Buttressed by new home construction and storm-related damage repairs, U.S. roofing contractors are now in their fourth consecutive year of improved profitability and double-digit increases in sales, according to data from Sageworks, a financial information company, and analyzed by Tidewater Roofing.
Sales among privately held roofing contractors have increased, on average, 14 percent in the 12 months ended May 1, according to Sageworks’ financial statement analysis. That’s on top of 13.5 percent and 15 percent sales growth in 2018 and 2017, respectively.
The average profit margin for roofing contractors was 6 percent in the year ended May 1, topping a steady annual rise from 4 percent in the 12 months ended May 1, 2014.
“Roofing contractors have experienced stronger sales growth in recent years, tracking pretty closely with sales increases among all types of construction firms in our database and outperforming private companies broadly when you look across all industries,” says Sageworks analyst Libby Bierman. “And like many sub-industries in the construction sector, roofing contractors don’t typically have the fattest margins. However, roofers have been able to improve their profitability in recent years.”
Construction and roofing industry experts expect the primary factors that could cloud the outlook are rising material costs and ongoing labor shortages, but demand has been strong enough of late to eclipse those concerns.
“The construction industry is booming for our clients, and experts are predicting continued growth,” says Ed Lloyd, CPA, whose public accounting firm specializes in construction and business development. “This growth includes the commercial and residential markets for new and existing building. The growth and need for construction has improved the margins as contracts are able to increase their prices with the increased demand.”
However, with oil prices having risen and recent declarations of U.S. tariffs on steel and aluminum imports, roofing contractors are likely to be dealing with more inflation this year for their supplies of shingles and gutter material.
“It is critical for the individuals estimating the projects to understand the change in material costs and reflect these changes in their pricing,” Lloyd said. Profit margins of around 6 percent can quickly be eaten up by a 10 percent tariff on imported aluminum, so contractors should make sure they include a contingency clause in contracts to cover price increases in materials as they are passed along from their own suppliers. Lloyd said working with a business advisor who specializes in the industry can help business owners track forecasting, profitability and other management issues.
Roofing contractors are also facing higher worker costs in 2019, according to the Roofing Contractor’s report. Three quarters of residential roofers and nearly 90 percent of commercial roofing contractors surveyed said they are seeing increased labor costs.
Worker shortages are not only pressuring bottom lines but also top-line revenue. The National Roofing Contractors Association has called the chronic shortage of qualified workers the top limitation on roofing employers’ ability to grow their businesses. “Most contractors indicate they could be doing 10 to 20 percent or more work if they could only fill vacant positions, which translates into an estimated $3.6 billion to $7.2 billion in lost economic activity annually,” the association wrote in a letter earlier this year supporting immigration reform.
Through its cooperative data model, Sageworks collects and aggregates financial statements for private companies from accounting firms, banks and credit unions. Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries. These adjustments are commonly made to private company financials in order to provide a more accurate picture of the companies’ operational performance.
from Feedster https://www.feedster.com/brick-and-mortar-business/the-rise-of-the-roofing-industry/
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