Is construction headed for a rebound? Autodesk numbers give a good clue

Several years ago, when I was doing research for hedge funds, I spent a month talking to Autodesk (ADSK) resellers. Autodesk's AutoCAD software suite is the standard tool used by designers and architects in the construction trade, and it dominates its market much like Adobe's Creative Suite dominates the print, graphic and interactive design fields. Its resellers are the hundreds of consulting organizations and systems integrators that sell Autodesk licenses to customers in the construction business. Like many big software companies, Autodesk relies on a huge reseller channel for the majority of its sales volume.

What my favorite resellers all told me was that they like to play construction-related stocks based on what they see happening at Autodesk, which serves all segments of the construction trade including building, civil engineering, office building design, and factory design.

Roughly two-thirds of its annual revenues come from sales of software closely related to construction. The resellers claimed that Autodesk sales tend to foretell a construction rebound and will bounce off the bottom roughly six months to a year before good numbers show up at the big construction companies.

That makes sense because architects and planners need to hire employees and buy more software as they get more work, which is far ahead in the pipeline of actual shovel-turning work. True, there other good indicators of construction, with the Architecture Billings Index being the classic leading indicator for the construction segment. But theoretically, that index should also lag software purchases by architects who need the right tools for the job before they bill for their work.

All of this means that the disappointing numbers from Autodesk are bad news for the near-term future of construction-related stocks. Some of this was, of course, obvious. The crisis in commercial real estate has frozen the loan pool for new project builds. In residential, new starts took a dive in the last month and the pool of inventory sits at 25-year highs.

The company managed to beat earnings expectations when it reported on November 18, but the beat came largely due to cost cutting as sales continued to fall. Most distressingly, sales fell 7% in the Asia Pacific region, which is where one would expect more growth due to the still healthy economies in that part of the world. What's more, total cost of sales as a percentage for Autodesk decreased by14.9% year over year. That either means the company threw in the towel and reined in sales costs or layoffs in the sales force reduced cost of sales -- neither of which is a good sign.

The bottom line? Autodesk can tell you when a big construction recovery is in the pipeline. That construction bounce could lift the whole economy. Alas, it appears not to be in the cards for now.

Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at

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