Subcontractor Revenue Lagging Market Pickup

Regional revenue for specialty contractors in the New York-New Jersey area declined in 2014, com- pared to the previous year, according to the results of ENR New York’s 2015 ranking of firms working in those fields.

Aggregate revenue for the top 45 specialty contractors on the 2014 list was $3.49 billion while those who ranked in 2013 reported $3.84 billion. The rankings are based on firms’ prior year revenue figures.

The 2015 ranking was the first not to include revenue from work in Connecticut, which now is being reflected in the Top Specialty Contractor ranking compiled by ENR New England.

Specialty contractors tend to lag increases in construction activity. So, despite the construction boom under way in the greater New York region – New York City experienced a 156% increase in building permits in the first half of 2015 – regional revenue among the top tier of companies in the current ranking rose slightly or was relatively flat.

“Subcontractors are involved in the back end,” explained John Rogers, managing director and head of institutional equity research at investment firm D.A. Davidson Companies.

Regional revenue for specialty contractors in New York and New Jersey peaked in 2012 at $3.95 billion, rising from $3.40 billion the previous year. But the total began falling in 2013.

In 2014, specialty contractors were essentially riding out the last surge in construction activity, but business is starting to pick up in 2015 and ahead in 2016, ac- cording to Rogers.

Some of the decline in regional revenue can be attributed to the completion of work related to repair required by the damage done by Superstorm Sandy in October 2012.

“We had 150 people working on Long Island repairing and rebuilding the electrical system after Sandy, but that was a one shot deal,” says Victor Salerno, CEO of O’Connell Electric Co. Inc.

So far this year, however, O’Connell’s sales are up about 6%, he says, and “it looks like 2015 will be our biggest year ever.”

O’Connell is just finishing some large projects, such as a $6-million contract for the electrical work for an amphitheater in Syracuse, N.Y., for Onondaga County that had to be done in 12 weeks to be ready for a con- cert in early September.

In general, the outlook for western New York is good, Salerno says. O’Connell recently won a project to expand an aggregates production plant in upstate New York being done by newly enlarged materials firm LafargeHolcim.

O’Connell also is expanding by acquisition. Late last year it purchased Clifford R. Gray, a capital region electrical and communications contractor, for an undisclosed sum.

“2016 should be a good year,” Salerno says, adding that his goal is to build the company to $250 million in revenue in the next several years, up from about $129 million reported last year that total landed O’Connell in fifth place in the 2015 regional ranking, an increase over its $120.7 million in 2013, and up from sixth place in the 2014 rankings.

EMCOR Group Inc., the top ranked specialty contractor in 2015, with regional revenue of $660.4 million in 2014, noted in the first quarter that its “uneven” earnings results were affected by extreme cold weather that reduced workdays, particularly in the Northeast. In the same earnings report, EM COR said it is beginning to see overall growth in its order backlog for 2015 and 2016 in the commercial and transportation sectors.

In its second-quarter earnings, the company reported a 6.4% increase in organic revenue growth with increases in U.S. electrical and mechanical sectors.