Editor's Note: This article is part of Inc.'s weekly report on business niches in partnership with financial information company Sageworks.

Private utility companies could be in for a rough ride in 2015.

Profit margins and sales growth have shot up and down frequently during the past five years, though the most recent news has been good. Sales growth rose to nearly 9 percent during the 12 month period ending November 21, 2014, up from 3.7 percent the previous 12 months, according to financial information company Sageworks. Private utility companies include electric power, natural gas, steam supply, water supply, and sewage removal.

While companies on average are keeping five cents for every dollar in revenue produced, analysts say that profitability--net income divided by sales--is diminishing as industry costs and expenses slowly increase.

"‹“Utility companies may be beginning to see the impact energy-efficient programs could have on their bottom lines,” says Sageworks analyst Kevin Abbas. 

"As consumers continue to move toward more efficient homes and appliances, demand for utilities will continue to shrink. That reduction in demand is of concern for utility companies and could continue to threaten profits in 2015 and beyond."

Despite this uncertainty in the near future, private utilities have generated increasing sales every year since 2011, according to Sageworks data derived from financial statements of private utility companies. The consistent growth--albeit at fluctuating levels--mirrors U.S. Census data, which shows that private sector utility revenue grew from $512.1 to $541 billion between 2012 and 2013.  

"What catches your eye are the changes," says Sageworks analyst Chuck Nwokocha. "In sales percent change, there is a big drop from 2009 to 2010, then it shoots back [up], then a similar down-up swing from 2012 to 2014.” 

Net profit margins similarly bounced to a high of 6.8 percent in 2012 before settling at 5.0 percent in the latest 12-month period.

 

Published on: Dec 18, 2014