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Sales for private companies on average are increasing at an annual rate of 8% as of June, according to the latest Private Company Report by Sageworks, a quarterly review of financial trends among private companies. And the average net profit margin is 7.2%, compared with 5.9% a year earlier.
Among major sectors examined by Sageworks’ financial statement analysis, construction leads the way in terms of sales strength. Privately held construction firms are growing sales at an annual rate of 13%, marking a second year of double-digit growth in spite of recent concerns that the housing and real estate recoveries were slowing. Net margins for these companies continue to climb and currently sit at a five year high of 5.1%.
Like the majority of businesses in the U.S., the majority of U.S. construction companies are privately held, so their performance is critical to the overall industry and the economy. Sageworks earlier this year noted that 11 of the 25 fastest-growing industries were housing- and construction-related.
At the same time, a few key sectors, including the manufacturing and wholesale industries, are seeing slower annual growth rates than a year ago. Privately held manufacturers are growing sales at an annual rate of 7% – still healthy but half the rate they were growing at this point two years ago.
“Hopefully, the slowdown in sales we’re seeing for manufacturing is a minor blip and not an indication of broader softness in the economy,” said Sageworks Chairman Brian Hamilton.
Wholesalers have also seen sales growth slow to around 7%. That’s in line with the sector’s growth a year ago, but below the 13% annual growth the sector was seeing this time two years ago. At 4%, net profit margins are in line with profitability over the last two years.
Issues facing private-company business owners, their overall sentiment about the economy, and their reactions to major policy issues are fairly well described by various surveys and indicators released by research organizations and corporations. However, the actual financial performance of these companies is largely unknown due to the fact that the financial statements of private U.S. businesses aren’t generally publicly reported, unlike those of companies listed on stock exchanges.
Nevertheless, these private businesses play an important role in the U.S. economy, and their financial performance is an essential gauge of the overall economic environment. Private companies drive more than 50% of non-farm GDP and 65% of new job creation.
Through its cooperative data model, Sageworks collects financial statements for private companies from accounting firms, banks and credit unions, and aggregates the data at an approximate rate of 1,000 statements a day. 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. The ratios in the Private Company Report are subject to change as companies continue to file their financials for the reported time periods.
Sageworks’ quarterly industry in focus, truck transportation (NAICS 484), has also posted slower growth recently. In an analysis of the financial statements of these private trucking companies, Sageworks found that the average growth rate for trucking companies is almost 8% -- a solid growth rate but one that is significantly lower than the 14% growth these companies were seeing two years ago.
“It makes sense that the trucking industry is seeing its growth rate slide, when you look at what’s going on in manufacturing,” said Sageworks analyst Kevin Abbas. “If fewer orders are being placed from manufacturers, trucking companies will not be increasing the amount of business at the same rate as they were in 2012.”
The financial strength of private trucking companies is particularly useful, as more than 93% of companies within the trucking industry have 20 or less trucks , according to the American Trucking Associations. “This is an industry composed, for the most part, of privately held players,” explains Abbas. “These are not huge organizations.”
Specialized trucking companies are seeing a notable growth slowdown, posting 5% growth as of June 2014 versus 15% two years ago. “If you look at the Census Bureau's definition of this code,” Abbas explains, “you’ll see that these trucks are used for large, awkwardly shaped items like refrigerators, furniture, and TV sets. We’re keeping an eye on this sub-sector, as it can help indicate consumer demand and appetite for ‘big ticket’ items like appliances.”
Sageworks, a financial information company, collects and analyzes data on the performance of privately held companies and provides accounting and audit solutions.
