News Column

Struggling To Recover

Aug. 11, 2011

Richard Larsen, Deputy Managing Editor

On paper, it looks as if the HispanicBusiness Fastest-Growing 100 took more than a 17 percent tumble from revenues of $11 billion in 2009 to revenues of $9.1 billion in 2010. But the fastest-growing list is not static. The list is fluid with an everchanging cast of companies. For example, of the 100 companies listed in 2009, only 45 returned to the directory.

The reasons for this ever-shifting cast vary. Sometimes a company chooses not to apply for the HispanicBusiness 500 directory, a requirement to be considered for the fastest-growing list (15 companies on the directory last year were not on it this year). Other companies decide not to declare their 2006 revenues, necessary to compute their five-year sales growth on which the Fastest-Growing 100 rankings are based. In other cases, flat or declining revenues lessen their five-year sales growth percentage, bumping a company off the list.

Any combination of these factors could be considered the reason that revenues for the Fastest-Growing 100 dropped by $1.9 billion from 2009 to 2010. But this year, there might be a simpler, more direct reason -- the absence of two powerhouse companies from the list, Molina Healthcare Inc. and Brightstar Corp.

Molina ranked No. 52 on the 2010 fastest-growing list, with $3.7 billion in sales for 2009. In February, Molina announced revenues of $4 billion for 2010, up 264 percent from the $1.1 billion reported five years before. That would have been enough to rank Molina right around No. 15 on the Fastest-Growing 100 list.

Brightstar Corp. did not make the fastest-growing list last year because a drop in revenues from $3.5 billion in 2008 to $2.8 billion in 2009 seriously lessened its five-year sales growth, but it bounded back with revenues of $4.6 billion in 2010. That was double its revenues of $2.3 billion five years ago, enough to have ranked it in the very low 40s on the Fastest-Growing 100 list.

Had both companies made the fastest-growing list, their 2010 combined revenues would have pushed total sales of the Fastest- Growing 100 to nearly $17.7 billion -- a phenomenal leap of 60.9 percent, or $6.7 billion, from 2009 total revenues. Molina, which was No. 1 on the HispanicBusiness 500 directory for 2009, chose not to submit information for this year's directory, making it ineligible to be considered. Brightstar's jump in revenues landed it in the No. 1 spot of this year's HispanicBusiness 500 directory, but it fi led paperwork in April to go public and went into a quiet period, meaning it could not comment on its finances under Securities and Exchange Commission regulations, thus keeping it off the fastest-growing list.

Economic Rough Times
While the overall results of the fastest-growing companies are a snapshot of the financial health of Hispanic-owned businesses over time, these companies are not immune to the yearly ups and downs of the economy. Though the brutal recession ended in 2009, a slumbering economic recovery continues to batter the business environment.

Seventeen companies on the fastest-growing list this year were not on the 2010 HispanicBusiness 500 directory, but of the remaining 83 companies that were, (20) posted revenue losses from 2009 to 2010. The combined revenue drop came to $89.4 million. The service and construction sectors suffered the most losses. Eight service-sector companies had combined revenue decline of $51.4 million, while six construction-sector companies posted combined revenue decline of $15 million. Rounding out the 20 were two each in the automotive and finance sectors, and one in the manufacturing sector.

Yet, while revenues made a leap, the average number of employees and employee productivity decreased, reflecting a nationwide trend among some companies who are trying to eke out as much productivity from existing employees rather than hiring new employees. This trend was reflected by the fact that productivity nationwide in the first quarter of 2011 grew at an annual rate of 1.8 percent, down from the 2.6 annual rate in the fourth quarter of 2010, according to the Bureau of Labor Statistics.

For the Fastest-Growing 100 companies, the average number of employees dropped from 349 in 2009 to 306 in 2010 and productivity in terms of revenues to employees went from $314,518 in 2009 to $295,516 in 2010.

The companies were scattered across 23 states with Florida having the most companies on the list, 22, followed by Texas with 18, Illinois with 10, California with 8 and New Mexico with 5. That reflects a change from 2009 when Texas led the list with 18 companies followed by California with 16, Florida with 15 and Illinois and New Mexico with five each.

Leading the 100
The end of the recession proved to be a particular boon to the top 10 companies on the Fastest-Growing 100 directory. For the first time, the top 10 broke the billion-dollar barrier, accounting for 11.8 percent of the Fastest-Growing 100's revenues. 2010 revenues came to $1.4 billion, compared to 2009 revenues of $645.5 million. That's an increase of 116 percent. The 2010 revenues figures also reflect a five-year sales growth of 141 percent from 2006 revenues of $578.8 million.

Readers must take into account that the companies in the top 10 are ever revolving. For 2010, three companies returned from 2009 -- MicroTech LLC, which moving from No. 10 in 2009 to No. 2 in 2010; and Vision IT, slipping a bit from No. 5 in 2009 to No. 8 in 2010. The others rounding out the top 10—Alliance Drywall and Acoustical Inc., P3S Corp., Genesis Networks Enterprises LLC, In- Genesis Inc., SBG Technology Solutions Inc., Intuitive Research & Technology Corp. and GenQuest Inc. -- are either new to the list or newly returned.

By dollar growth, the top 10 companies grew from $2 billion in 2006 to $5.4 billion in 2010, an increase of 167 percent, or $3.4 billion.

Of note, nine of the 10 came from the service sector. The lone exception was Alliance Drywall and Acoustics from the construction sector. That is hardly surprising because service sector businesses make up 54 percent of the Fastest-Growing 100 companies. Construction businesses come in second with 18 percent and the wholesale sector accounts for 11 percent. Transportation was the only sector not represented on the Fastest-Growing 100 list.

Uncertainty Ahead
Though the state of Hispanic-owned business seems in good shape, economic news to date reflects a concern about the pace of recovery from the recession. What had seemed a slow, steady recovery during the first few months suddenly stagnated in May and June, when the Bureau of Labor Statistics issued a revised employment report for May that showed only 25,000 jobs had been created. June saw another sluggish increase. Only 18,000 jobs were created. Unemployment overall climbed to 9.2 percent and the unemployment rate for Hispanics dropped slightly to 11.6 percent.

As Chief Economist Juan Solana noted in his economic outlook on Page 14, the Federal Reserve lowered its economic growth expectation to 2.7 to 2.9 percent. The public's confidence in the U.S. economy also was buffeted by the debt crises in Europe, the slow recovery of Japan from the devastating earthquake and tsunami, and consumers' cautious approach to purchasing, investing and hiring decisions. Adding to uncertainty were the drawn-out talks over U.S. spending cuts and raising the debt limit, sparking a fear that if no deal had been reached by Aug. 2, the U.S. might go into default.

With consumers being cautious on their money use, the service and retail sectors might see slower growth in sales, and the finance sector might see lagging revenues. But one sector particularly hard hit is the construction sector, which lost a million and a half workers because of the recession. Since the beginning of the year, the sector has lost 2,000 jobs.

The reason? Construction spending has taken a big tumble. It fell for the sixth straight month in May, according to the Associated General Contractors of America (AGCA), reaching an 11-year low. Total construction declined 0.6 percent from April to May, the AGCA said, a 7.1 percent drop from a year earlier and a 38 percent decline from the record high in March 2006.

Much of that decline comes from a drop in highway and education construction spending. Together, they make up more than half of the public construction sector. Highway construction fell 11.3 percent year-over-year, the AGCA said, while education construction spending declined 8.7 percent during the same period.

Many companies on the Fastest- Growing 100 list showed that it is possible to keep growing even during a recession and a sluggish recovery after. However, the recent economic climate suggests difficult times remain and difficult decisions by businesses on spending, hiring and expansion lie ahead.

Trying to discern how the economic recovery is going has become a waiting game. We will have to wait until next year to see how the slow recovery turned sluggish will affect the HispanicBusiness Fastest-Growing 100.



Source: HispanicBusiness.com (c) 2011. All rights reserved.


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