase, but that is just what the Giants are doing.