Company Rises on Energy Tide

(February 24, 2006, as appeared in the Kansas City Business Journal)

Black & Veatch sees record earnings in building coal-fired power plants

When Sprint Nextel Corp. or H&R Block Inc. adds or sheds a few hundred jobs, it's headline-gripping news.

If it's Black & Veatch, no one notices.

The Overland Park-based engineering giant added 1,000 new employees in 2005, half locally, and expects similar job growth this year. Conversely, Black & Veatch cut 1,800 jobs -- more than 1,000 locally -- between 2001 and 2004. All went largely without mention in its hometown.

"We try to keep a very low profile," said Len Rodman, CEO of the 90-year-old engineering company. "People don't buy handsets from us or come to us to do tax returns.

"Our clients know who we are, but that's not the run-of-the-mill person on the street."

Being quiet has its advantages. Whereas a public company would have been stung by Wall Street after the energy market cratered and engineering work withered two years ago, Black & Veatch was able to calmly retool and rebound.

By retraining its engineers to design coal-fired power plants instead of the previously en vogue gas-fired variety, Black & Veatch set itself up for the current construction boom.

In the past 12 months, the company has won design and construction work on seven of the 11 coal-fired power projects that it bid on. About 60 new coal-fired plants have been announced nationwide during this time.

This activity resulted in Black & Veatch posting the best annual earnings in its history, Rodman said.

He declined to disclose actual 2005 earnings but said they were more than 16 percent higher than 2004 earnings of $20.3 million -- or roughly $23.5 million. Revenue grew from $1.35 billion in 2004 to about $1.6 billion in 2005.

Greg Graves, CEO of cross-town rival Burns & McDonnell, said the two local engineering giants are positioned in the right markets -- specifically, energy.

"Both firms rise with the tide right now," he said.

Black & Veatch's 2004 numbers enabled the firm to rise to No. 6 on industry bible Engineering News-Record's rankings of the top design-build firms, up from No. 8 the previous year. The company held steady at No. 13 in ENR's ranking of top design firms.

In 2003, Black & Veatch reported revenue of $1.4 billion, an $800 million drop from $2.2 billion in 2002. It was a situation where being private was a blessing.

Much of the company's top line was tied to power plant equipment that it would buy for the client, then take a slim margin on, Rodman said.

For that reason, earnings did not take a similar dramatic fall. For example, 2005 earnings on $1.6 billion in revenue are higher than they were on $2.2 billion in revenue in 2002, he said.

But try to explain something like that to Wall Street.

John Robinson, former Black & Veatch managing partner and a descendent of co-founder Tom Veatch, said that being private has allowed the company to stay focused. That's to the benefit of its hometown, he said.

"Black & Veatch is fixated on private ownership and its Kansas City roots," Robinson said.

Overland Park City Manager John Nachbar calls the company one of the community's "stalwarts."

Robinson is one of a handful of former general partners who have a stake in the company. Veatch originally set up the firm as a sole proprietorship, which was switched to a general partnership in 1956.

The way it was structured, general partners passed along equity to their successors, and the ownership value never appreciated. That's why the firm never has churned out millionaires the way some of the area's other big-growth companies have.

In 1999, the firm began the transition to an employee stock-ownership plan. Today, about 4,500 employees own Black & Veatch stock, representing about an 85 percent stake.

Through an independent valuation conducted each year, the value of that stock has roughly doubled since 1999, Rodman said.

Rodman said he gets calls these days from investment bankers about going public.

It's little wonder. Larger, publicly traded Fluor Corp. has seen its stock price double in the past two years, closing Feb. 22 at $85.64. Shaw Group Inc., once rumored to be a suitor of Black & Veatch, has had its stock price more than triple since 2004. Shaw's stock closed at $34.13 a share on Feb. 22.

For Rodman, going public would be the easy way to get stock into the hands of his international employees. But he's not thrilled about the ramifications.

"Across the street,"Rodman said, referring to Sprint Nextel, "I know they do things to appease nonworking owners. That's the philosophical problem."

Copyright 2006, The Kansas City Business Journal