Baird, in partnership with RER, has published the results of its third-quarter 2011 survey of the rental equipment industry, which showed rental revenue growth of 10.1 percent year over year and further improvement from the 9.3-percent growth reported in the second quarter of 2011.
Respondents' reported that average fleet size grew 6.6 percent for the same period of 2010, and was up slightly from 5.3-percent growth in Q211. Rental rates increased 3.3 percent in the third quarter from the same period last year, and improved from 2.2-percent growth in the second quarter of this year. Survey respondents noted that tight competition and lingering pricing pressure from national rental companies, coupled with some equipment availability issues have pushed rental rates somewhat higher.
“Rental remains strong due to the slow economy, and customers want to leverage their risk through rental,” one respondent said.
“Most rental houses have right-sized their fleet, so we are seeing minor rate increases due to availability,” said another.
Utilization rates declined to 55.4 percent on average, slightly below the average of 58.3 percent reported in the second quarter. Average utilization for “big iron” equipment was 61.4 percent; “small iron” came in at 52.3 percent; while utilization for “other” was 48.5 percent. Survey respondents again noted availability issues as a common reason for the moderation in utilization rates, combined with right-sized fleets.
“Year-to-date 2011 results have been surprisingly strong,” said David Manthey, chartered financial analyst, Robert W. Baird & Co. “Respondents' rental revenues have been up approximately 10 percent year over year with rental rates up 2 to 3 percent. Utilization has been steady to slightly higher, and although sales are still higher year over year, average fleet size has increased by a mid-single-digit rate.”
Used equipment sales in the third quarter improved 5.4 percent year-over-year, but were down from 8.4-percent growth in the second quarter of 2011. Solid underlying trends in the equipment rental market appear to provide continued support to the used equipment market, according to the Baird/RER survey. Per one respondent, “Equipment sales are up, especially for Tier 3 diesel products.”
In the third quarter, respondents reported that the number of units in their fleet increased by 6.6 percent year over year, up slightly vs. an increase of 5.3 percent year over year in Q211. As previously highlighted, equipment availability coupled with tight credit continue to present problems for some rental businesses.
“Availability is key,” one respondent said. “We do not see much change in that as suppliers continue to struggle with getting inventory into dealer hands.”
Another survey participant said, “Credit is tight, our demand continually out-strips our ability to purchase equipment on credit.”
In addition, the average cost of new equipment increased again in the third quarter, up 4.6 percent year over year, slightly below last quarter's increase of 5.7 percent year over year.
In the initial outlook for 2012, the Baird/RER survey showed that the initial 2012 rental revenue forecast estimates a revenue increase of 6.9 percent over 2011 while rental rates are estimated to increase by 4.3 percent in 2012. Fleet spending over the next six months is expected to increase 9.6 percent year over year, which is virtually unchanged from estimates in the second quarter of this year.
According to the survey, all geographic and end-market segments appear to be benefitting from economic uncertainty with increased rental vs. ownership. One respondent stated, “General trepidation about purchases is driving more companies towards rental.” Another added, “Specific segments like oil and gas are booming. Others like general construction are flat.”
Participants in the Baird/RER survey are senior corporate executives or senior managers at regional divisions of rental equipment businesses in all regions of the United States, parts of Canada and some international markets, representing nearly $16 billion in annual revenue.
Robert W. Baird & Co. is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. For more information, visit Baird's website at rwbaird.com.
