Construction pours it on: despite an economic slowdown, the concrete indust

by The Concrete Producer

Industry Overview)
Just remember a year ago, when fear of the unknown seized the nation. Iraq was on many minds and a military buildup siphoned government funds from transportation and construction. A general reluctance to commit to large projects slowed many aspects of construction. Despite these factors, this year's TCP 100 report shows there's still strength in concrete amid uncertain times.

The success of the largest concrete production companies illustrates the power of this industry. In short, the concrete industry is not taking a back seat to its competitors, and neither are the companies that drive it. This industry is fast-growing and competitive and that's why companies are expanding their products and locations. Better positioned for growth, the concrete industry is faring better than its competitors such as the steel industry (Refer to sidebar Concrete's Competitor Struggles).

Concrete producers are part of a $90 billion industry that is expected to grow further by 2004. Put-in-place construction spending, for both private and public construction, has increased, according to the U.S. Census Bureau. As of June 2003, construction spending totaled $872.5 billion and will continue to grow, further solidifying concrete's reign as a domestic industry leader.

Key industry observers say producers have reason to be optimistic about the industry's future. Hendrick G. van Oss, a cement commodities specialist at the U.S. Geological Survey (USGS), Reston, Va., says the concrete industry is "fundamentally healthy."

Why the growth?

New construction and transportation infrastructure spending in the United States totaled $1.4 trillion in 2002. With more than 2700 ready-mixed concrete producers operating in North America, each craves a piece of the pie. Researchers and industry analysts predict a steady increase for the industry. Even in the midst of last year's sagging economy, van Oss pointed to indicators of industry success in a USGS report. These factors include increased construction spending and a rise in cement and aggregate production and sales.

Instead of specializing in one industry segment, these producers are expanding to multiple segments such as ready-mix, aggregate, cement, and even asphalt. The ready-mixed concrete, block, and brick industries will grow by 9.5% in 2004, according to JT Research LLC, Portland, Ore. The estimated growth for cement is 11.9%.

Different producers use different methods to expand. THE CONCRETE PRODUCER found companies are not willing to discuss their success, and there is a good reason. One of the ways companies are expanding is through mergers and acquisitions (M&A).

The construction materials industry accounted for 25 M&A in 2002. The 10 leading construction materials companies in North America control more than 35% of the markets, according to M&A specialist Brown, Gibbons, Lang & Co. (BGL), Cleveland. though smaller independent companies aren't rushing to be acquired, economics often force the issue.

Unable to keep up, smaller companies have two choices: sell, or face bankruptcy. "Smaller companies find it challenging to be surrounded by larger companies that have larger checkbooks," says William Watkins, BGL vice president.

"As long as companies are successful and have the opportunity to grow, market consolidation will occur," adds Scott Ducoff, president and CEO of Campbell Concrete & Materials, Cleveland, Texas. The concrete industry is no different than any other industry. At the end of the day, when everything is said and done, it's a global industry."

Relatively healthy construction and infrastructure development, increasing efficiencies from new capital investment and technologies, and growth restrictions for existing operations all play a role in M&A. "Larger companies want to continue to grow their businesses," says Watkins. "It's easier for a larger company to buy out its competitor than to start from scratch."

That may be the case for some companies, but there are still those who prefer to expand on their own terms. Pavestone Co., Dallas, for example, often is unable to find plants that meet its equipment needs. Traditionally, Pavestone has built its own plants, and in the process, the company has learned the importance of multiple locations.

To make up for the equipment costs, the company has increased output by expanding its product line. "To be efficient with the big paving stone machines, you need a lot of volume, so you have to add other products to diversify and try to keep your machinery running 24 hours a day," says Bob Schlegel, Pavestone's chairman and CEO.

Local and successful

"With wide distribution being vital to national customers, the geography of plant locations in our heavy concrete industry is a key component to remaining competitive," says Schlegel. Pavestone discovered that daily concrete deliveries farther than 200 miles was not economically beneficial, so the company built 16 plants about every 300 to 400 miles, enabling it to service about 40 states.

Leading concrete producers are focusing their attention on specific geographic locations without spreading themselves too thin. THE CONCRETE PRODUCER found that the top 10 producers operate in an average of four geographic markets. Based on survey responses, the Midwest is the region with the most concrete operations. The West and Northeast are tied for the second most popular region. The South Central region has the fewest concrete producers.

Survey respondents with sales of less than $1 billion operate in fewer locations than their larger competitors. It makes financial sense for smaller companies to operate their businesses in one region, as transportation and shipping costs can be prohibitive if a company is not located near a fly ash supply, for example.

In terms of aggregate, the 10 leading states for construction sand and gravel by tonnage in 2002 were also mostly in the Midwest and West, according to the USGS. California, Texas, Michigan, Ohio, Arizona, Minnesota, Colorado, Washington, Wisconsin, and Nevada produced more than half of the U.S. total, which explains why many concrete producers operate in these states. The USGS estimates producers used or sold 1.12 billion metric tons of construction sand and gravel in 2002. Domestic consumption and production of these aggregate will rise slightly this year.

It's no surprise then that most of the top 20 housing markets, both single- and multifamily, are concentrated in the Midwest, West, and Northeast. The National Association of Home Builders, Washington, D.C., is confident that the U.S. housing market will spur the economy, with record sales for new single-family homes by the end of this year. This is good news for producers as residential construction approaches 2002 records thanks to low mortgage rates.

"Continued very low interest rates and strong public sector construction spending in 2002 mitigated construction declines relative to the much weaker general economy," van Oss writes in his USGS report. "Cement consumption in 2003 is expected to level off or rise slightly, a key determinate being tenuous state, or offsetting federal funding of public sector projects."

The future of concrete

The concrete industry will continue to grow as companies expand their markets through product lines and regionalism. Though M&A activity in the construction materials industry has declined, BGL says the industry is still headed toward further consolidations. More international firms will acquire companies in the United States.

The largest industry transactions in the past two years have been completed by international companies, BGL says. "Owners are owners," Campbell Concrete's Ducoff says. "It makes no difference whether they are from the United States, or from overseas."

The concrete industry is a driving force, and it won't slow down soon. There will always be a need to build, rebuild, and expand infrastructures, housing, and road construction. Concrete is on the forefront.

Methodology

THE CONCRETE PRODUCER sent faxes and e-mails, and phoned concrete production companies compiled from its reader circulation list and the 2001 ranking. In addition, annual reports and I0K reports on the U.S. Securities and Exchange Commission Web site, www.sec.gov, and the Thomson Gale Web site, www.galegroup.com, were used to gather annual revenue for companies. We ranked companies based on annual revenue for 2002. THE CONCRETE PRODUCER used the resources listed below to compile the 2002 TCP 100.


• Brown, Gibbons, Lang & Co., 216-241-2800, www.bglco.com.
• FMI Corp., 919-787-8400, www.fminet.com.
• JT Research LLC, 503-827-7241, www.jtresearch.com.
• Lexis Nexis, www.lexisnexis.com.
• The Concrete Producer Survey.
• The Conveyor, 609-393-3352, www.njconcrete.com.
• The Monitor, PCA, 847-966-6200, www.cement.org.
• Thomson Gale, 248-699-4253. www.galegroup.com.
• W.S. Census Bureau, www.census.gov.
• U.S. Securities and Exchange Commission, www.sec.gov.
• U.S. Geological Survey, 703-648-7712, www.usgs.gov.

TCP100



$1 Billion + Annual Sales North American HQ
1 Cemex USA Operation Houston, Texas
2 Lafarge North America Inc. Herdon, Va.
3 Oldcastle Inc. Atlanta, Ga.
4 Vulcan Materials Co. Birmingham, Ala.
5 Rinker Materials West Palm Beach, Fla.
6 Aggregate Industries Inc. Saugus, Mass.
7 A. Teichert and Son Inc. Sacramento, Calif.
8 Granite Construction Inc. Watsonville, Calif.
9 Lehigh Cement Co. Allentown, Pa.
10 RMC Industries Corp. Decatur, Ga.
11 Martin Marietta Materials Raleigh, N.C.
12 TXI Dallas, Texas
13 Holcim US Inc. Dundee, Mich.





Between $500 and $999 million
14 Knife River Corp. Bismarck, N.D.
15 Peter Kiewit Sons' Inc. Omaha, Neb.
16 St. Lawrence Cement Group Quebec, Canada
17 Florida Rock Industries Inc. Jacksonville, Fla.
18 Essroc Italcementi Group Nazareth, Pa.
19 Ameron International Corp. Pasadena, Calif.
20 Metromont Materials LLC Spartanburg, S.C
21 U.S. Concrete Inc. Houston, Texas





Between $100 and $499 million
22 Irving Materials Inc. Marion, Ind.
23 Hanson Building Materials America Neptune, N.J.
24 Centex Construction Products Inc. Dallas, Texas
25 The Lane Construction Corp. Meriden, Conn.
26 Titan America Norfolk, Va.
27 Oylebay Norton Co. Cleveland, Ohio
28 Lone Star Industries Inc. Indianapolis, Ind.
29 O and G Industries Inc. Torrington, Conn.
30 Dayton Superior Corp. Dayton, Ohio
31 Thomas Concrete of Ga. Inc. Atlanta, Ga.
32 Staker & Parson Companies Ogden, Utah
33 Brannan Ready-Mix Denver, Colo.
34 Fisher Sand & Gravel Co. Dickinson, N.D.
35 Transit Mix Concrete & Mtls. Dallas, Texas
Co./Trinity Mtls. Inc.
36 Clyde Companies Inc. Orem, Utah
37 Prairie Material Sales Bridgeview, Ill.
38 Wells Concrete Products Wells, Minn.
39 Pavestone Co. L.P. Dallas, Texas
40 Campbell Concrete & Materials Cleveland, Texas
41 Harper Industries Inc. Paducah, Ky.
42 Impulsora Tlaxcalteca de Mexico City
Industries S.A. de CV
43 Eureka S.A. de CV Mexico City
44 Monarch Cement Co. Humboldt, Kan.
45 Continental Materials Corp. Chicago, Ill.
46 MMC Materials Inc. Ridgeland, Miss.
47 Manatt's Inc. Brooklyn, Iowa
48 Morse Bros. Tangent, Ore.
49 Fabcon Inc. Savage, Minn.
50 Alamo Concrete Products Ltd. San Antonio, Texas





Between $50 and $99 million North American HQ
51 Holliday Rock Co. Inc. Upland, Calif.
52 Consumers Concrete Corp. Kalamazoo, Mich.
53 High Concrete Structures Inc. Denver, Pa.
54 Nevada Ready Mix Corp. Las Vegas, Nev.
55 Midwest Block & Brick Jefferson City, Mo.
56 American Transit Mix Co. Modesto, Calif.
57 Concrete Supply Co. Charlotte, N.C.
58 Silvi Concrete Products Fairless Hills, Pa.
59 Hormigonera Mayaguezana Inc. Mayaguez, Puerto Rico
60 Tulsa Dynaspan Inc. Broken Arrow, Okla.
61 Columbia Machine Inc. Vancouver, Wash.
62 Dublin Construction Co. Dublin, Ga.
63 Central Concrete Supermix Inc. Miami, Fla.
64 Delta Industries Inc. Jackson, Miss.
65 APAC-Antlantic Inc. Costal Kinston, N.C.
Carolina Div.
66 Doan Companies Ypsilanti, Mich.
67 Devcon International Corp. Deerfield Beach, Fla.
68 Nu Way Concrete Forms Inc. St. Louis, Mo.
69 Premarc Corp. Durand, Mich.





Between $1 and $49 million
70 Suhor Industries Inc. Overland Park, Kan.
71 Sequatchie Concrete Service South Pittsburg, Tenn.
72 Custom-Crete Dallas, Texas
73 Hills Materials Co. Rapid City, S.D.
74 Miles Sand & Gravel Co. Auburn, Wash.
75 Shockey Precast Group Winchester, Va.
76 Varmicon Industries Inc. Harlington, Texas
77 Gary Merlino Construction Co. Seattle, Wash.
78 Empire Sand and Gravel Co. Billings, Mont.
79 Best Block Co. Warren, Mich.
80 Chandler Conc
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