Quanta Services Pricing Spineometer: 2 of 5 Vertebrae

Quanta Services, Inc., a provider of infrastructure solutions for electric and gas utilities, renewable energy, communications, and pipelines, had a positive Q3 2024. Revenue rose 15% to $6.5 billion and earnings before interest and taxes rose 7.8% to $431 million over the same period last year.

A review of Quanta’s 31 October 2024 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

LEARNINGS FROM REPORT

The earnings mentioned the impacts of acquisitions, industry trends, and weather on performance. Discussions of margins identified these trends as well as the sale of higher-risk projects with stronger margins. Pricing itself, as is not unusual, was not discussed.

Quanta’s recent Annual SEC filing provides the following insights:

• Quanta’s three reporting business units are Electric Power Infrastructure Solutions, Renewable Energy Infrastructure Solutions, Underground Utility and Infrastructure Solutions. Within these business units are a number of relatively independent operating businesses.
• Demand for the Electric Power business unit is driven by trends of electrification, infrastructure hardening to address new weather challenges due to climate change, and grid modernization efforts.
• Demand for the Renewable Energy business unit is driven by trends towards a reduced-carbon economy, regulations, and governmental policies.
• Natural gas, oil, and other producers demand Underground and Infrastructure offerings is driven by regulations, a trend towards natural gas driven power, and the upkeep or improvement of aging infrastructure.
• Quanta operates primarily in the United States and have customers in both Canada and Australia.
• Quanta is active in acquiring new businesses, with five to seven acquisitions in FY 2023.
• Their ten largest customers accounted for 31% of their consolidated revenues. Though no single customer contributed more than 10% of revenue, their revenue is concentrated in a relatively constrained customer base.
• Revenue relies on unit pricing or fixed-price contracts.
• While competitors may underbid Quanta, Quanta believes their expertise, experience, safety record and other factors enable them offset some pricing pressures.
• Quanta specifically mentions the price of fuel as a business risk. Other inputs such as equipment, materials, consumables, and labor can also impact project profitability. Quanta operates a fleet of 71,000 vehicles. Their earnings call indicates a tendency to pass-through labor cost inflation.

Out of the 52,000 employees at Quanta, industry benchmarks suggest 45 to 230 professionals would be engaged in pricing daily.

1. The project nature of their offerings implies a high dependency on project managers rather than pricing professionals.
2. Pricing professionals can provide insight on the value-add of Quanta over their competitors to relieve downward pressure. Metrics of Economic Value to Customer are used in tangential industries that are project based, such as sub-sea systems, the development of power generating windmills, and electric distribution equipment. This approach may be useful to Quanta as well in setting prices for deliverables.
3. Quanta indicates cost volatility can impair business. Input cost volatility can both impair project profitability on bids below eventual costs or contract continuity if customers choose to rebid a project. Index-Based Pricing may be useful for passing through costs fluctuation in a transparent manner to both ensure profitability and improve customer retention.
4. Being dispersed across the States, Canada, and Australia, and having multiple relatively independent operating business, pricing professionals would natural be dispersed both geographically and across businesses. An internal pricing community would meaningfully develop useful techniques and cross-train professionals.
5. Macroeconomic changes, including regulatory, weather, demand trends, and other factors have a significant impact on the future performance of Quanta. As such, a team of applied economists to distinguish between economic forces and market fluctuations would enable better decision-making.
6. Similarly, when acquiring a new business, Quanta has an opportunity to review and refresh pricing practices within that business.

Research into the investment by Quanta in pricing yielded challenging results.

1. Pricing and applied economics as a profession does not appear to be a key role at Quanta. Rather, it appears project managers and estimators are largely held responsible for pricing. The number of project managers and estimators is within the industry benchmark for pricing professionals. Sales, operations, and finance also contribute to pricing decisions. This could leave a challenge of unaligned goals as discussed in Pricing Done Right.

Given the importance and capability of pricing at Quanta as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of January 2025.

Quanta Pricing Spineometer: 2 out of 5 Vertebrae.

Our review indicates that management is aware of the importance of pricing. No specific bad pricing decision was uncovered and good pricing concepts were being utilized. However, our review also provides a number of areas where a pricing professional could meaningfully contribute to Quanta. Fortunately, the recent past economic environment and governmental acts, such as the Investment Reduction Act, has served Quanta well. These trends may not continue. Building a pricing capability is a proactive approach to managing economic uncertainty.

PWR (Quanta Services, Inc.) rose from 311 the day prior to their earnings call to 320 one week later. FY 2023 revenue of $22.9 billion with a 4.9% operating margin and P/E ratio near 48.

For FY 2023, a 1% improvement in price would yield a 20% improvement in operating profits holding all else constant at Quanta.