Last month, I wrote about the 2005 Industry Data Survey, and I talked about what a terrific tool it is. It is offered by NRMCA to its membership annually, and we think it is one of the most important and valuable benchmarking tools available in our industry. Each year, our firm does a thorough analysis of this survey, and among the things we focus on is how the upper quartile of performers in terms of profitability are so successful at what they do. We just completed that analysis on the 2005 survey, and are now presenting those results at various state and national industry conferences around the country.
“Savvy producers address their cost structures-quickly.”
So how do the producers who rank in the top 25% in terms of profitability do it? We call them the “Leaders”, and they are an interesting crowd that we have been following since the survey started measuring them, as they all seem to have a few things in common:
- In the last economic downturn at the beginning of the decade, they were the first to address their cost structure, and did it quickly. They went through their financials, and addressed every line item the moment they witnessed the softness in their business. They pressed their materials suppliers, forcing them to hold or, in some cases, actually reduce materials pricing. They also fine-tuned all of their other variable and fixed costs, and posted better performance than the typical producer.
- As the market improved in 2003, they turned on a dime, and became price leaders in their markets. The were substantially ahead of the industry in terms of pricing strength, settling out at an average selling price that outpaced their peers.
- When the competition caught up with the Leaders on pricing in 2004, and selling prices rose across the board in the face of multiple increases for both cement and aggregates, they once again drilled down into their cost structure, fine-tuning the cost side of their business, and enhancing profitability while continuing to maintain their growth in selling price.
Here are some of the key indicators of how the Leaders compare to the typical producers taken from this year’s results:
- In 2004, the Leaders enjoy a selling price advantage of $72.77 as compare to $69.44 for the typical producer. This indicates they are in stable markets, or that they take the lead in price leadership in their service areas.
- They also enjoy lower costs in a number of key areas, including Variable Plant Costs, Variable Delivery Cost, Direct Fixed Plant Costs, and G& A Expenses. Marginal contribution after these costs is $3.23 per yard higher than the typical producer.
- This results in a Profit Per Yard of $6.55 for the Leaders compared to $2.98 for the typical producer, or a profit margin of 9.1% of sales.
Interestingly, there was one geographic region that actually outperformed the Leaders: the North Central region. They generated a whopping $7.95 per yard in pre-tax profit, or 10.6% of sales. We noticed performance equal to or above the Leaders in most line items, yet they benefited from the highest selling price in the country at $75.89, fully $6.45 more than the typical producer. Its amazing how selling price drives profitability, isn’t it?
Next year, we hope to take a new measurement: the bottom quartile, or the lowest 25% in terms of profitability. If we are successful in capturing this information, we will analyze it and share it with the NRMCA Business Administration Conference attendees next fall, and with the other state associations that we have occasion to speak to. Of course, we will share the highlights here with you as well.
Pierre Villere is President and Managing Partner of Allen-Villere Partners. Contact Pierre Villere at email@example.com or telephone 985-727-4310.
© 2005 Hanley Wood, LLC. All Rights Reserved. Republication or dissemination of “How The Industry Leaders Outperform The Rest” (The Concrete Producer, December 2005) is expressly prohibited without the written permission of Hanley Wood, LLC. Unauthorized use is prohibited. Allen-Villere is publishing “How The Industry Leaders Outperform The Rest” under license from Hanley Wood, LLC.