Rental Rate Momentum

RER interviewed Graham Hood, CEO of Miami-based Neff Rental, No. 14 on the RER 100 about the company's improved 2011 performance, its rental rate momentum, 2012 expansion plans, and the impact of Tier 4 equipment.

RER: You had a better year in 2011 than in 2010. Was there any particular customer sector that contributed the most to the improvement?

Hood: We deal with a diversified mix of end market segments and we experienced year-over-year improvement in most of them. Obviously oil and gas has been one of the strongest segments for most rental industry companies, including Neff. All of our key revenue metrics improved on a year-over-year basis in 2011.

What about rental rates for your company and in your markets in 2011 versus the previous year?

We are focused on rates as a company and we have enjoyed good upward momentum in that metric for several quarters. We saw an 8.3-percent increase in rental rates for the full-year 2011. We saw improvement across all categories of equipment and all regions of the country.

Do you have any particular expansion or growth plans for 2012 that you are able to share?

We have three planned greenfield openings in 2012 in markets within our existing footprint designed to better serve our existing customer base and complement our existing network of branches.

Any other observations about the market that you'd like to pass along?

Although it is difficult to quantify, I do believe that more companies are turning to renting as a primary option versus buying. This dynamic is helping drive the industry results in spite of a choppy construction environment.

As Tier 4 equipment pricing is phased in, it is going to have an impact on returns for the industry going forward, so companies are going to have to continue to drive rate improvement just to maintain current returns and accelerate that rate growth to see any improvement in the returns.

We Predicted the Trend

Anderson Equipment Co., No. 63, posted a remarkable 64.7-percent rental volume increase in 2011, one of the largest jumps on the new RER 100. Anderson CEO Bill Gex spoke about the increase in rental, how Anderson navigated the recession, and the state of rental rates.

RER: Was there any particular customer sector that contributed the most to Anderson Equipment's improvement in 2011?

Gex: Rental demand increased across Anderson's territory. Natural gas development in Western Pennsylvania had a significant impact on our operations but I was very pleased with higher rental volume in Anderson's other locations. There is still significant economic uncertainty among our customers and they continue to have a bias towards rentals.

Were there some things that your company did, either in 2011 or before, that helped make improvement possible?

We predicted the trend back in 2010 and placed a large order for equipment almost two years ago. While our competitors were lacking inventory, we increased Anderson's fleet by over 20 percent and essentially had all machines utilized for a good part of the year.

What are your expectations for 2012?

Rentals continue to be strong. During the first quarter, Anderson's rental business increased by over a third. However, we are concerned rental demand will slow down unless natural gas prices increase.

What about rental rates for your company and in your markets in 2011 versus the previous year?

Book rates were increased and discounting decreased so our net rental rates improved. As equipment costs increase due to Tier 4, we expect higher rates in the future. Unfortunately, the acquisition cost of equipment has gone up dramatically. We feel that the cost of a Tier 4 Final machine will end up costing 25- to 30-percent more than a Tier 3. It will be interesting to see how much of this cost will be absorbed by the end user.

A More Normal Rental Market

RER interviewed Rick Dahl, CEO of Metrolift, Sugar Grove, Ill., No. 96 on this year's RER 100, about how Metrolift strengthened its performance, improving rental rates, its strong beginning to 2012, and its increased penetration in the industrial market.

RER: You had a better year in 2011 than in 2010. Was there any particular customer sector that contributed the most to the improvement?

Dahl: We definitely have increased our market penetration in the industrial segment and with customer-owned unit repairs.

Were there some things that your company did, either in 2011 or before, that helped make improvement possible?

We focus on three areas that we measure and follow closely. They are on-time equipment delivery, service response time and correct billing. We have a fantastic team that executes these initiatives daily. When there are issues, we handle them immediately, effectively and emphasize communicating what we did to solve the problem. Another huge advantage has been our financial strength to react quickly when this market turned more positive. We did not have the financial difficulties that many of our competitors were challenged with and still are faced with today.

What are your expectations for 2012?

We are budgeting and projecting our numbers based on a 10-percent increase in revenue from 2011. We were up 23 percent in 2011 over our numbers in 2010. Our best revenue year was 2008 and then our numbers ultimately leveled off after a 33-percent decrease from our highs. We are closing in on our 2008 highs and started the year out early at a 20-percent increase. We have leveled off a bit and keep in mind there are many more months to go in 2012, but we are encouraged with how we got out of the gates.

What about rental rates for your company and in your markets in 2011 versus the previous year?

We have taken the lead in our marketplace and have seen a definite increase in our rental rates. The concern is that this increase is not keeping in line with the new equipment cost increases we are seeing. There are union labor cost increases coming, fuel increases and the normal cost of doing business across the board is increasing. If a rental operator is not looking at the pricing of their fleet they may not be around long.

Do you have any particular expansion or growth plans for 2012 that you are able to share?

Yes, we are very positive about 2012 and forward. We added $4 million of original equipment value to our fleet in 2011 and already ordered $3.5 million in the first quarter of this year. We have added a Safety and Compliance Director to our team who will be handling safety issues, training and keeping Metrolift Inc. up to date with federal and state compliance issues.

Any other observations about the market that you'd like to pass along?

The Chicagoland market is slowly healing and hopefully will be back to a more normal (if there is such a thing) rental market with challenges that include revenue increases and managing costs. This is much more fun compared to the overall market conditions we have faced the last four years. Now we can get back to running a rental business and improving our operation each day.

“There is still significant economic uncertainty among our customers and they continue to have a bias towards rentals.”
- Bill Gex, CEO Anderson Equipment