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Last summer, several top builders predicted a rebound in the home-improvement sector within six to nine months.

Instead, the credit crunch worsened; interest rates began a slow but steady ascent; and a teetering subprime lending market fell into total collapse.

What’s more, homes nationwide actually lost value, a phenomenon rarely seen since 1932. The equity that once allowed middle-class Americans to purchase swimming pools quickly dried up.

So much for a speedy recovery.

“In the last 11/2 years, I’ve become an economics professor,” jokes Ben Evans, CEO of American Pools and Spas in Orlando, Fla. (No. 27). “I think that reading economic news is all I do these days.”

Experts today are decidedly less optimistic about an industry turnaround, and with good reason. The Consumer Confidence Index, a leading indicator of the public’s willingness to spring for big-ticket items (including pools), hit a 16-year low in June.

Meanwhile, a drastically weakened dollar is stoking inflation fears, yet another reason consumers are playing it close to the vest.

Estimates for a rebound now range anywhere from one to three years.

“In our business, predicting a turnaround is difficult,” says Ron Ostlund, CEO of Riviera Pools in Phoenix (No. 21). “But I don’t see a change by January 2009, so I’d guess that means we’re looking at the beginning of 2010 at best. We have a tough 18 months ahead.”

As realism replaces optimism in the industry’s consciousness, this year’s Top 50 Builders will continue to tighten belts, adjust business plans and remain positive in the face of a lingering nationwide dry spell.

Overall breakdown

If 2006 was tough, ’07 was downright brutal: The Pool & Spa News Top 50 Builders saw total construction revenue tumble by nearly 24 percent, from $1.94 billion in ’06 to $1.48 billion last year.

Among builders in the top half of our list, just one reported an increase in construction revenue: Cody Pools Inc. (No. 18) of Austin, Texas. In fact, only three other Top 50 Builders reported growth for 2007: Pools of Fun Inc. (No. 33) of Indianapolis, J. Tortorella Custom Gunite Pools of Southampton, N.Y., and Platinum Poolcare Aquatech Ltd. (No. 42) of Wheeling, Ill.

“We had a very strong start to 2007,” says Mike Giovanone, owner of Concord Pools. “We thought we’d finish strong, but mid-September came around and it all came to a screeching halt. Our fourth quarter was below our expectations, but all in all, things are not that bad out there.”

Of course, how bad it is depends on one’s perspective. And most perspectives are grim.

Firms that handle strictly residential construction have seen business drop anywhere from 20 percent to 65 percent.

“The high-end market is still there, though it’s noticeably smaller,” says Cecil Fraser, CEO of Swan Pools (No. 9) in Lake Forest, Calif. “These people are naturally hesitant to commit to a job because of the current instability in the housing market and the economy.”

Builders with a hand in the commercial market say that segment was off approximately 40 percent in 2007.

Meanwhile, consumers appear to be taking advantage of hard times in the industry. Where they’re able to sense desperation, customers are driving hard bargains. And builders, perhaps out of necessity, are increasingly willing to play ball.

“The public is aware of what’s going on and rubbing it in your face, asking, ‘What can you do for me?’” says Anthony Shiavone, senior vice president of operations at Seasonal World (No. 24)in Clarksburg, N.J. “We’ve revamped our sales strategy, allowing more negotiation than ever before.”

Builders naturally are seeking to cut costs and streamline operations. Some have laid off work crews; others have closed shop during slow periods, or cut their advertising budgets to next to nothing.

Nor are builders immune from everyday worries such as high gas prices. Construction crews for Carlton Pools Inc. in Warminster, Pa., were surprised to learn one day this summer that the company’s $5,000 gas credit card was maxed out, even though the boss settled the bill weekly.

Company officials quickly paid the gas station $580 in cash, and the fleet of trucks was mobile again … for the day.

“If we could only see some end to the fuel issue, it would bring a lot of buyers out of the woodwork,” says Joseph Solana Jr., CEO of Carlton Pools (No. 28).

Regional roundup

Markets that reaped the greatest benefits of the past housing boom — California, Arizona and Florida — were among the hardest hit last year.

The Southeast region, dominated by Florida, saw total construction revenues from the Top 50 fall 44 percent, from $209.2 million in 2006 to $117.6 million in 2007. Whereas the region placed 13 firms in last year’s Top 50, this year it claimed just 11 spots.

The bottom has fallen out of pool permit requests in the Sunshine State, according to the Florida Swimming Pool Association, which tracks the data.

Permit approvals were down 53 percent in June 2008 compared with those issued in June 2006.

“This is the inevitable correction,” says E. Michael Holland, CEO of Holland Pools & Spas Inc. in Altamonte Springs, Fla. (No. 26). “I put money away on every job for a time like this so I could spend money. This is an opportunity for us to grow. When the business does come back, I’ll be ready to increase my volume dramatically.”

Firms on the list report business is down at least 20 percent in 2007 — in line with the statewide drop in home values of between 20 percent and 35 percent. Total construction revenue, from the Top 50 in the meantime, is down 39 percent in the region, from $236.8 million in 2006 to $145.4 million in 2007.

“In August 2005, we began to see the deterioration of lead flow,” says Bruce Dunn, CEO of Mission Pools Inc. in Escondido, Calif. (No. 15). “It was a steady slip, month by month, through the end of 2005, 2006 and 2007. There were fewer new starts, but the high-end market was still there, [and] the commercial market was still there. But the residential market really hit a wall.”

In the Southwest, the climate isn’t much better; in fact, it’s mostly worse. Overall construction revenues declined 35 percent, from $620.2 million in 2006 to $400.1 million last year. And the number of pools built in the region by the Top 50 dropped 31 percent, from 13,809 in 2006 to 9,565 the following year.

Individual firms are reporting leads and revenues down nearly 70 percent compared with 2006. Several companies that built as many as 300 pools a year a few seasons back are now out of business, according to Ostlund.

“Very few industries can laugh off a two-thirds reduction in sales and revenue,” he says, adding that while he was disappointed in his company’s sales for 2007, he’s still better off than most. “The permit list is missing the names of some good pool companies.”

The South-Central region, by contrast, hasn’t fared as poorly as several other major pool markets. Every Top Builder from the region hails from Texas, where housing prices have remained relatively static over the past two years.

Total construction revenues for the 10 firms on the list were $171.4 million, down just 5 percent from 2006, when nine Texas builders reported $181.1 million in revenue. The number of pools built also declined, from 3,680 in 2006 to 3,472 last year.

Leads at Riverbend Sandler Pools in Plano, Texas, (No. 11) are down 25 percent to 30 percent, according to Glen Rich, the company’s president. Though the housing bubble wasn’t as big in Texas, the crash of the subprime lending market took its toll.

“When that began to implode, all of us felt the effects,” Rich said. “A lot of the growth the builders experienced over the last four or five years was artificial because a lot of those people never should have gotten loans.”

Not everyone in Texas is experiencing a decline. Cody Pools is not only up this year, but company President Mike Church expects to sell 500 pools and finish 2008 with $25 million in revenue. The key, he says, is targeting a wealthier clientele.

“The new housing market is down in Austin, but we’ve gained market share,” Church says. “We’re selling pools to homes with values between $300,000 and a half-million dollars. Two years ago, we were selling pools to homes between $150,000 and $350,000.”

The Northeast and Midwest typically are the steadiest markets, and the story was no different in 2007. In fact, the numbers actually rose slightly in the Midwest, with total revenues jumping by nearly $8 million over 2006 figures to $38.1 million in 2007. Still, the number of pools built in the region remained essentially the same.

The region’s relatively light new-home construction has largely mitigated the effects of a ruptured housing bubble.

“Our area seems to be isolated from the recessionary environment, though there are many foreclosures and houses for sale everywhere,” says James Atlas, principal at Platinum Poolcare Aquatech Ltd. in Wheeling, Ill.(No. 42). “We’ve actually experienced a bump up in revenue of about 12 percent over the last 12 months. The fact that we are growing at a fairly aggressive clip has us worried about the figure, but it gives us confidence that we must be doing something right.”

The Northeast added another member to the Top 50 this year, bringing its representation to six. Total construction revenues in the region came in at $81.7 million for 2007, up from $75.3 million in 2006.

Renovation to the rescue

When new pool projects nosedive, where do builders turn for salvation? For the most part, it’s renovation.

Several Top 50 Builders took on these projects in 2007, many for the first time ever. In fact, revenue from renovations among the Top Builders climbed from $78.1 million in 2006 to $122.3 million in 2007.

Years earlier, most builders were too busy installing new pools to worry about renovations. But what was previously considered a niche business for a builder’s subcontractors is now essential to many Top Builders’ bottom lines.

“We never did them before. We always passed those jobs off to other people,” says Evans, who adds that he began accepting renovations about 11/2 years ago, and even wrote a new procedure manual for the jobs.

“We don’t even market it a whole lot,” he adds. “People are just calling [frequently] to ask about renovations, and we’re taking on the biggest projects. It’s a big help.”

These projects typically carry a 10 percent greater profit margin than you’d find on a new pool. Consumers interested in sprucing up their old pools also are better able to pay cash, or at least secure a good loan on their own.

Renovations also offer opportunities for upselling — from installing energy-efficient technology and high-end decking materials to waterfeatures and fiberoptic lighting.

“We started ramping up renovations last fall,” Giovanone says. “When the phones died, we started cold-calling our old customers from 10, 15 years ago. We ended up with our first $300,000 renovation contract this year. That’s saying something for a vinyl-liner swimming pool dealer.”