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Construction Companies Lead Growth Among Private Companies

June 26, 2014, 06:45 AM
Filed Under: Economic Commentary

According to the latest quarterly analysis of private-company financial statements by Sageworks, U.S. businesses are growing sales and expanding profit margins at a healthy and consistent pace over the last year. Strength in construction has contributed to overall private-company results, but a few key sectors, like the manufacturing and transportation industries, are seeing slower growth than previous periods. Sales for private companies on average are increasing at an annual rate of 8 percent as of June. The average privately held company is also making more than 7 cents of profit for each dollar in sales (a 7.2 percent net profit margin). 
Despite warning signs from the Census Bureau that the post-2009 housing boom and recovery may be slowing, privately held construction companies continue to grow sales at a double digit pace, even increasing their rate of growth in the most recent period.  Net margins for these companies continue to climb, currently sitting at a five year high of 5.1 percent. 
The manufacturing sector, badly bruised by the recession, has recovered significantly over the past five years. According to figures from the White House, output for manufacturing companies has climbed 30 percent since the end of the recession.  Privately held manufacturing companies in particular have recovered with a great deal of strength since the recession: At this point two years ago, these companies were outpacing a very robust private-company average sales growth rate of nearly 10 percent by growing sales at a rate of 14 percent.  Two years later, they’re growing sales at a rate half the size. 
As the President indicated earlier this month with his promise to allocate several billion dollars in manufacturing equipment for U.S. businesses, manufacturing remains a key indicator and crucial part of the economy’s continued expansion. “Hopefully,” says Sageworks Chairman Brian Hamilton, “the slowdown in sales we’re seeing for manufacturing is a minor blip and not an indication of broader softness in the economy.” 
More than 93 percent of companies within the trucking industry have 20 or less trucks, according to the American Trucking Associations. “This is an industry composed, for the most part, of privately held players,” explains Abbas. “These are not huge organizations individually, but together they play a large role in the industry.” In an analysis of the financial statements of these private trucking companies, Sageworks found that the average growth rate for trucking companies is 7.7 percent. While that’s a solid growth rate, it’s significantly lower than the 14 percent growth these companies were seeing two years ago. “It makes sense that the trucking industry is seeing its growth rate slide, when you look at what’s going on in manufacturing,” said Abbas. “If fewer orders are being placed from manufacturers, trucking companies will not be increasing the amount of business at the same rate as they were in 2012.”   
The full report can be found in it's entirety here.

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