A perfect storm of economic downturns and an increasingly global recession have led to a decline in the rental equipment industry. I estimate that rental revenues declined by 4 percent in 2008 compared with 2007 and expect they will decline an additional 12 percent and perhaps as much as 20 percent in 2009 compared with 2008.

During the first nine months of 2008 rental revenues for seven of the top public rental companies decreased 0.4 percent. During the same period rental rates, capital expenditures, EBITDA margin and fleet utilization continued to weaken in response to a weak U.S. economy and the declining construction market. I expect the current financial situation to put additional pressure on the U.S. economy, construction markets and the rental industry.

Rental companies are reporting that underperforming branches are being closed, expansion of new branches has slowed, money to fund acquisitions is tight, capital expenditures have been reduced and companies are aging their rental fleet. The one bright spot in the coming year could be the government stimulus package. However, even if a stimulus package is passed in early 2009, equipment rentals and purchases will likely not be impacted until late in 2009.

The growth of rental outlets appears to have peaked in 2007 at 15,865. We estimate that by the end of 2009 there will be almost 900 fewer rental outlets because of company consolidations, small rental companies going out of business and the closing of branches by the major national companies. We also estimate that the revenue per outlet has declined since 2007 and will continue to do so in 2009 due to the overall market weakness.

The combined decline in the number of outlets and revenues per outlet will result in a drop in industry rental revenues of at least 12 percent and perhaps as much as 20 percent. I believe there is considerably more downside risk in my forecast at this point. If the economic stimulus plan does not have the expected affect early in 2009, the decline this year could be as much as 20 percent.

I have analyzed a number of key financial statistics for the public companies in an effort to anticipate in what direction the market will go in 2009. That information follows in the Selected Financial Data chart.

Rental revenues

Rental revenues for the seven public rental companies reported below decreased 0.4 percent for the first nine months of 2008 compared to the same period in 2007. Neff Rental reported the largest decrease in rental revenues, -11.7 percent, while Essex Crane reported the largest increase, +30.6 percent. Rental Revenues Table.

EBITDA margin

EBITDA margin declined in the first nine months of 2008 for each of the companies reported below except Essex Crane. EBITDA Margin Table.

Capital expenditures — rental equipment

Not surprisingly, capital expenditures reported for the five public rental companies below have declined 35 percent for the first nine months of 2008 compared to the same time period in 2007. Rental Equipment Capital Expenditures Table.

Rental rates

Rental rates declined for the first nine months of 2008 for all of the following rental companies except Essex Crane. Neff had the largest decline, -6.8 percent for the period, while Essex Crane continued to increase rental rates for crane rentals, +32.5 percent. Rental Rates Table.

Utilization

Both dollar and time utilization rates declined for all of the crane companies reported below except Essex Crane for the first nine months of 2008 compared to the same period in 2007. Essex Crane reported increased time utilization rates. Utilization Table.

Fleet age

The average fleet age for the four public companies reported at left has increased compared to the same time last year. RSC fleet age has increased since last year but the company continues to have the youngest fleet of the four companies. H&E's fleet is younger this year compared to last while United, HERC and RSC have aged their fleet. Fleet Age Table.

Outlets

Rental companies are reporting that underperforming branches are being closed and expansion of new branches has slowed. For the six public rental companies reported at left the number of outlets has decline 2.6 percent since December 2007. Rental Outlets Table.

HERC reported the largest decline, -6.9 percent, followed by United Rentals, -3 percent, while Ahern increased the number of outlets. In October 2008, Ahern opened its 47th and 48th branches, located in South Lake Tahoe, Calif., and Yuma, Ariz.

Many uncertainties lie ahead, but based on analysis of the public rental companies, we can expect 2009 to show a marked downturn in the overall rental industry. Proposed infrastructure investments, however, leave the door open for more positive expectations in 2010 and beyond.

Frank Manfredi is president of Mundelein, Ill.-based Manfredi & Associates, a marketing information firm that specializes in the construction, mining, farm and material handling equipment industries.

Rental Construction Equipment Growth
Year Estimated number of rental center locations Estimated rental revenue per business (in millions) Estimated construction equipment rental industry revenue (in billions) Percent change from previous year
2009 15,005 $2,119 $31,795 -12%
2008 15,469 $2,336 $36,130 -4%
2007 15,865 $2,372 $37,636 8%
2006 15,708 $2,218 $34,848 20%
2005 15,400 $1,886 $29,040 9%
2004 14,000 $1,895 $26,530 11%
2003 14,005 $1,723 $23,927 1%
2002 13,250 $1,790 $23,717 -4%
2001 13,500 $1,837 $24,800 0%
2000 13,932 $1,780 $24,784 3%
1999 13,958 $1,730 $24,159 13%
1998 14,909 $1,500 $21,436 15%
1997 14,338 $1,300 $18,640 15%
1996 14,874 $1,100 $16,209 14%
1995 13,350 $1,075 $14,351 9%
1994 12,550 $1,050 $13,178 18%
1993 11,150 $1,000 $11,150 15%
1992 9,950 $975 $9,701 23%
1991 8,550 $925 $7,909 21%
1990 7,325 $896 $6,563 13%
1989 6,783 $853 $5,786 -2%
1988 6,325 $937 $5,927 45%
1987 5,616 $727 $4,083 51%
1986 4,635 $585 $2,711 55%
1985 3,720 $469 $1,745 58%
1984 3,132 $352 $1,102 41%
1983 2,800 $280 $784 28%
1982 2,560 $240 $614 N/A

Rental Revenues

Rental Revenues
Nine months 2008 vs. same period 2007
Company YTD percent change
Ahern Rentals 18.6%
Essex Crane Rental 30.6%
H&E Equipment Services 7.8%
HERC -3.2%
Neff Rental -11.7%
RSC Equipment Rental 4.5%
United Rentals -3.9%
Total -0.4%

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EBITDA Margin

EBITDA Margin
Nine months ended September 2008
Company 2008 2007
Ahern Rentals 39.8% 41.7%
Essex Crane Rental 55.6% 47.6%
H&E Equipment Services 23.3% 25.1%
HERC 44.9% 46.9%
Neff Rental 37.1% 42.1%
RSC Equipment Rentals 44.5% 46.6%
United Rentals 32.1% 30.5%

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Rental Equipment Capital Expenditures

Rental Equipment Capital Expenditures
Nine months ended September 2008
Company 2008 (in millions) 2007 (in millions) Percent change
Ahern Rentals $119.8 $161.9 -26.0%
H&E Equipment Services $113.3 $128.2 -11.6%
Neff Rental $31.5 $83.0 -62.0%
RSC Equipment Rentals $230.5 $516.1 -55.3%
United Rentals $590.0 $785.0 -24.8%
Total $1,085.1 $1,674.1 -35.2%

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Rental Rates

Rental Rates
Nine months ended September 2008
Company Percent change
Ahern Rentals -3.0%
Essex Crane Rental 32.5%
HERC -1.3%
H&E Equipment Services -2.1%
Neff Rental -6.8%
RSC Equipment Rentals -1.0%
United Rentals -1.9%

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Utilization

Utilization
Dollar Time
2008 2007 2008 2007
Ahern Rentals 43.0% 46.0% 69.0% 70.0%
Essex Crane Rental N/A N/A 72.30% 71.0%
H&E Equipment Services 37.2% 40.8% 66.0% 68.1%
Neff Rental 47.0% 49.4% N/A N/A
RSC Equipment Rentals N/A N/A 70.9% 73.0%

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Average Fleet Age

Average Fleet Age
September 2008 (months)
2008 2007
H&E Equipment Services 31.2 33.4
HERC 34.0 28.0
RSC Equipment Rentals 31.0 25.0
United Rentals 38.0 37.0
Average 33.6 30.9

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Rental Outlets

Rental Outlets
No. of outlets September 2008 December 2007 Percent change
Ahern Rentals 48 43 11.6%
H&E Equipment Services 64 63 1.6%
HERC 350 376 -6.9%
Neff Rental 65 66 -1.5%
RSC Equipment Rentals 470 473 -0.6%
United Rentals 669 690 -3.0%
Total 1,666 1,711 -2.6%

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