Industrial construction has long been one of the pillars of the Baton Rouge economy, and 2008 was no exception. Heavy construction firms hold six of the top 10 slots on the 2009 list of the Capital Region’s Top 100 private companies [which reflects 2008 revenue], and several companies in that sector reported big revenue increases at a time when most of the nation’s economy was shrinking.
But some of that growth was actually tapering off by the end of last year, and companies likely won’t post such strong numbers for 2009 or 2010. Firms in other sectors know the feeling; the recession came late to Baton Rouge, and its effects may be reflected in next year’s list more than this year’s.
“We have a number of projects that are winding down or done,” says Connie Fabre, the executive director of the Greater Baton Rouge Industry Alliance, citing work at Placid Refining and Formosa Plastics. Major projects are still ongoing, including the Marathon Oil refinery expansion in Garyville and ExxonMobil’s low-sulfur diesel project, but not enough to balance out the projects that are ending. “This year is still very strong for industrial construction, because of the projects that were on the books that they just had to finish, but next year they’ll see a decrease,” she says.
Industrial expansion has been booming for a few years now, and high prices for oil and gas helped spur unprecedented refinery expansions. Once a plant expands capacity, it takes time for that capacity to be fully utilized, meaning another expansion won’t be needed for a while. Given the cyclical nature of the business, a softening was inevitable, even without the weakening economy.
“Once the general economy picks up, I would say it’ll be another year before we see [plants] let loose on capital money, and expansions could be a couple years away,” Fabre says.
Baton Rouge Area Chamber CEO Adam Knapp says industrial construction, along with petrochemicals and state government, has helped stabilize the local economy. Knapp says he’s “watching for” a softening in industrial construction, which spiked to historic highs after the 2005 hurricanes. He says the effects of various projects ending likely will be more significant in 2010 than this year.
“The big question is how much of that is reabsorbed in the overall economy,” he says. “So far, we have mostly seen where there have been layoffs, freezes or furloughs, those people are largely finding employment elsewhere in our economy right now, so it hasn’t led to the spikes in unemployment that have been sustaining in other places.”
Knapp says overall wages continue to rise locally, which is a good sign. From May 2008 through May 2009, the Bureau of Labor Statistics shows the Baton Rouge metropolitan area up 1,300 jobs, with most of those gains in goods-producing sectors.
“If we’re flat [for 2009], it’s because the latter end of this year doesn’t keep up with the start of the year’s gains,” he says.
The Newtron Group, which performs industrial electrical and instrumentation services, is No. 7 on this year’s list and reported revenue growth of 24.5%. David Funes, who directs business development for Newtron, says the company’s subsidiary in Beaumont, Texas, received a lift from Hurricane Ike rebuilding, and the company as a whole did well in 2008 on projects that had been on the books for a while. Newtron’s local operations jumped about 20%.
“We’ve had a pretty steady climb here over the last few years, and I think that’s going to kind of settle down,” Funes says. “There’s no expectation for any kind of increase for the next year.”
Industrial construction tends to lag behind the rest of the economy, he says, which could account for a flattening or decline in revenue at Newtron in the near future. But Brian Bordelon, who manages the company’s Triad Electric and Controls division in Baton Rouge, says that while some projects have been canceled, enough are ongoing to at least maintain 2008 revenues in 2009.
Cajun Industries, No. 10 on this year’s list, reported a revenue spike of more than 42%, thanks to refinery work and floodwall projects for the Army Corps of Engineers in New Orleans, founder Lane Grigsby says.
“The industrial market is receding right now,” he says. “The Corps work will continue, and I believe the government work will continue to expand if the stimulus money ever hits the marketplace.”
Perhaps surprisingly, Grigsby predicts 2009 could be even bigger than 2008 for his firm.
“We are already looking at more [potential] work than we looked at in 2008,” he says. “We’re waiting on three projects, all of which exceed $400 million apiece. If we get one of those, we’re going to be hiring. But they’re not going to be in Baton Rouge, they’re going to be in south Louisiana.”
Coastal Bridge Co. reported a revenue jump of nearly 45% and entered the Top 100 at No. 66. President Bobby Overall says the company focuses on transportation projects within two hours of Baton Rouge.
“We have had a good run recently due to DOTD surplus funds, which are drying up,” he says, while the East Baton Rouge Green Light Plan is also helping. “My opinion is the [federal] stimulus program is only going to have a minimal impact on us.”
BY THE NUMBERS
Number of companies tied to industrial and infrastructure ?construction on the 2008 Top 100 list 26
Total revenue of those companies $5.6 billion
Number that reported higher revenue than the year before 19
Number of companies tied to industrial and infrastructure ?construction on the 2009 Top 100 list 29
Total revenue of those companies $6.4 billion
Number that reported higher revenue than the year before 21
Total revenue of companies in 2009’s top 10 $8.1 billion
Total revenue of industry-related companies in 2009’s top 10 $4.5 billion
Industry-related companies in the top 10 that increased revenue 5
Industry-related company that reported decreased revenue 1
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