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Various Economic Opinions Fail to Inspire Confidence
Posted By admin On April 1, 2012 @ 6:00 am In Articles,Data Mining,Departments | No Comments
The construction materials sector has been busy with national conventions for associations, headlined by presentations from economists discussing the outlook for homebuilding and the federal highway bill. These presentations, made by highly qualified speakers with impressive pedigrees, leave one more confused than before attending these meetings. Opinions on housing starts are all over the place, leaving people scratching their heads. The discussions on the federal highway bill, along with recent amendments being introduced in Congress, leave one feeling that we may be back to a Band-Aid approach to funding. Overall, the sentiment in the coffee breaks at these conventions is that the talking heads are more optimistic than the producers are. The general opinion is that we “may” have hit bottom and we “might” begin to see some improvement, although, probably not until 2013 — not an abundance of enthusiasm or confidence.
As discussed many times in this column, confidence is key to merger and acquisition activity. Confidence is needed for producers to re-engage in capital spending — both replacement and growth capital expenditures. Confidence is important for buyers to base their valuations on an improved future.
In the absence of confidence, we have had few deals announced in recent months. The headlines have been dominated by the Martin Marietta hostile takeover attempt of Vulcan, which is based on “confidence” that the two companies together could take advantage of pricing and operating synergies — a fancy way of saying they expect to be able to raise prices and cut costs.
The first leg in building confidence is the expectation of increased volume. At this point, there is some glimmer of hope for an uptick in volume; however, issues surrounding Greece, oil prices, jobs, taxes, and other political rhetoric have had a negative impact on confidence. The second leg in building confidence is seeing a return to some level of normal profitability on a per-unit basis. For example, the ready-mix concrete industry, on average, loses money according to an industry benchmarking survey. The problem for the construction materials sector is that, while volumes have been cut in half in most markets, plant capacity has remained stable. Basic economic theory suggests that price, and therefore profit margins, will remain low as long as supply exceeds demand.
Florida Rock and Sand Prestress Precast Co., Inc. have acquired US Precast Corp. and are renaming the merged entity to United Concrete Products, LLC. US Precast Corp. manufactures precast concrete structures, reinforced concrete pipes, box culverts, and tunnel sections.
New Enterprise Stone & Lime Co., Inc., a privately held, vertically integrated construction materials supplier and heavy/highway construction contractor in Pennsylvania and western New York, has priced its offering of $265 million of 13-percent senior secured notes due 2018. The proceeds will be used to repay outstanding indebtedness.
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