The economic slowdown hits contractors hard as they hope for the best
by Kate Gawlik and Christina Koch
"Economy, economy and economy" is what Nelson Braddy, president of King of Texas Roofing Co., Grand Prairie, Texas, said when Professional Roofing asked him to name his top three concerns as a roofing contractor. For the past few years, finding professional, quality workers had been contractors' main concern.
But as the economy continues to slow and Americans' concern about a peaceful future increases, Braddy's sentiment seems to echo most roofing contractors' current worry.
Each year, Professional Roofing interviews U.S. roofing contractors to learn how their businesses performed during the year and what they expect for the next year. Following are contractors' responses by region.
The Sept. 11 attacks and subsequent bioterrorism threats have crept into every aspect of peoples' lives. New England roofing contractorsthose in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermontagree that the economy will continue to slow because of unknown future threats.
"Terrorism causes a ripple effect into everything, and the effect of the ripple is unknown because we don't know when it is going to stop or what is next," says Jamie McAdam, president of F.J. Dahill Co. Inc., New Haven, Conn.
Rob Therrien Jr., president of Al Melanson Co. Inc., Keene, N.H., agrees with McAdam that the economy is softening because of recent events but says the media partially is to blame.
"The economy has become more of a concern as the media does an about-face and great job convincing everyone the sky is falling," Therrien says.
Although a slowing economy is what New England roofing contractors are addressing, they agree that revenues increased during 2001. But they expect revenues to decrease or, at best, remain the same during 2002.
Roofing contractors say profit margins have decreased during 2001, and they do not expect surging increases during 2002. But contractors believe 2002 profit-margin levels will remain steady or increase slightly.
However, Stephen McBrady, president of SMR Inc., Portland, Maine, disagrees with other area contractors and believes profits will plummet.
"I expect the slowing trend to continue because of uncontrollable costs, such as fuel, insurance, etc.," McBrady says.
Something area contractors agree about is increasing competition. Therrien and McAdam say they have seen a few new competitors, and McBrady says he has seen several new competitors in the single-ply market.
"With no real overhead needed in equipment, we have seen building owners, general contractors, vinyl siding installers, etc., become roofing contractors overnight," McBrady states. "It is an amazing metamorphosis."
Roofing contractors in New Jersey, New York and Pennsylvania (the mid-Atlantic region) also expect the economy to be their greatest struggle during 2002. Although most contractors experienced increased or steady profit margins during 2001, many expect the slowing economy to cause profit margins to decrease during 2002.
Chris Jurin, vice president of Eric Jurin Roofing Services, Quakertown, Pa., says: "Profit margins have remained steady with slight increases in service- and maintenance-related work. I anticipate that as the economy tightens, pricing and margins will take a hit."
However, Phil McKinney, president of Evans Service Co. Inc., Elmira, N.Y., believes repair and maintenance work will continue to be profitable. He predicts that property owners with small budgets will contract repair and maintenance work until they are forced to replace their buildings' roof systems.
In addition, Jurin states he has seen increased interest in using roofing materials that will last for many years. "Building owners appear to be more interested in the quality of the roof system they are getting for their money," he says. "Also, I am seeing a surge in maintaining and monitoring roof systems instead of allowing them to deteriorate."
Roofing contractors in the mid-Atlantic region also are concerned about a lack of qualified workers, union salting, Occupational Safety and Health Administration (OSHA) regulations and increased insurance costs.
McKinney sums up area roofing contractors' insurance concerns by saying, "Five years ago, insurance carriers were beating down doors to provide coverage, but now, insurance is costly and hard to find."
South Atlantic region (Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) roofing contractors experienced low profit margins and increased competition during 2001 and expect levels to worsen during 2002.
Roofing contractors believe 2002 profit margins will decrease because of the weakening economy and say product pricing is low because too many contracting companies are chasing too few jobs.
Bob Purdy, co-owner and secretary/treasurer of Edwards Roofing Co. Inc., Pensacola, Fla., says roofing contractors not only have to compete with neighboring contracting companies but also with contracting companies that travel throughout the United States in search of work.
And because of the slowing economy, Purdy expects a decrease in reroofing work and increase in repair and maintenance work as property owners with tightened cash flows try to prolong their roof systems' lives.
In addition, South Atlantic roofing contractors say technology is playing a major role in the field and office.
"During the past 20 years, technology has made it easier to get materials onto a roof and fasten them, as well as heat asphalt, fabricate metal at a job site and control quality," says Keith Swope, president and owner of Tampa Roofing Co., Fla.
Purdy believes the Internet is the latest technology affecting his office. "The Internet has brought about more online bid requests, planning, inquiries and sales leads," Purdy says.
East North Central
Roofing contractors in the East North Central region (Illinois, Indiana, Michigan, Ohio and Wisconsin) say their concerns, such as a lack of skilled labor and OSHA regulations, are similar to concerns five years ago.
However, James A. Eckstein Jr., vice president of C.A. Eckstein Inc., Cincinnati, also cites rising insurance costs as a major concern. He says, "C.A. Eckstein received a letter from its insurance agent saying that premiums will increase because of the Sept. 11 attacks."
The region's roofing contractors expect an already weak market to become tighter as the economy slows. Some roofing contractors note that their revenues for 2001 decreased from their 2000 totals, and most expect more reductions during 2002. Roofing contractors also say profit margins are decreasing and will continue falling.
In addition, contractors cite competition is increasing, especially in the reroofing market.
"New construction is slowing and forcing contractors who concentrate on that work into the reroofing market," Eckstein says.
Although contractors in this area predict a bleak year, they are getting some assistance from technology. Eckstein says Internet technology not only helps roofing contractors increase sales leads and facilitate bids but production technology is helping manufacturers create better products for installation.
In addition, contractors report material trends in the region include more modified bitumen specifications in the low-slope (commercial) roofing market and more slate and copper usage in the steep-slope (residential) market.
East South Central
Business, economic and cash-flow slowdowns are top concerns for East South Central roofing contractors (those in Alabama, Kentucky, Mississippi and Tennessee).
"The economic downturn has affected us by causing less new work," says Hans Philippo, president of Holland Roofing Group, Florence, Ky. "But after a while, I expect the reroofing market will recover."
The economic downturn is evident in revenue and profit-margin levels that either have remained the same or decreased during 2001. Although roofing contractors expect the levels to decrease during 2002, Don McCrory, president of Kiker Corp., Mobile, Ala., says he hopes for a productive 2002.
Roofing contractors in this region agree that Internet and equipment technology have affected the industry, but Philippo believes the effect is not completely positive.
"We are roofing faster because of technology, so we need more work to stay busy," Philippo notes.
Area roofing contractors are trying to stay busy as new trends develop. Contractors believe heat-welded products and modified bitumen and metal roof systems are the latest trends.
West North Central
Concerns for West North Central region (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) roofing contractors include securing work, insurance costs and OSHA regulations.
Unlike the previous five years, roofing contractors note that they have enough employees to fill positions in their companies. But the quality of employees is inadequate.
"Manpower shortages were a constant problem. But now, for the first time in more than 15 years, we seem to have adequate staffing levels for field operations," says Kent Schwickert, president of Schwickert Inc., Mankato, Minn.
Bob Daly Jr., president of Kaw Roofing & Sheet Metal Inc., Kansas City, Kan., agrees with Schwickert and says, "Quantity seems to be better than in the past, but quality of workersespecially ethicsis way down."
Area roofing contractors also cite the economy as a top concern. Most contractors had increased or steady profit margins during 2001 but expect decreases during 2002.
"Because of the abundance of work this year, profit margins were slightly higher than the past few years," says Wayne Cox, division manager for The Young Group Ltd., St. Louis. "But as work slows, margins tend to drop."
Competition has been mostly steady in the region, but as the economy tightens, roofing contractors expect market trends to shift. Barbara Dalsin, president of M & S Roofing Inc., Blaine, Minn., expects new construction and reroofing work to decrease, which will increase repair and maintenance work. Some area contractors expect the slowing economy to drive some of their competition into bankruptcy.
According to Schwickert: "Depending on the duration of this economic slowdown, we may see a cleansing of our contractor population. Contractors who were performing work at below-profit levels will be forced out of business."
West South Central
Roofing contractors in Arkansas, Louisiana, Oklahoma and Texas (the West South Central region) agree that profit margins decreased or held steady during 2001 and will decrease during 2002. Roofing contractors in this region witnessed increased revenues during 2001 and disagree about whether revenues will increase or decrease during 2002.
For contractors, the slowing economy is creating reduced profit margins. Braddy believes the economy also will have other effects.
"Obviously, new construction will suffer. In our area, it has been slowing for more than one year," Braddy states. "Reroofing and maintenance also will suffer because of our clients' restricted budgets."
But Brad Beldon, president of Beldon Roofing Co., San Antonio, believes the roofing industry will prevail.
"People need roofs in bad and good times," Beldon says.
Something West South Central contractors agree about is the effect the Internet has had on the roofing industry.
"The Internetmore than any other tooldramatically affects our research abilities and helps us better manage our people," Beldon says.
Rick Birkman, president of Texas Roofing Co., Austin, agrees: "The Internet is making information more accessible. Computer technology translates into more work for less man-hours, allowing us to keep our overhead low."
Mountain region roofing contractors (those in Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and Wyoming) believe labor shortages continue to be a major concern.
Kent Tolley, president of Tolley-Hughes Inc., Boise, Idaho, cites labor as a concern but says it is different than five years ago.
"We now have more applications, but workers' skill levels and desires for long-term employment have decreased," Tolley states.
Dane Bradford, president of Bradford Roof Management, Billings, Mont., agrees with Tolley and believes work force issues have intensified. Bradford also believes manufacturers are a concern.
"Manufacturers are developing new and/or changing existing products and marketing them without adequately testing their performances," Bradford notes.
Mountain region roofing contractors have different outlooks for 2002 profit margins and revenues. Tolley says a slowing economy has forced his company to budget for less work during 2002 and make overhead reductions. But Bradford believes roofing contractors may see substantially higher profit margins after a slow start during 2002.
Bradford says: "I believe the roofing industry will see an industrywide downturn. But with proper economic stimulus by the U.S. government, I believe the downturn will be relatively short-term."
Concerns for California, Oregon and Washington (Pacific region) roofing contractors include insurance costs; lack of qualified roofing workers, estimators and project managers; increasing product pricing; and the economy. Competition in the residential roofing market also is listed as a top concern in this region.
"The competition in the residential market always is a moving target," states Lisa Sprick, vice president of Sprick Roofing Co. Inc., Corvallis, Ore. "New contracting companies come in with low-ball prices and are out of business within a few years. Then, there's another company right behind them doing the same thing."
Don Guthrie, president of Wayne's Roofing Inc., Sumner, Wash., expects more competition to develop because of the slowing economy: "A tighter economy will attract competition from markets with few opportunities to markets with greater opportunities. It also will push less stable companies out of business."
Other contractors are more optimistic about the effects the economy will have on the roofing industry.
"New construction may be affected [by a building slowdown], but roofs still need to be replaced as they age," Sprick says. "Because roofs are not luxury items, our industry tends not to get hit as hard during economic downturns. This has been true for Sprick Roofingwe are affected, just not as hard as some."
Most contractors expect profit margins and revenues to decrease during 2002, which is different from the increases they experienced during 2001.
John Miller, chief executive officer of Western Roofing Services, San Francisco, predicts, "The first six months of 2002 will be tough."
Alaska, Hawaii and Puerto Rico
Alaska, Hawaii and Puerto Rico may not be part of the continental United States, but roofing contractors in these areas face similar challenges for 2002 as the rest of the nation.
Bill Kramer, president of Industrial Roofing Inc., Anchorage, Alaska, states a lack of qualified roofing workers; Factory Mutual's proposed FM 4490"Approved Standard for Roofing Contractors"; and ergonomics are his top concerns.
Kramer also agrees with other roofing contractors that the economy will affect the roofing industry. But he is optimistic about how the industry will be affected.
Kramer says: "In the long run, I think an economic downturn will be beneficial to the industry as a whole. Those who survive will have better knowledge about the cost of doing business and the experience it takes to make the difficult decisions that allow a company to remain competitive. Some lessons cannot be taughtthey must be experienced."
Kenneth Chong Kee, president of All-Tech Roofing Corp., Wailuku, Hawaii, states that he only has one concern for the upcoming yearthe local and world economy. Chong Kee expects his company's revenue to decrease during 2002. Chong Kee says profit margins already are decreasing and he expects the trend to continue.
"In Hawaii, the tourism industry feels the first effects [of an economic downturn]," Chong Kee says. "The trickle-down effect will be felt by roofing contractors early next year if not sooner."
The slowing economy also is affecting roofing business in Puerto Rico. Luis Fernandez, president of Roof Decks of Puerto Rico, San Juan, says the work volume in his area is low. Fernandez remains optimistic and expects revenues and profit margins for his company to increase during 2002.
What to expect
The slowing economy obviously will play a role in the way roofing contractors conduct business during 2002. Although many contractors worry about lower product pricing, fewer projects and increased competition, others are optimistic that the slowing economy will not affect the roofing industry as seriously as other industries. Those concerned about the economy agree that 2002 will pose an economic challengeone they are willing to and must confront to remain in business.
Kate Gawlik is associate editor and Christina Koch is assistant editor of Professional Roofing magazine.
The manufacturing perspective
by Ambika Puniani
During 2000, manufacturers did not predict a stellar 2001, and they were right. According to manufacturers interviewed by Professional Roofing, nearly all had flat or decreased revenue growth this year. 2002 doesn't look much better though GAF Materials Corp., Wayne, N.J., and Stevens Roofing Systems, Holyoke, Mass., anticipate some revenue growth. Following is what manufacturers told Professional Roofing they expect for the upcoming year.
Currently, any businessperson will tell you the economy is an overriding concern to them, and roofing manufacturers are no exception.
"Continuation of the current economic downturn significantly could reduce demand for new construction, as well as reroofing next year," says Jim Hoff, vice president of marketing for Firestone Building Products Co., Carmel, Ind.
Hoff's counterparts at other manufacturing companies agree and add that the events of Sept. 11 will affect the roofing industry.
"Our experience during the Gulf War gave us enough of a perspective to make certain assumptions during times of world crises," explains Jim Hilyard, president of Valley Forge, Pa.-based CertainTeed Corp.'s Roofing Products Group. "For the nine months following the start of the war, we, as well as our competitors, experienced drops in sales volumes. Fortunately, as the conflict was resolved, business rebounded. We're using the same model in looking forward to next year."
In addition, a poor economy affects the work force situation. If roofing contractors cannot recruit and retain qualified workers, manufacturers believe installation quality may suffer.
"A concern is labor shortages [that can] affect the quality of installations as unskilled laborers enter the roofing industry," says Steven James, Stevens Roofing Systems' vice president of sales and marketing.
And though more workers are available now, Bart Roggensack, vice president and general manager of Johns Manville's Roofing Systems Group, Denver, believes they don't see the roofing industry as an option.
"Although there are more people in the job market, they do not see the roofing industry as an attractive employment option," Roggensack says. "This is particularly true with young people who are beginning their careers. They continue to be dazzled by the glitter and romance of technology industries."
Despite the challenges the industry faces, there has been growth in some areas, and manufacturers have seen usage of some roofing materials increase.
For the commercial sector, manufacturers say single-ply membrane usage, particularly of white TPO membranes, has been on the rise. In addition, roofing materials that have been labeled as energy-efficient according to the U.S. Environmental Protection Agency's Energy Star® program have become more popular, as have cold-applied modified bitumen roof systems.
In the residential roofing market, laminate shingle sales have been growing. According to Hilyard, "Laminate shingles are the fastest-growing and most competitive segment of the asphalt shingle market."
With regard to both segments of the industry, manufacturers are relieved asphalt prices have stabilized; increasing asphalt prices were a prevailing concern during the past year.
As 2001 ends, manufacturers realize that expenses still need to be watched closely during the coming year. For example, GAF, which already reduced expenses before Sept. 11, is further tightening travel spending, and CertainTeed is looking for ways to streamline budgetsnothing new for companies facing a struggling economy.
Another main concern is a possibility of having an inventory surplus if the construction market slows. On the flip side, if the economy begins to rebound, manufacturers could be faced with a product shortage if they misjudged their production schedules.
Hilyard accurately sums up the manufacturing sector's outlook: "I don't think we ever go into a new year without some concern about economic conditions. However, an already slowing economy coupled with the Sept. 11 events and war against terrorism have taken concerns to a higher level."
Ambika Puniani is editor of Professional Roofing and NRCA's director of communications.