2004 STATE OF THE INDUSTRY REPORT: Regional Report: Southeast

Southeast landscape contractors are optimistic this year, and they should be. Companies in this region reported higher 2004 revenue growth, customer renewal rates and net profit increases than lawn care businesses in the East/Midwest and West/Southwest regions.

"We feel there has been a rebound of sorts," explains Bruce Bachand, owner, Carol King Landscape Maintenance, Orlando, Fla., describing the market as vibrant.

Like Bachand, most Southeast contractors are experiencing this same escalation – 87 percent of them projecting a total 2004 gross sales revenue increase of 37 percent, which is higher by 6 percentage points compared to the next highest average revenue increase realized by West/Southwest region businesses. Even when including the 13 percent of companies who said they experienced a revenue decrease, the net percent sales revenue increase was still 23.3 percent. And the majority of Southeast companies – 63.2 percent – said their 2004 net profit should increase 10 to more than 20 percent.

Despite some challenges, such as increased operating costs and hurricane damage, many Southeast businesses are carrying this optimism into 2005.

REGION PROFILE. The Southeast region, which includes nine states, is home to the youngest companies in the landscape industry, with the average company being in business only 9.9 years. And the Southeast business’s average revenue is nearest to the overall industry average at $718,464.

Lawn maintenance generates the greatest total revenue for more than half of the companies located in the Southeast (53.6 percent). The least number of landscape companies in this region (27.7 percent) compared to the other two regions generate most of their revenue from construction work, but approximately half of them offer this service – 56.3 and 64.7 percent for design and installation, respectively. Though irrigation services made up less for the average Southeast company than they did for businesses located in the West/Southwest (35.3 percent of Southeast businesses offer irrigation design, 39.5 percent offer irrigation installation and 56.9 percent offer irrigation maintenance), these services were nearly 10 percentage points higher for Southeast companies – 31 percent – compared to their counterparts in the other two regions. Though only 10.2 percent of Southeast companies said chemical services generated their greatest revenue, these services were up 32 percent this year – on par with the services they said generated greater revenue – lawn maintenance and landscape construction.

Southeast companies are also becoming the most diverse companies in the industry, with 56.4 percent of them reporting that they offer more services this year than they did in 2003. This is consistent with the fact that the Southeast dominated a couple of tree care-related service categories compared to the other regions. For instance, tree- and ornamental pest and disease control made up nearly half of a typical Southeast company’s revenue.

This region also boasts enviable customer renewal rates (85 percent for residential lawn maintenance, 77 percent for residential chemical services, 75 percent for commercial lawn maintenance, 69 percent for commercial chemical services and 63 percent for residential construction) compared to the other two regions in all of the services except for commercial construction, which is at 48 percent.

Concerning service pricing, Southeast companies charged more for chemical lawn care in 2004 at $26.20 per 1,000 square feet than East/Midwest and West/Southwest businesses. For other services, Southeast companies fell in the middle compared to the other regions (see chart on page S15 for other regional hourly service charges).

Though prices are increasing, some contractors, like Albert Arazoza, president, Arazoza Brothers Corp., Homestead, Fla., are noticing that competing companies continue to underbid in order to stockpile work. "This is driving the price down instead of up," he says. Though the overall service pricing data in this region doesn’t reflect this, low-ball competitors as a concern are reflected as the average Southeast business’ second greatest worry, tied with rising workers’ compensation costs and higher on the list for Southeast companies than East/Midwest and West/Southwest businesses. Increasing health insurance costs was the third greatest concern, followed by inflation and rising mortgage rates, generating quality leads and consumer confidence. The average Southeast company’s No. 1 concern – and the greatest concern for contractors across the United States – was escalating fuel prices.

Labor shortages didn’t appear on the contractor concern list until No. 10, tying with regulatory red tape and drought/weather and ranking 4.3 on a scale from one to 10. Still, labor might continue to be something Southeast companies worry about, considering that for hourly positions, Southeast companies paid the least in all categories except for entry-level lawn care technician and experienced lawn care technician at $9.20 and $12.20, respectively, compared to the other regions (see chart on page S15 for other regional hourly rates).

In terms of salaried employees, Southeast industry companies also paid less in all categories compared to the other regions (see chart on page S15 for regional salary information).

Southeast companies also had the lowest average number of total employees – 1.7 – who have been with the business more than 10 years. Southeast companies employ an average of 17.8 total employees per business, and they generate more revenue on average than East/Midwest companies due to their relatively longer working seasons.

Not only did Southeast companies pay employees comparatively less, but they also spent less than the other two regions in most of the expenditures categories, except for irrigation systems and components and landscape plants, trees and shrubs, where they spent roughly $772 and $6,993 more, respectively, than East/Midwest contractors.

However, a greater percentage of Southeast companies – 50 percent or more in most cases – purchased pesticide/fertilizer products, sprayers and spreaders, riding mowers, trucks and trailers, backpack/handheld blowers, trimmers/edgers and chainsaws in the last 12 months compared to the other two regions.

CHALLENGES & SOLUTIONS. Southeast companies’ concerns are on the cost side of business. Southeast landscape businesses reported the highest increase in operating costs, with 91.6 percent of them experiencing an average increase of 23 percent. When factoring in the companies that reported operating cost decreases, the total net operating cost rise across the board for the average Southeast business was 18.4 percent.

The Southeast also reported weather-related issues, including greater than normal rainfall this summer that reportedly hurt some Florida businesses, delaying mowing and installation jobs. As of presstime, Hurricanes Charley, Frances and Ivan also impacted some companies by disrupting service but also generated business opportunities for others in the form of new services, such as damaged tree removal and landscape cleanup. n