[00:00:00] But let's not get too comfortable because there's more under the surface about what's happening in the markets. And quite honestly, it's not calm water.
[00:00:12] I am Reese Dizzle and this is the future of water which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 117 and I keep telling myself it's going to be a great one. That's because today I'm joined by me, myself and I and truth be told, there's a lot of great research coming out of Bluefield, out of the machine that is. And I couldn't bring myself to slow the momentum for the delivery of things like the US Pipe and treatment facility forecast, mouthful Europe, industrial forecasts, water for data centers, non revenue water market sizing for the US and analysis of the leading engineering firms in water. Some of these are already available to clients, just released along with the data on our Data Navigator visualization platform. But more practically speaking, spring break and I'm in Japan so it's been a little bit harder to pin down people on the other side of the globe. So I thought I'd just fly solo today and hopefully provide some insights on our Q1 2025 snapshot of the top 50 publicly traded water companies and what they're saying. And let me tell you, this quarter is not just a numbers game. Seems to be we're going to be talking a lot about tariffs, turbulence and what seemed to be looming tough calls from the C suite among water companies, engineering firms, but also outsiders looking in and trying to figure out what that might mean for the water sector.
[00:01:57] But here's a twist. It's not all gloom and doom. I think behind the headlines we're seeing some, I think smart pivots. Some of these have already been underway. And so as a result, maybe more resilient business models and maybe even a tom return to the safe harbor of water utilities as capital looks for shelter after a period of rough spots. Stock wise for some of these investor owned utilities. But let's get into it and let me share some of my thoughts. So while there's been pretty good top line growth over the past year, if not years, the ground underneath seems to be shifting. So let's start with the headline numbers. In fiscal year 2024, the top 50 publicly traded water companies pulled in about $127 billion in water related revenues. Pretty significant. Nothing to shake a stick at as I would say. And I would say that this is just the publicly traded ones. It doesn't include the large privately held ones that others may know about. Some of these are engineering firms like I would put a black and beach in there. But also firms like Solenus or Saar is not included out of France. There's a whole host of them. But more importantly, these 50 companies, 43% of their combined revenues was water related. Their combined revenues for the year was about 294 billion. So as you can now tell, many of them are not pure plays. In fact, it's a small handful that are water pure plays as we would call them. And then the rest are more diversified. So that includes everybody. Like a Veolia for instance. They're not just a water player, although they are the biggest water player in the world.
[00:03:47] And in Q4, 40 of the 50 firms posted year over year revenue growth. So yeah, the sectors had a good run. In fact, it's had a several years of a good run and there are a number of reasons for that. So what are the standouts? Well, for us at Bluefield, what we see is that engineering services has led the pack with about just under 12% year over year growth, thanks to what seemed to be big municipal backlogs. As you can imagine, these tailwinds have been partly provided or catalyzed by things like infrastructure investment, Jobs Act, Inflation Reduction act, there's been some USDA funding, there's been a number of areas where stimulus funding has hit the street. It's not all infrastructure related, but what it has done is put a focus on infrastructure, the importance of it. And as I've said before, even roads that are being built, there's a water aspect or water component to it. If someone said to me, why are roads built? Actually they're built to get the water out the road so we can move some product more easily. That's one way to look at it. But in my point being is for every road there are things like culverts, catchment basins and there is water management related to that. So it's not exclusive to asphalt, should I say. But as a result, engineering services companies have actually done quite well and been on a really good run. They've also been bolstered by other markets. Places like the UK there's been activity. We are now moving into the eighth asset management planning cycle. So AMP8 is moving, moving forward. And so the UK once again, as always, it's the most privatized market in the world. As I've said before, that has shown some interesting opportunities for engineering services companies and it's interesting to see who's Winning those utility contracts. And then also we've seen some activity in places like the Middle east where we're seeing large scale D cell and reuse projects. In the Middle east, obviously a water scarce region, a need for advanced water treatment and more advanced water management. Another group of companies, hardware and equipment has done okay. But one subgroup within that are some of these distributors like a Ferguson Core in Maine who've been really active on the M and A front over the past couple years.
[00:06:16] Distribution is a very localized business. It's very customer facing. So M and A makes a lot of sense. Engineering in services companies are not all that different. You have to go door to door. It's very relationship based. And so these engineering or sorry, these distribution companies have been really active and it makes it easier for them to quickly respond to project based demand locally. But I think what also is interesting is they've evolved. We've watched their strategies or how they've positioned themselves evolve over time as well. They're moving more into digital solutions, but even the key word being solutions, they've shifted from what has been seen historically and I'll go back several years as almost like a catalog type business. I mean that's simplifying it in so many ways. But hopefully you understand where I'm coming from and what's ended up happening is now they're really, if you even look at their websites and how their websites have changed. As I've said before, I think I was discussing this with my colleagues, Mike Miroff and we're discussing this exact topic. They've become solutions providers. And as a result these distribution companies, Ferguson Corn Main, other private players like Vesco Water or Fortaline are also in other regional players. What they're doing is they're becoming in their own right, gatekeepers to the market as well. It's interesting to see how they're positioning themselves. Quite honestly, they're increasingly influential, just like the engineering and services companies. So it's interesting to see how their businesses are evolving and will continue to evolve.
[00:07:56] But let's not get too comfortable because there's more under the surface about what's happening in the markets. And quite honestly it's not calm water.
[00:08:04] Let's talk about the elephant in the room and that is Washington D.C. the tariff machine is revving up, revving down, revving up. We're not sure where we are, but it's creating all sorts of waves in the water sector, pun intended, at least 10 companies in our analysis of the top 50 publicly traded companies. This includes Badger Meter And Wattswater, they flagged tariff exposure in their Q4 calls. They were talking about components sourced from places like China and Mexico and Canada. These are things that are core to flow control and hardware systems. But there is a bit of a lagging effect and I get it. And the issue is that by the time their reports, fiscal year end Q4 reports came out, they're talking about this in February. Well, the Trump administration came in in January 20th as well as new Congress who's been quite honestly, deafeningly silent as far as their concerns go. If they are in fact concerned. I would be, I am. But one of the things that there's been a bit of a lag. And so we look to see some or anticipate some changes going forward. But this is just part of the picture. We're also seeing input costs like copper, brass, stainless steel, they're all riding high as well. And I think what we at Bluefield are seeing is we're now entering into what Bluefield calls a fourth phase of price uncertainty. As we presented to clients several weeks ago, we're about uncertainty in Washington. We are looking at material prices since 2014. And really it's, we've experienced three phases to date since 2014. From 2014 to 2020 we were seeing moderate price growth, I think, you know, sub 5% on average across key materials like pipes, plastic pipes, chemicals and such.
[00:10:01] So it's kind of, you know, what everybody expected. But obviously Once Covid came 2020 to 2022, there was a huge spike, constraints on supply chains. So average prices went up 55% on average. So some of these were even higher than that, you know, plus 100% over the period, over this two year period. So that's phase two. So big spike then really since 2022 up to present, prices have actually declined about four and a half 5%. So they've been definitely stabilized. If not coming down now, no one expects them to go back to 2020 levels. That never happens if you look at historical data. But what it was providing is some stability to the markets. So industrials, so utilities, engineering firms, procurement teams could start making some decisions with less concerns about having to defer projects because of high prices.
[00:11:07] Now we're entering into what I would call phase four. And it's pretty foggy out there at best. And that is because the policy outlook is foggy at best. We don't know if there are going to be tariffs in 10 days, 90 days, two years. So it's a little difficult to make a decision because of the Mercurial nature of the White House. And the bottom line is supply chains are tight, margins are under pressure. And now. And so we're concerned about that. I think the other thing is if there is recession and there have been some prognostications of recession in the second half of this year, what does that mean for the labor market? Will labor prices come down?
[00:11:53] I know for some that might sound like a good thing. But then there's an economic slowdown. There's going to be less demand for products, there's going to be less demand for water and so on and so forth. It's a bit of a daisy chain and a bit of a mess. So as we look to next quarter, we anticipate another level of concern in the financial reports and transcripts provided by these publicly traded companies. It's no longer just going to be about short term impacts from Canada, Mexico and China.
[00:12:19] That's old news. Now we're talking, we're picking a fight with the entire world at this point. And so it's going to be, if anything, I would suspect, maybe not in the reports themselves and maybe not publicly said, but there's going to be a cautious rebuke of the administration's handling of this tariff rollout. I don't think anybody's fully arguing with tariffs. We've had tariffs on and off again, even during the Biden administration, prior Trump administration, Obama administration and so on. But this is a whole next level of tariffs and uncertainty. So look forward to that. And I know the Q1 quarterly reports are going to start coming out pretty soon. Changing gears, strategic pivots and not shopping sprees as I've tagged this in my notes. And that is how are companies responding or how will they respond? Well, I wouldn't expect a flurry of M and A deals like we saw definitely in 2021, which was the peak over the past five years. There were a lot deals in 2021. We seem to be coming back down to earth quite honestly on all fronts with few exceptions. I already mentioned Corn, Maine and Ferguson being really active in the space, whereas utility, M and A, that is investor and utilities, their M and A deal flow has actually slowed. Last year was the slowest in a long time. I think the 10 year average is about 135 transactions a year. Last year was about 100. So we've seen a steady decline in deal flow. But what we are seeing now is a tightening focus. Maybe less buy everything and more refine what we've got.
[00:13:59] So it'll be interesting to see what the impact of, I mean interest rates may start to climb back up. Unfortunately I think people are sort of locking down, maybe sitting on some cash to see how things play out. But over the past year we have seen some interesting or notable moves. We've seen companies like DuPont and Georg Fisher, they're pruning non core assets to zero in on their strongest water plays. So I think that's interesting. We'll see what happens with dupont. It seems like the IPO market is kind of dead right now. At one point, I think it was last May they were going to IPO their water business among with their two other segments but they seem to, they've already retrenched and reconsidered that for a number of different reasons.
[00:14:49] Ecolab and Chimera they've created I think standalone water divisions in some respects with a spotlight on industrial solutions and PFAS mitigation. So Ecolab has been really interesting. We've done some analysis on them recently and their role within the data center segment. They acquired actually a company out of Newt, Massachusetts, an old company. It's been around a long time. I think it was Barclay Water Management and I think their primary focus was Legionella and they. I think the expectation is to apply that to data centers and leveraging that high tech industry for Ecolab has been huge. Been a good market for them like everybody else. Camera has offloaded its oil and gas now and they are more focused. I think lastly one thing that we're interested in seeing how it plays out and that's going to be what comes of Roper Technologies move to put its metering company Neptune on the block. I think that due diligence, et cetera, that's in process now and so it'll be interesting to see if a strategic picks that up and what that might mean. I suspect there are a number of private equity firms that are looking at it as well. So be on the lookout and see how that plays out. But big deals in the water sector and that would be a big one quite honestly think they had said $4 billion at least when they announced it. They were putting it out there.
[00:16:13] Not a lot of big deals. There are no unicorns in water despite what some companies say. In fact the water sector is a tough business. So high growth, it's a mature sector but also big deals.
[00:16:28] I think some we'll see at best 4 to 5 in any given year and usually they're more diversified so look out for company strategies and how they are responding in terms of M and A and market growth. Will they just retrench and ride this one out? Another thought was flight safety, as I mentioned earlier, and that is the utility advantage. Now I think this is where things get a little bit interesting. While technology and equipment segments are maybe feeling the squeeze, regulated water utilities starting to look like safer bets, at least in the investment community after several years of doldrums, stock price wise, that is, they've been, you know, for a number of reasons the stock prices have been down for regulated water utilities, whether it be delayed rate cases influencing their financials, high capital investment costs, things like that. But Tom, when the market starts to hit the skids, as it has over the past couple weeks, or at least demonstrated the want to do so on certain days, there has been a move towards regulated utilities and there's been an uptick in their stock price. In fact, I think looking at, we took the stock prices of all top 50 publicly traded companies, stretched them out and actually the utility segment is the only one that has shown an uptick in Q1 2025 and if we even stress that out to, I think April 4th just to capture what the impact was of the Liberation Day fallout. So it'd be interesting to see what happens with Essential Utilities and SJW Group. They're reporting steady rate approvals. Even if project execution is delayed. The utility segment, like I said, was the only one to post stock gains. And quite honestly, water utilities still benefit from one key factor, inelastic demand. It's really important. So water still flows even when the economy slows. Ooh, I like that. And investors quite honestly are paying attention. You got to put your money somewhere. Well, water utilities might be the place ultimately they would be impacted by things like higher material prices, economic downturn, particularly if they're tied up with industrials or commercial buildings. I think that commercial property, real estate has been a problem overall. And so this is something we track closely.
[00:19:12] So, you know, closing thoughts. Where does this leave us?
[00:19:16] Well, I would argue that the water sector's fundamentals are still solid. It's one of the reasons we at Bluefield are in it. And that is because, as I said, it's inelastic. Hopefully you don't get the whipsaw effects of everybody else. Not to say there isn't pain and concerns, but tariff inflation, bond markets are driving uncertainty and that does create a real problem.
[00:19:44] I don't know if I'm interested, I shouldn't say that, but I'm curious to see what happens to labor markets.
[00:19:51] For what it's worth, we have an entire generation of young people that have never experienced a recession.
[00:19:57] So it's never fun. It's never fun for anybody. But it is also an opportunity for a reset and bring people to reality. Supply chains do remain exposed. In fact, they're incredibly exposed. And one thing we've been looking at is which companies began to rework their supply chains after Covid, but also in the ramp up for baba, that's Build America Buy America legislation. Some of these companies could be winners during COVID or shortly thereafter. There was the China plus one approach and then there was the BABA approach. So some companies could be in better positions. I think Xylem has done something like that over the past couple years and seem to be somewhat insulated from these price shocks. So be on the lookout for that. And then an economic slowdown, honestly, it could crush city budgets. That's tax basis. I live in Boston, as I've told you time and time again. It's already under pressure because of its heavy reliance on taxes from commercial properties.
[00:21:06] And they're, and they're struggling. You know, if work from home remains reality, maybe that changes if there's a hard recession, maybe gives more power to companies, commercial or commercial entities, industrials to say get back in the office because they have more leverage on the employees because they have more options. If so I do worry about some of these, I guess larger cities or cities that are so reliant on their tax bases, even if they have a rainy day fund, I suspect some of them are being hit. So that would be Boston, New York, San Francisco, Chicago, Atlanta, et cetera.
[00:21:49] Lastly, I don't think I said this, but this always weighs on my mind and that is one area of growth and interest that is not going away, I don't think, and that is the role of AI and data centers in high tech. Even in a recessionary environment, I suspect that those sectors will continue to grow significantly. So that might in fact even mean that the power sector has a collateral impact. We've talked a lot about that is with data centers and AI there's a spike in power, electric power demand which is doubling or tripling over the next five to 10 years, which is pretty significant, particularly since the power sector has been in the US at least has been flat over the past couple years. And by that I mean flat I see growing at 1% to 11 1/2 percent. But if we're talking 3 to 5% over the next five, 10 years, that's pretty significant.
[00:22:49] And therefore water opportunities, water management will continue to play a role. One of the questions about data centers. And I know my colleague Amber Walsh has a lot of research coming out on this and that is the water demand for data centers. You know, the data center companies keep saying that they're becoming more efficient and they're deploying reuse and they're deploying more efficient server servers that require less cooling, less water, or they just switch to air cooling. Well, if you switch to air cooling, one that puts the water burden on the power sector. So it uses because it requires more power if they get better servers and deploy reuse on site. And maybe they're just rolling up trailers and treatment systems on site. I get that. But thus far, if you look at the sustainability reports, take them for what they're worth of some of these larger big tech companies, their water usage is growing significantly. So they can say they're being more efficient and maybe it's just pure volume. I don't believe that fully, but they are using more water by their own reports. It's a little hard to get a finger on them because they're not the most transparent about what they're doing. In fact, I had a good conversation a couple weeks ago, maybe a month ago, with my colleagues Chloe Meyer and Keith Hayes talking about data centers in Spain and what it all means. And there are a lot of questions and we've done some research on that as well.
[00:24:26] Those are my rose and thorns. You know, I would say, you know, one last rose as we talk about in my family at dinner. What are your, what were your thorns today and what were your roses? Well, one rose is that this may be the moment where boring is beautiful, especially if you're in the business of regulated infrastructure with steady cash flows. So water doesn't have to be a bad thing. So that's it for today's breakdown. So if you want more intelligence like this, head over to bluefieldresearch.com and as always, I am Reece Tisdall and I'll catch you next time as we keep watching the water sector one signal at a time. So thanks for being part of the journey and what is turning out to be an interesting 2025. That being said, hello and goodbye from Japan. But before we sign off, if you're in Boston, Barcelona, New York, Chicago, San Francisco or Paris, let us know. We'd enjoy the opportunity for a meeting. We are there, so give us a call. Send a Note to water expertsluefieldresearch.com with any topic ideas you'd like us to discuss. We're doing this for you. And lastly, tell a friend about it. Come on, just make it happen. Friends. Love hearing from friends.
[00:25:44] This podcast and these water industry insights have been brought to you by the one and only Bluefield Research. To learn more about us, Visit
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