Rental Headed For Double-Digit GrowthWritten By Frank Manfredi
Article Date: 09-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
2004 rental revenues should reach at least $26.4 billion.
Construction equipment rentals are rebounding and I expect the industry to easily grow in the low double-digits this year to at least $26.4 billion in rental revenue.
The growth rate between 2002 and 2003 was a lackluster 1 percent. While it’s too soon to predict a repeat of the growth of the 1990s, when annual growth rates regularly exceeded 20 percent, it does appear the rental industry is in for two or three years of growth from internal initiatives, or in the parlance of Wall Street, organic growth.
During the 1990s much of the growth of the national chains was due to consolidation strategies that resulted in them buying small local and regional rental companies. There is still some consolidation going on, but only in specific markets, such as traffic safety, and in some regions, such as Canada. And, there are a few regional chains, particularly in the western United States, that have recently tapped the private debt market and are expanding.
In measuring the size of the equipment rental industry, my definition of rentals is very broad. It includes traditional rent-to-rent activity typical of companies such as United Rentals, NationsRent and RSC. These companies are primarily in the business of renting equipment. They are motivated to keep utilization rates as high as possible to maximize cash flow. They are not generally motivated to sell equipment except used machines that are sold when they replace old fleets.
The definition also includes companies that typically rent to sell. These are usually authorized dealers for equipment manufacturers. They are in the business of selling machines, parts and service. They usually are not motivated to invest in a large fleet of equipment and keep it rented.
The lines of distinction between the rent-to-rent segment and the rent-to-sell segment are beginning to blur. In the future, it may not be possible to keep them separated for analysis purposes.
For example, NationsRent has declared it will become more involved in selling and servicing equipment. Ahern Rentals in Las Vegas announced it is starting a for-fee service operation. Volvo has an aggressive program under way to establish rental operations that will support its entry into the compact product markets, and, of course, most Caterpillar dealers have set up separate Cat Rental Stores.
Complicating matters more is the entry of “big box” retailers, such as The Home Depot and Lowe’s, which have major efforts in progress to expand into the tool and small equipment rental business.
Measuring and categorizing revenues from all of these outlets will become even more difficult in the future – an art rather than a science.
Using recent financial results of the major rental companies, we have developed the following estimate of the 2003 market:
Results for the first half of 2004 for public companies are coming in now. RSC reported its second quarter rental revenues were up 8 percent. Of that, 6 percent was due to improved rates and 2 percent was a volume increase. Same store revenues were up 11 percent. Used equipment sales were up 43 percent due to the company’s fleet replenishment program.
United Rentals reported total revenues were up 6.6 percent, but general rentals were up more than 11.9 percent. The company also indicated same-store general revenues were up 9 percent. United has also succeeded in increasing rental rates and reported they were up 7.9 percent in the quarter.
Our general conclusion is that this will be a very good year for the equipment rental industry, and we expect growth to continue into 2005 and probably 2006.
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