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WIKI ANALYSIS
The Emcor Group (EME) manages electrical & mechanical construction ventures as well as facilities maintenance projects for corporations.[1] The company generated $5.972B in 2007 revenue (up 41% from 2006) from two sources - recurring maintenance service contracts (50% of 2007 revenues) and by implementing new electrical & mechanical systems (the other 50%).[2]
Also in 2007, Emcor's backlog (unrecognized yet received revenue ie partial prepayment) grew to $4.49 billion from $3.50 billion in 2006.[3] Backlog represents a key metric in the general contracting industry in illustrating the future revenue stream. Partial prepayments to Emcor for individual projects foreshadow future payments as these ventures are completed.
Between 2006 and 2007, demand in the electrical and mechanical construction services industry grew due to the desire of businesses to deeply integrate computer operations into their informational infrastructure as well as legal measures requiring corporations to amplify their environmental and energy conservation efforts.[4] In particular, this created opportunities for electrical and mechanical services in the non-residential construction arena.[5] In 2007, total spending in the United States for non-residential construction exceeded $630.0 billion, an increase of 15.6% on such spending in 2006.[6]
Company Overview
Business Segments
The Emcor Group operates in two main segments: electrical & mechanical engineering as well as facilities construction services. Within the facilities construction services segment, the company subdivides its operations into either the facilities retrofitting business or the facilities maintenance one. Between 2005 and 2007, Emcor generated an increasing percentage of its total revenue from the electrical & mechanical engineering segment. While in 2005, electrical and mechanical engineering revenue supplied only 30% of Emcor’s gross revenue, by 2006, this segment's revenue contribution had ballooned to 41% of total 2006 revenue. Finally, by 2007, electrical and mechanical engineering projects contributed to 50% of Emcor’s gross revenue.[9]
- Electrical and Mechanical Engineering Projects (50% of revenue): Emcor designs, integrates, and installs infrastructure including electrical power transmission systems, lighting systems, voice and data systems, and fire protection systems.[10]
- Facilities Services (50% of revenue):[11]
- Retrofitting Customer Facilities (23 % of revenue): refers to the retrofitting of existing customer facilities from an electrical, structural, and mechanical standpoint. [12]
- Recurring Facilities Services (27% of revenue): refers to Emcor’s maintenance services, military base operations services, mobile maintenance, and technical consulting and diagnostic services.[13]
Business Financials
Finances
- Net income reached its lowest point in 2003, as a result of disproportionately large sales, general, and administrative expenses (SG&A) as compared to total 2003 revenue. However since 2003, the company has been able to control such expenses; between 2003 and 2007, the organization’s net income grew at an uncompounded average rate of 126.1% per year.[15]
- Emcor’s cost of goods sold (COGS) rose steeply between 2002 and 2007. Between these years, Cost of Good Sold increased at an average uncompounded rate of 9.877% year-over-year, a rate equal to that of revenue growth.[16] However, due to scaling, Emcor still produced a positive gross profit throughout this period (ie Revenue still exceeded Cost of Goods Sold).[17]
| Annual income data, in millions[18] | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |
|---|---|---|---|---|---|---|---|
| Total Revenue | $3,968 | $4,535 | $4,748 | $4,715 | $5,021 | $5,927 | |
| Cost of Services | $3,469 | $4,028 | $4,277 | $4,198 | $4,432 | $5,181 | |
| Gross Profit | $499 | $507 | $471 | $517 | $589 | $746 | |
| Net Income | $63 | $21 | $33 | $60 | $87 | $127 | |
Acquisition
In September 2007, Emcor acquired FR X Ohmstede Corporation for $445.5 million.[19] Between 2004 and 2007, Ohmstede was the leading North American provider of aftermarket maintenance and repair services, replacement parts, and fabrication services for the petrochemical industry. Through the Ohmstede acquisition, Emcor acquired a core competency in the in-shop repair business as well as the customized heat exchangers industry.[20] Additionally, through this purchase, Emcor developed the ability to provide aftermarket maintenance of shell and tube heat exchangers in the electric works field.[21] Book entries for Ohmstede’s revenue began in the first quarter of 2008.
- Heat Exchanger: a device built to efficiently transfer heat from one medium to another (ie across some boundary)
Trends and Forces
High Growth in Non-Residential Electrical Construction Services Disproportionately Benefits Emcor
Emcor’s United States electrical & mechanical construction services business controls 33.7% of the electric work market share ($10.5 billion segment).[24] In 2007, Emcor procured 2,035 new contracts in the electric works business segment out of the segment total of 6040 New Contracts, thereby solidifying their role as the electric works market leader.[25] These new electric work services contributed 60% ($3.54 billion) of Emcor’s 2007 revenue ($5.9 billion).[26]
The electrical and mechanical construction services industry grew substantially between 2005 and 2007 due to the increasing demand for complex & content-heavy systems.[27] Such complexity arose from the expanded use of computers in integrated systems, an increased demand for more technologically advanced communications, and new legal requirements necessitating energy savings and environmental control in individual spaces.[28] The demand for these services was typically driven by non-residential construction and renovation activity. Total spending in the United States for non-residential construction exceeded $630.0 billion in 2007, an increase of 15.6% from such spending in 2006 ($544.98 billion), according to the United States Census Bureau.[29]
Fragile Economic Moat Around Simple Electric Systems Market Threatens Emcor’s Market Share Dominance
The electric works industry suffers from low barriers to entry; the market is served by small, owner-operated private companies and several large public corporations (Emcor Group, Quanta Services, Mastec Corp, etc).[30] As a result, Edison Electric Institute experts estimate that any organization with capital in excess of $10 million dollars can at least enter the small contract segment (contracts which range in size from $1 million to $10 million) of the electric works industry.[31] Stiff competition in the simple electric works segment has already adversely impacted Emcor’s ability to corner the market. In 2006, Emcor recorded $2.54 billion for their simple electric works projects (constituting 65% of the simple electric systems market share). In 2007, this same niche only supplied Emcor with $2.3 billion in revenue, or 58% of the market share.[32]
Aging U.S. and Canadian Infrastructure Will Need Renovation
In 2007, The Emcor Group spent over $8 million lobbying for contracts related to infrastructural renovation and construction in the United States.[33] That same year Emcor entered into 2,035 electric work contracts comprising 33.7% of electric work market share in the United States, earning $3.54 billion.[34] Additionally Emcor possess an electric work backlog in excess of $3 billion dollars; cumulative contract quantity and value represent approximately 35% of 2008-2010 Electric Work market share.[35]
The U.S. and Canadian electric power grid consists of more than 200,000 miles of high-voltage lines delivering electricity to over 300 million people.[36] The infrastructure is aging and requires significant maintenance and expansion to handle the nation's growing power needs. North American Electric Reliability Council (NERC) industry professionals estimate a complete electric infrastructural overhaul before 2018 in order to respond to the wavering reliability of the transmission system.[37] In addition, NERC issued a report forecasting a 135,000 peak-megawatt consumption (ie consumption during summer) by 2017, a 17.7% increase over the next ten years.[38] . Lastly, the failure rate for an electricity transformer rises sharply 30 years after installation; the US' last significant investment in transformers occurred in 1974, to accommodate a peak of 185 giga-voltage amperes. As a result, power companies throughout the United States are beginning to replace aging transformer units. These factors in their entirety benefit Emcor’s Electric Works division.[39]
Competition and Market Share
Emcor Corporation competes with other general contracting firms to acquire business in either the electrical/mechanical engineering segment or the facilities maintenance one.
| Company | 2007 Revenue (millions USD) | Net Margin (%) | New Contracts | 2007 Backlog (millions USD) | Electric Work Market Share (2007)[40] |
| Emcor Group (EME) | $5,927.2[41] | 2.1[42] | 4,845[43] | 4490[44] | 37.3% |
| Quanta Services (PWR) | $2,656[45] | 5[46] | 1,301[47] | 4670[48] | 16.7% |
| Integrated Electrical Services (IESC) | $892.8[49] | 0.1[50] | 934[51] | 334.3[52] | 5.6% |
| Mastec. Corp | $1,037.8[53] | 0.6[54] | 988[55] | 1300[56] | 6.5% |
| URS Corp. | $5,383.0[57] | 2.5[58] | 1,022[59] | 18700[60] | 33.9% |
- Quanta Services (PWR) implements and repairs infrastructure for the natural gas, electric, telecommunications, and cable industries. Primarily, the organization installs power lines and power distribution networks for companies that provide power, like gas and electric utilities.[61]
- Integrated Electrical Services (IESC) is a U.S. provider of electrical contract services. IESC serves commercial, industrial, and residential markets.[62]
- Mastec. Corp specializes in the installation and maintenance of communications and utility infrastructure in the United States.[63]
- URS Corp., unlike Emcor, does most of its business through contracts with the U.S. federal government.[64]
References
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME 2007 10-K, Item 1: Business Backlog, page 5
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME Google Finance Nov. 20, 2008
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME 2007 10-K, Item 1: Business General, page 1
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME Google Finance Nov. 20, 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME Reuters, November 20, 2008
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME 2007 10-K, Item 1: Business Operations, page 2
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME 2007 10-K, Item 1: Business Backlog, page 5
- ↑ PWR 2007 10-K, Item 1: Business, page 4
- ↑ PWR 2007 10-K, Item 1: Business, page 4
- ↑ PWR 2007 10-K, Item 1: Business, page 4
- ↑ SPX Annual Guidance Meeting 2008 pages 35-37, Source: Hartford Steam Boiler
- ↑ EME S&P Compustat Report, Page 3, November 20th 2008
- ↑ EME Google Finance, November 20, 2008
- ↑ EME Reuters, November 20, 2008
- ↑ EME Reuters, November 20, 2008
- ↑ EME 2007 10-K, Item 1: Business Backlog, page 5
- ↑ PWR Google Finance, Juy 4, 2008
- ↑ PWR Reuters, November 20 2008
- ↑ PWR Reuters, November 20, 2008
- ↑ PWR 2007 10-K, Item 1: Business Backlog, page 10
- ↑ IESC Google Finance, November 20 2008
- ↑ IESC Reuters, November 20, 2008
- ↑ IESC Reuters, November 20, 2008
- ↑ IESC 2007 10-K, Item 1: Business Backlog, page 10
- ↑ MTZ Google Finance, November 20,2008
- ↑ MTZ Reuters, November 20, 2008
- ↑ MTZ Reuters, November 20, 2008
- ↑ MTZ 2007 10-K, Item 1: Business Backlog, page 7
- ↑ URS Google Finance, November 20,2008
- ↑ URS Reuters, November 20, 2008
- ↑ URS Reuters, November 20, 2008
- ↑ URS 2007 10-K, Item 1: Business Backlog, page 13
- ↑ PWR Google Finance, November 20,2008
- ↑ IESC Google Finance, November 20,2008
- ↑ MTZ Google Finance, November 20,2008
- ↑ URS Google Finance, November 20,2008
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