Recent Baird/RER quarterly rental equipment survey shows rental revenues, rates and utilization on the upswing.
Baird, in partnership with RER, has published the results of its second-quarter 2011 survey of the rental equipment industry, which showed a 9.3-percent rental revenue increase over the second-quarter 2010 survey, but a decline from the 13.5-percent year-over-year increase in rental revenue reported in the first quarter of 2011.
Respondents' average fleet size was 5.3-percent greater than the second-quarter 2010, and a 3.3-percent improvement from 1Q11. Rental rates were up 2.2 percent in the second quarter and up 2.4 percent from the same-period last year. Respondents indicated that the competitive environment remains tight with continued pricing pressure from the national rental companies in certain markets, and noted that rates appear to be trending higher overall.
“We're seeing good rate discipline and improving rental rates in most markets,” one respondent said.
Utilization rates in the second quarter were 58.3 percent on average, an improvement from 50.5 percent in 1Q11, reflecting seasonality as well as improved underlying trends. Average utilization for “big iron” equipment was 63.3 percent; “small iron” came in at 56.4 percent; while utilization for “other” was 48.1 percent. Respondents reported increased utilization of earthmoving and industrial equipment, and noted that contractors are renting more rather than buying equipment.
“There is some niche construction activity that is helping to drive utilization if you can leverage it, and also a more rapid conversion of contractor-owned fleet to rental,” a respondent said.
Survey respondents reported an increase in used equipment sales of 8.4 percent year over year, a 3.5-percent improvement over the first-quarter of 2011. Respondents reported that the number of units in their fleet increased by 5.3 percent during the second quarter over the year-ago period, comparing favorably versus a smaller increase of 3.3 percent year over year from 1Q11. Additionally, respondents reported the average cost of new units maintained a 5.7-percent year-over-year growth rate in line with last quarter's results.
The Baird/RER survey showed that the 2011 rental revenue forecast dipped to 9.4 percent from 12.8 percent in the first quarter. “There has been some improvement over the last couple of months; however, a great deal of uncertainty continues to haunt our markets,” a respondent said.
The rental rate growth forecast dipped slightly to 4.6 percent in the second quarter from 5.7 percent in 1Q11. Respondents also reported fleet spending over the next six months to be up 9.1 percent year-over-year. While pressure on rates is expected to persist, overall pricing trends appear positive, according to the survey.
Respondents expect fleet spending over the next six months to increase 9.1 percent, slightly lower than the 12.3-percent increase that was forecast in the first quarter of 2011, likely a reflection of both higher current-quarter purchases and some concerns about availability, according to the Baird/RER survey.
“We believe that expectations for higher fleet spending continue to be driven by both an improved outlook and aging fleets, but note concerns over availability and financing,” said David Manthey, chartered financial analyst, Robert W. Baird & Co.
According to the survey, overall sentiment remains cautious, but appears to be edging higher. Industrial markets are expected to show continued growth while construction trends are expected to remain challenging. One respondent commented, “Residential construction is still dead, and non-residential construction has tapered off as well. Industrial is the only area that has shown growth.”
Participants in the Baird/RER survey are senior executives at rental equipment businesses in all regions of the United States, parts of Canada and some international markets, representing nearly $16 billion in annual revenue. Of the more than 225 participants in the survey, 47.4 percent represent companies that generate annual revenue of less than $5 million, and 61.4 percent represent companies that generate annual revenue of less than $15 million.
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.