Editor’s note: The following originally appeared in the Nov. 8-14, 2018, issue of Caribbean Business.
The latest Caribbean Business survey of locally owned companies indicates resilience in the face of a slow recovery from hurricanes Irma and Maria, which left noticeable scars on island-based businesses.
This year’s survey, the Top 200 Locally Owned Companies, which ranks Puerto Rico-based companies according to revenue generated in the 2017 calendar year, shows a mixed picture of double-digit income increases for several businesses involving security services, automobile sales and leasing, construction and renewable energy, while earnings shrunk for many companies in manufacturing, professional services and healthcare, particularly hospitals.
Local financial institutions, including several insurers and credit unions, also experienced a drop in revenues.
Revenues and jobs
The listed companies’ combined revenues increased nearly 9 percent to $12.8 billion in 2017, up from $11.7 billion in revenues reported for 2016. Revenue is defined as gross income a company receives during a specific period before costs are subtracted from it.
These companies provided 71,387 jobs in key areas of the local economy, namely the service, healthcare, retail, wholesale, construction, insurance, manufacturing, automobile, finance and agricultural sectors. These jobs comprise 7.3 percent of the 984,000 job-holders on the island in 2017, according to the Puerto Rico Labor & Human Resources Department Establishment Survey.
The latest Top 200 Locally Owned Companies survey is a downsized version of the Top 400 Locally Owned Companies, which had been issued in previous years by Caribbean Business. The list size was shortened because many companies failed to provide the updated information required by the now-revamped survey, which no longer provides estimates of companies’ revenues.
Several businessowners said they could not provide updated financial data given that they were focused on post-hurricane reconstruction. Other local companies could not be reached to provide such information. To qualify for the Top 200 list, a company must be at least 51 percent owned by Puerto Rico residents and have generated at least $5 million in revenues during the surveyed year.
The year-to-year growth in revenues in the Top 200 list is impressive considering that the island’s economy contracted 2.4 percent during fiscal year 2017, which ended June 30, 2017, according to the Puerto Rico Planning Board. It is even more remarkable given the blows dealt by two hurricanes last year, Irma and Maria, which had an impact on local businesses’ revenues due to forced closings as a result of blackouts, limited credit sources and supply chain interruptions.
A survey prepared by the Federal Reserve Bank of New York, released in September 2018 found 77 percent of small businesses on the island incurred losses due to the storms. The hurricane emergencies prompted 25 percent of these businesses to close temporarily and 2 percent to close permanently, according to the survey. The situation led 43 percent of the small businesses surveyed to report losses for 2017, yet 22 percent reported breaking even and another 35 percent even managed to generate profit during the same period.
However, the apparent resilience demonstrated by locally owned businesses cannot hide the deep wounds inflicted by a decade-long recession and fiscal crisis, as well as last year’s catastrophic hurricane season.
The combined revenues of the Top 200 Locally Owned Companies in 2017 was 45 percent lower than the $23.1 billion in combined revenues reported by the first 200 companies on the previous Top 400 list issued in 2016. Moreover, the number of jobs generated by companies in the latest Top 200 list is 35 percent lower than the 110,289 jobs reported by the top 200 companies in the 2016 survey.
The lower revenue and job figures in the latest survey can be attributed in part to the exclusion of such big companies as insurance giant Triple-S Management Corp., which headed the Top 400 list in 2016 and ceased to qualify as locally owned given that it is now a publicly traded company on Wall Street. Other large locally owned corporations on the latest Top 200 list, including Empresas Fonalledas Inc., Sistema Universitario Ana G. Méndez Inc., GFR Media, Packers Provision and Goya de Puerto Rico Inc., did not provide revenue data.
First Medical tops list
First Medical Health Plan Inc., a Guaynabo-based healthcare insurer, heads the latest Top 200 list. The company generated $1.08 billion in revenues in 2017, an increase of 2.17 percent over the $1.06 billion generated in 2016. The company provided 627 jobs last year.
Wholesale companies generated the most revenue as a group on the Top 200 list, reporting a combined $3.13 billion in revenues or 25.5 percent of the total generated by the listed companies. The locally owned company leading this sector is V. Suárez & Co. Inc., which generated $504 million in revenues last year.
In contrast, the biggest provider of jobs on the Top 20 list were companies in the service sector, which encompasses a diversity of labor-intensive businesses and professions, including lawyers, accountants, architects and engineers as well as universities, advertising agencies, waste management companies, job placement firms, maintenance companies and security companies. Listed companies in this sector provided a combined 22,548 jobs, or nearly one-third of the jobs provided by the Top 200 companies.
The leaders among locally owned service-sector companies were security firm Ranger American of P.R. Inc., which provided 2,837 jobs, and Perfect Integrated Solutions Inc., which provided 1,557 jobs. In fact, Ranger American was the fastest-growing company on the list, as its revenues shot up 104.3 percent, from $36.63 million in 2016 to $80 million in 2017.
Healthcare providers, particularly hospitals, were another significant provider of jobs and a big generator of revenues on the Top 200 list. These companies generated $2.38 billion in revenues in 2017, or nearly one-fifth of the Top 200 revenues, and provided 20,966 jobs or nearly 30 percent of the Pavia Health System headed this group of locally owned companies, generating $550.71 million in revenues and providing 4,413 jobs.
Insurance companies on the list generated the third-largest amount of revenue as a group, with a combined $2.2 billion in revenues in 2017 or 17 percent of the total but created just 5 percent of the jobs among the companies on the list.
The gradual influx of post-hurricane reconstruction aid has already had a positive impact on some locally owned construction companies, which made up a little more than 5 percent of the Top 200 revenues and jobs provided. Several construction companies on the Top 200 list registered double-digit growth, although other smaller construction firms registered decreased revenues. Other construction-related companies, such as steel product manufacturers and equipment distributors, also reported double-digit income growth.
Economist Heidie Calero, president of Hato Rey-based H. Calero Consulting Group Inc., attributed the mixed picture concerning locally owned construction companies to the fact that many contracts are being issued to firms on the U.S. mainland.
“The revenue growth in [Top 20] companies seems reasonable in light of reconstruction [after the hurricanes], but our experience is that local construction has yet to be in full recovery,” said Calero, who noted that the island’s economy may remain stalled if the flow of federal aid and insurance payments continue their slow pace. “The government’s persistently slow issuance of permits for construction projects is also not helping things.”
Fuel costs, renewables
Calero attributed the revenue decrease among most locally owned hospitals and some service-sector companies and manufacturers to the costs of fuel used to operate power generators during the hurricane-emergency blackouts.
In fact, local renewable energy companies also registered double-digit revenue increases, including Aguadilla-based Máximo Solar Industries, whose revenues increased nearly 80 percent between 2016 and 2017, making it the second-fastest-growing company on the Top 200 list. The company’s equipment and battery sales to local solar panel system installers increased 250 percent during the aftermath of Hurricane Maria, said company president Máximo Torres, who added that revenues are projected to double this year.