Concrete Batch Plants & Equipment
COVID-19 INDUSTRY BRIEF
EFFECTS OF THE CORONAVIRUS ON THE Concrete Batch Plants & Equipment INDUSTRY September 2, 2020
- Market Dynamics: The primary external factor affecting concrete batch plants and equipment is commercial construction and highway spending, with steel prices also having a material impact. Additionally, the near-zero Federal funds rate since March has helped incentivize investment in the industry.
- COVID-19 Impacts: As of late March, construction was considered an essential service in roughly 45 of 50 states, but labor, travel, and supply issues slowed activity in the sector during the shutdown period. Since regions began reopening in May, construction activity has rebounded. Monthly U.S. homebuilding rates increased for the third straight month in July with 1.495 million new starts, representing an increase of 17.5 percent over June. July starts increased 22.6 percent over June after falling 26.4 percent to a five-year low in April. Although starts for July remained approximately 7.5 percent below the January peak of 1.6 million, the positive trend bodes well for the industry, at least in the near term. Another positive trend was in the number of building permits for residential construction issued, which produced 3.5 percent and 18.8 percent month-over-month increases for June and July, respectively. However, highway and street production dropped in spending by 1.7 and 2.7 percent for June and July, respectively, as a result of shelter-in-place orders, local outbreaks and decreased public funding. Similarly, educational construction spending, one of the largest public segments, declined in June, albeit at a lower rate of 0.6 percent. Private non-residential construction spending increased slightly by 0.2 percent for June over May. Numbers were also positive for power, manufacturing and office construction, which increased by 0.7, 1.7 and 0.3 percent, respectively.
- Legislation Status: Growth for the industry is partially dependent upon passage of the “Moving Forward Act,” which is a $1.5 trillion infrastructure and stimulus bill. After House passage on July 1, the bill moved to the Senate where it faces an uncertain future. The Executive Office of the President’s Office of Management and Budget issued a Statement of Administration Policy on June 29 asserting that the Trump Administration opposes passage of the bill because it “is heavily biased against rural America,” “appears to be entirely debt-financed,” and “fails to tackle the issue of unnecessary permitting delays, which are one of the most significant impediments to improving our infrastructure.” If passed, it would likely have a positive impact on public construction spending related to roads and bridges, schools, housing and other public transportation projects.
- Valuation Outlook: From a valuation perspective, the impact on batch plants and related equipment will depend on how the construction marketplace weathers the current crisis in the medium to long term. In the short term, the market remains somewhat uncertain. However, construction fundamentals and demand for batch plants will likely be stable in the aftermath of the crisis, as there is an expectation that there will be a quick snapback in this industry in all regions except the oil patch once the COVID-19 pandemic passes.
Date October 2021
- Infrastructure spending will likely increase with the implementation of the Infrastructure Investment and Jobs Act.
- Experts estimate revenue for the ready-mix concrete manufacturing segment will grow 2.3% annually through 2026 and revenue for precast concrete manufacturing will grow 3.8% for the same period.
- The price of raw materials continues to increase, and manufacturers often pass these higher costs on to the consumer.
- Although spending on roads and highways in the U.S. declined 5.9% year to date through July, new privately owned housing starts increased 21% for the same period, a positive indicator for the industry.
- Residential construction value increased approximately 4.4% annually from 2016 to 2021 and will continue growing at a slower pace than commercial or infrastructure construction values.
- Large operators in the industry have consolidated through vertical integration, and mergers and acquisitions have led to a decline in the number of operators.
By the numbers
COVID-19 Affects Industry: Before the pandemic, experts projected 2020 annualized revenue growth of approximately 0.5% for ready-mix concrete manufacturing and 1.1% for precast concrete manufacturing sectors. The 2015 Fixing America’s Surface Transportation Act, a five-year federal infrastructure investment, informed these projections.
In September 2020, lawmakers extended the legislation through 2021, adding $13.6 billion in additional spending. This extension and the recently passed $1.2 trillion Infrastructure Investment and Jobs Act would add over $850 billion in infrastructure and housing spending, spurring industry growth over the next five years. Spending would continue to increase with the passage of the $3.5 trillion fiscal year 2022 Budget Resolution Agreement Framework, which is still being considered in Congress. Data suggests nonresidential construction will grow 3.1% through 2026 with residential construction growing at a more modest rate.
Private construction spending, hit hardest by the pandemic, dropped as much as 2% for most of 2020 compared to the same period in 2019 on a seasonally adjusted basis. Residential construction statistics as of July 2021 suggest a more positive outlook with building permits, housing starts and housing completions up 3.8%, 2.5% and 5.7%, respectively, year over year, according to the U.S. Census Bureau and Department of Housing and Urban development. Although demand in the housing sector outpaced supply, record-high construction material costs, delivery delays of heating and cooling units and appliances, and labor shortages have limited what builders can accomplish.
Although spending on roads and highways in the U.S. declined 5.9% through July 2021, new privately owned housing starts increased 21% for the same period. Residential construction value increased approximately 4.4% annually from 2016 to 2021 and will continue to grow at a slower pace than commercial or infrastructure construction values.
While most states have staged successful re-openings, many including Alaska, Wisconsin, Wyoming and North Dakota had rising levels of COVID-19 cases as of late September 2021. State and municipality responses to COVID-19 and its variants may determine regional construction delays.
Mixed Results Continue Across Construction Categories: The precast concrete manufacturing industry relies heavily on domestic construction markets. Sales of precast and prestressed concrete products generate over half the industry’s revenue. Utility-related construction demand for wastewater, sewage and power facilities slowed in 2020 and 2021, decreasing approximately 2% each year in response to pandemic-related reductions in local spending.
It should be noted that the FAST Act, which authorized $305 billion for highway and related programs, is set to expire at the end of 2020. The FAST Act was the first federal law in over a decade to provide long-term funding certainty for surface transportation infrastructure planning and investment. A decline of future investment could exist if additional legislation is not passed to continue that level of spending in U.S. infrastructure.
More recently, spending has increased, a trajectory experts expect will continue through at least 2022. Highway and street construction spending increased monthly from March through May, dipped slightly in June and rebounded 1.9% in July, coming in just -0.1% lower than July 2020.
Experts project governmental highway construction spending will increase 2.7% annually through 2026. Educational construction spending, one of the largest public segments, continues to decline in 2021 with a decrease of over 8% year over year as of July. President Biden’s $3.5 trillion infrastructure bill, which has yet to pass, may improve educational spending across the utility and highway and street categories.
Industry Outlook: Commercial and residential construction and infrastructure spending are the primary external factors affecting concrete batch plants and equipment. Planned government spending and pent-up need, a result of supply shortages and long lead times, should allow these demand-related factors to remain stable. Experts estimate revenue for the ready-mix concrete manufacturing segment will grow 2.3% annually through 2026 and revenue for precast concrete manufacturing will grow 3.8% for the same period.
From a valuation perspective, increased spending should positively affect batch plants and related equipment. Construction fundamentals are stable and strengthening in some regards, indicating demand for batch plants will likely remain consistent for the foreseeable future. The most recent sales data for construction-related assets suggests a positive outlook. Increased construction activity in 2021 drove consistent demand for batch plants, specifically portable systems.
Portable concrete batch plants will likely grow more popular and will remain more salable in comparison to stationary plants. Large-capacity plants’ high portability and overall size make them more marketable. Gordon Brothers anticipates stationary plants will continue declining in value in a declining market because they are difficult to remove and not as popular. Availability of rolling stock, mixing wagons, silos, hoppers, weight scales and boilers will likely increase as more consolidations and liquidations occur. This could increase supply in the secondary market and lower the market price for these types of assets.
Regional Considerations: Seasonality and geography factor into the marketability of concrete batch plants. Longer construction seasons in warmer parts of the country create more stable demand in those regions as opposed to colder regions with shorter seasons. The Midwest, for example, has a higher seasonality factor than the Southwest. Sales more often occur in the winter and early spring as businesses work to make changes in the off-season before finalizing contracts for the year.
High concentrations of batch plants can negatively affect demand in those regions. Some highly concentrated areas in the industry are Texas, California, Pennsylvania and the Midwest. Top regions will see the largest change in marketability on the wholesale market for concrete batch plants. Based on these factors, lenders may want to consider a more conservative advance rate on equipment in highly concentrated areas or in regions affected by seasonality issues.
Portable Batch Plants Are Most Marketable: Batch plants combine various ingredients to form concrete. Dry plants measure, mix and load dry ingredients such as sand, crushed rocks, fly ash and cement onto mixer trucks. Water is added on the truck and concrete is made en route to a job site. Manufacturers most commonly use this approach for smaller quantities or remote job sites. Wet plants have a central mixer where wet and dry ingredients are combined on site, creating a more consistent texture. Manufacturers prefer these plants for larger projects closer in proximity.
Batch plants can be stationery or portable. Stationary plants typically have extensive mezzanine steel supports and are difficult to move. Those in use are typically older plants dating from before portable plants gained popularity. Without a market for stationery plants, they are often sold piecemeal for easily removed components, making necessary the right of abandonment for liquidation sales. Mixers are typically the most valuable machinery, but other common components include silos, bins, hoppers, weight scales and boilers. Portable batch plants are more salable as they can be erected and taken down relatively quickly and towed behind a tractor.
Concrete batch plants are typically sized in cubic yards per batch. The most desirable plants fill the 10- to 12-cubic-yard capacity of a truck in a single batch. Smaller capacity plants are less marketable. Operators may also own fleets of mixer trucks. These trucks, commonly sold in the marketplace, can be good collateral depending upon age, mileage, capacity and condition.
Forms May Add Value: Precast concrete manufacturers fill reusable forms with concrete to make shapes like slabs, beams, girders, walls and pipe. Some forms offer great value. For example, concrete pipe, which is used in applications like waste management systems, storm water management, drainage, telecommunications cabling, electrical cabling and wastewater management, is made with metal pipe forms. Standard size pipe forms are commonly sold on the secondary equipment marketplace.
In some cases, lenders may overlook these forms as a potential source of value on a removal basis. Casting beds, built into the ground and used to make large products such as beams, typically have no removal value. Appraising these assets on an “in-place” basis will likely result in a higher valuation.
Note: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE MATERIAL
CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE FINANCIAL,
OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN ASSET APPRAISAL.
ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND THE RECOVERY VALUES
REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT REGARD TO SPECIFIC KEY FACTORS.
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Reference sources: U.S. CENSUS BUREAU, IBISWORLD, U.S. FEDERAL RESERVE, U.S. DEPARTMENT OF
TRANSPORTATION-FEDERAL HIGHWAY ADMINISTRATION, DOTDASH/INVESTOPEDIA, THE AMERICAN ASSOCIATION
OF STATE HIGHWAY AND TRANSPORTATION OFFICIALS, REUTERS