CHICAGO — The good news for contractors for 2011 is that we’ve run out of bad news. This year won’t be spectacular but it will be incrementally better than 2010 and way, way better than 2009. CONTRACTOR interviewed a variety of manufacturers and contractors about what they foresee in the coming year and all of them are cautiously optimistic.
CONTRACTOR loves talking with Tony Guzzi, president and COO of EMCOR Group because EMCOR sees the national picture. The business community liked the results of the November elections, Guzzi said.
“I think we can officially say we’re at bottom,” he said.
The economy has bounced along for five quarters flat to up slightly. There’s still little private money available and hospitality and commercial are down. Healthcare has been ok, Guzzi said, while industrial is a little stronger than expected, transport is strong, government and higher education projects are ok, and water and wastewater are “episodic.”
Bidding has become rationalized, Guzzi said, because contractors have realized they can’t take work for cash flow; he expects one large contractor, whom he would not name, will fail this year.
Geographically, Texas is still ok, and California, for EMCOR, is doing ok on the institutional side, on larger projects, and on maintenance and retrofit. The Northeast is showing some signs of life. The D.C. market continues to be ok, Florida is tough except for water projects, the Midwest has some activity in auto plants but it’s attracting too many bidders, and the Southeast is flat.
“Residential water heater shipments will be flat compared to 2010 for both the U.S. and Canada (about 7.5 million storage heaters and about 425,000 gas tankless heaters in the U.S.),” said Michael C. Parker, vice president - marketing & strategic planning, A.O. Smith Water Products Co. “Commercial water heaters will be flat compared to 2010. 2010 was a little stronger than we expected it to be, but it was still lower than 2009. We see it bottoming out and holding flat in 2010.”
A.O. Smith expects new home construction to begin to trend up starting in the second half of the year but this will be too little and too late in the year to really impact water heater shipments. The firm is concerned about commodity price increases — especially steel, which is the biggest cost driver for storage water heaters.
Michael E. Werner, president and CEO, Globe Union Group Inc., Danze Inc., and Gerber Plumbing Fixtures LLC, echoes those concerns: “The weak spot is cost. Copper and other raw materials, plus freight, have skyrocketed. Manufacturers will have no choice but to pass on significant cost increases.”
Werner believes that housing has bottomed out and starts should be up 10% or more, with rehab sales up a similar percentage. The hospitality sector has considerable deferred maintenance, he noted, and medical, education and senior living sectors are still growing.
Don Devine, president and CEO of American Standard Brands, said that he expects that 2011 to show modest improvement over 2010.
“The slight uptick in new residential building will be offset by continuing weakness in commercial new building,” Devine said. “We see modest gains in remodeling and retrofits for both residential and commercial, which will drive the industry’s growth for the foreseeable future. Water conservation has been a key driver in the replacement segment as many end users seek to upgrade their homes and businesses with products that help lower operating costs.”
For 2011, Rheem expects to see only slight improvement in the overall residential market. Replacements will continue to be the primary driver of water heater sales, said Tommy Olsen, senior product manager at Rheem Water Heating. Rheem expects the new-construction market to be at 2010 levels. Commercial will continue to see replacement activity. Some commercial growth is expected with regard to energy-efficiency upgrades, which will drive early replacement of 80%-efficient units with 95%+ efficient models.
“At Uponor, we’re excited about the opportunities in 2011,” said Joel Culp, vice president, offerings/marketing, Uponor North America. “With the continued growth in green-building construction, our hydronic radiant systems — especially our radiant cooling business — is set to bring great opportunity for our professional partners in the industry.
"We’re also extremely excited,” Culp continued, “about the new fire sprinkler opportunities coming forth in 2011 with the statewide mandate in Pennsylvania and California, not to mention other jurisdictions throughout the United State. “
Tom Phillips, communications and public affairs manager for Grundfos Pumps Corp., said his firm expects that the residential market will not experience any significant pick up in new home construction although some cities have seen a return to new construction. Commercial new construction is limited and focused on education, health care and government-funded projects, although this sector is definitely slowing, Phillips said. Industrial markets are showing life in some sectors that make products for export. Municipal projects are focused in certain markets and sectors, although many municipalities have projects but are still looking for money.
“I do not see any major market recovery and would expect the cast iron business to remain at current levels or maybe just up slightly,” said Ken Niemi, marketing manager for Burnham Corp. “The condensing boiler market, which has been holding its own, is somewhat questionable due to the elimination of federal tax credits. It will show how much dollars drove people to high efficiency versus ‘paybacks down the road,’ or ‘being green.’ There may be some shift back to the mid-range 84%-87% cast iron market. “
Bob Hitchner, senior vice president - sales, marketing & business development for Noritz, surmised, “As we look forward to 2011, we sense that the economic situation will stabilize, and that will be very good for high-end water plumbing products like ours. On top of the economics, tankless continues to lead in moving the U.S. home to more efficient water heating. We forecast strong growth in the 90%-plus super efficient condensing tankless category, which is the focus of our new product launches in 2011.”
On the contractor side, members of the Nexstar Network are optimistic, reported President/CEO Greg Niemi.
“Although recovery is expected to continue through 2011, we do, or at least I do, expect to see the actual rate of growth slowing from 2010,” Niemi said. “Nevertheless I do see the rate of change staying on the plus side and more good to follow in 2012.
“We also conducted a survey of our Nexstar members [Dec. 9, 2010] to gain their pulse on their outlook. Eighty percent reported growth in 2010 over 2009; 40% in the range of 1%-10% growth,” Niemi said. “And, another 40% reported 10% or even better. When asked their outlook for 2011, the feedback from our Nexstar was overwhelmingly positive at 94%: 83% better yet than 2010, 11% about the same as 2010 and 6% worse than 2010.”
The Phoenix market is still bad, reported Mark Giebelhaus, president, Marlin Mechanical, Phoenix.
“The market is pretty brutal here still,” said Giebelhaus. “We currently have a backlog of about 30% of what our average annual revenue is. Going forward I don’t visualize it changing much here for at least another year. It is the same story it has been for the last two years. We have a decent amount of projects to bid, but they continually are put on hold pending financing. We were awarded a student housing project at one of the universities here in August 2009. That project has yet to start and they don’t know when or if it will.”
Roto-Rooter CEO Spencer Lee said his firm saw an increase in demand for service during the last quarter, particularly the last couple of months of 2010. Rotor Rooter is cautiously optimistic going into 2011.
“Job counts and incoming phone calls for service have increased and they continue to trend upward,” Lee said. “Things are looking well. Hopefully, the national unemployment picture will improve somewhat so that more people will have disposable income and keep the economic recovery going."
Steve Irwin, Farmer & Irwin, West Palm Beach, Fla., predicted that the overbuilt South Florida market would be flat in 2011.
“There are no new schools being built, very little retail building, no office buildings and only a few commercial or manufacturing buildings on the horizon,” Irwin said. “There are some medical facilities and health care facilities planned, such as a new 80-bed hospital in Port St. Lucie, some smaller bio-science lab projects and some institutional projects for higher education. The retrofit, remodeling and maintenance type projects, along with heavy commercial service work, are what will sustain us until some semblance of normalcy returns to new construction.”
Dave Kruse, LEED AP, president, L.J. Kruse Co. Berkeley, Calif., isn’t hopeful for 2011.
“I think the bus may have finally hit the skids out here in California,” Kruse said. “It really can't get much worse. There remain a few active pockets of growth — large health care, federally funded projects like the University of California Labs and Stanford Linear Accelerator — but overall things are dismal.”
Kruse listed three key factors: “2011 should begin to show some signs of life, but realistically I don’t see a real recovery until: a) the banks start loaning money; b) a developer can build a building for less that he can buy it; and, c) unemployment heads downward and people start hiring again. In my opinion this won't occur in 2011 and may not in 2012.
“Service remains strong as capital projects are put off and mechanical and plumbing systems continue to deteriorate,” Kruse said. “We are seeing more and more service projects in the $100,000 range as owners struggle to keep their plants and buildings running. Overall we are not optimistic about 2011, but we are very committed to do the very best job we can with our good customers and clients, as we wait for signs of improvement in 2012.”