David Gannon, left, and Tom Murrell, right, with Tempo Mechanical of Irving, Texas. Tempo is an employee-owned company and rated No. 3 in this year's listing.

As they say, when you are good, you are good - and one cannot disagree with this Select Seven. (For The NEWS' complete 2006 Residential All-Star New Construction team listing, click on the PDF link at the bottom of this story.)

Take Butch Welsch Heating and Cooling Co., for instance. For the second straight year this St. Louis contracting firm not only made The NEWS' new construction elite, but The NEWS' 2006 Residential All-Star Replacement/Add-On squad, too. (See related story in this issue concerning the replacement/add-on winners, "American Home Maintenance Tops Replacement/Add-On All-Stars [Again].")

Owner/president Butch Welsch's team amassed $15,742,097 in total residential revenue in 2005, of which more than $9.1 million came from residential new construction while more than $6.6 million was brought in from residential replacement/add-on work. In the big picture, these figures were a slight drop for Welsch from 2004's overall revenue of nearly $16 million.

According to Welsch, between 2004 and 2005 the major change in the St. Louis area new construction market was the fact one of the company's three largest customers - "and the biggest builder in the St. Louis area" (translation: The Jones Co.) - was purchased by Centex, a national home builder. This had ramifications on the company's bottom line for 2005.

"Our concern regarding the Centex operation and how they would handle their business in the St. Louis area caused us to back away from some of the work that we had been doing for the Jones Co.," explained Welsch.

"This reduction was about 4 percent of 2004 sales."

In the end, he said, "We worked hard to get 2005 sales up nearly to the 2004 level despite that loss in business."

Overall, Welsch Heating and Cooling Co. finished sixth in The NEWS' new construction rankings, finishing far behind repeat winner Beutler Corp., Sacramento, Calif. For the record, owner/president Rick Wylie's team came through with $210 million in total revenue for 2005, up from the $187 million revenue recorded in 2004.

And there's a valid reason for the jump in income, too. "We acquired our No. 1 competitor," was Wylie's simple explanation, declining to reveal the name of that firm.

AHEAD OF THE PACK

"This growth was the result of anticipating growth areas and building new or expanding warehouses to serve builders in those areas," he explained. "We also implemented new procedures, both field and office, to take advantage of a booming new construction market." (For more concerning Air Flow Design, see related story in this issue titled "Controlled Growth Puts AFD Second.")

Finishing third in the new construction standings is another NEWS repeat All-Star: Tempo Mechanical Services Inc., Irving, Texas. CEO Steve Saunders is thankful his team bumped up its total new construction income from $15.2 million in 2004 to over $16.7 million last year.

"From the depths of my memory, I can tell you that the Dallas-Ft. Worth residential new construction market grew last year and some of our growth was with the rising tide of volume," said Saunders. "It would not surprise me that we took some market share, but it is hard to say if we did that with better service or a lower sales price or both.

"Also, we did acquire the ongoing construction contracts from another residential construction contractor last September and their fall revenues were significant and that volume has significantly impacted growth in 2005 and again this year."

To stay ahead in the residential new construction market, Saunders firmly believes a contractor must have the right staff, a relentless focus on understanding and controlling costs, and, as he put it, "You must have value to builders beyond the ‘sales price of the job.' "

Saunders added two more points. "Process management and continuous improvement are essential to cost reduction," he said. "Leveraging information management is a huge tool and unrealized opportunity to do more for less."

According to Saunders' research, the Dallas-Ft. Worth area is expected to show significant growth for 25 years or more. However, he is well aware that growth is not consistent and a one- or two-year "market correction" can kill cash flow and possibly destroy an otherwise great organization.

"To remain successful, we plan to grow and diversify our business," explained Saunders. "We will continue to invest in new construction, but will also work very hard to grow our maintenance agreements and our service and replacement business. We want to continue to learn how to help people reduce their overall energy usage in buildings."

Rick Thornton, president of AirCo Air Conditioning, Heating, & Plumbing of Hurst, Texas, garnered $11.8 million in residential new construction sales.

THRIVING IN 2005

"We continue to thrive in the new construction market for many reasons," said Thornton. "The most significant reasons are probably our commitment to providing the best equipment and personnel to our builder customers, and our long-standing relationships in the new construction communities."

He added, "We also make sure that we value our products and services so that we have the capital to meet our customers' expectations. The pricing mistakes of others just helps us in the long run."

Rounding out the Select Seven are No. 5 Conditioned Air Corp of Naples Inc., Naples/Ft. Meyers, Fla.; and Roscoe Brown Inc, Murfreesboro, Tenn., which ranked right behind No. 6 Welsch.

In the case of Conditioned Air, the company experienced a substantial boost in total revenue, jumping from over $12.8 million in 2004 to over $16.4 million in 2005.

"From 2002 through the end of 2005, there was - and I emphasize was - an explosive growth of production of housing units and companies in the southwest Florida market," explained president/owner Theo Etzel. "Even through the 2004 and 2005 hurricane seasons, the appetite for second homes, retirees, and investment properties did not wane."

In Etzel's estimation, the last quarter of 2005 saw the convergence of two important influences for production housing companies in his area of Florida: 1) the absolute need for them to make earning projections by Dec. 31, and, thus, reach their closing targets; and, 2) the desire to complete as many homes with 12 SEER and lower product prior to 2006.

"Of the approximately $3.6 million increase in revenue, one half is attributable to production housing, while the rest is divided between retrofit, service, and custom residential new construction," he concluded.

Meanwhile, last but not least, Roscoe Brown Inc. noted a huge increase in total revenue for 2005, too. Owner/president Norman Brown had a valid reason for the jump from $9.8 million in 2004 to over $14.7 million in 2005 - and, he blamed his father.

"Part of the reason for the significant growth was that in last year's numbers, dad forgot to put in the numbers from the two branch locations," said the younger Brown. "This year's numbers have all."

Another strong reason for the revenue increase is due to the booming residential new construction market in the company's immediate area.

"I would not want to do new construction only, but it fits in well with our mix of business," said Brown. "If it is handled properly, it can be profitable. You do not have to be geared to handle new construction only. It is a different pace from our replacement/add-on market. You have to have the processes and procedures in place to be efficient."

Publication date: 09/11/2006

Links

• 2006 Residential All-Star New Construction chart