Positive growth across the board continued in the first-quarter 2013 Baird/RER rental equipment survey with rental revenue growing 6.9 percent year over year and improving modestly from 6 percent growth in the fourth-quarter 2012 survey. Among higher revenue-earning rental companies ($15 million or more rental revenue annually) Q113 revenues increased 8.8 percent year over year compared to an increase of 8.1 percent in Q412, a slightly larger margin of growth. The latest growth measurements are encouraging given difficult year-over-year comparisons from strong prior-year trends and weather-related headwinds, according to Baird analysts.
While trends remain varied based on geography and end market, overall trends show particular strength in energy-related markets.
“We are still seeing a very strong energy sector in our areas, with a slight increase in non-residential construction but nothing strong,” one respondent said.
“Weather really slowed our business, a late spring hurt revenues for the first quarter, but since then business has been very good,” noted another.
Rental rates in the first quarter increased 1.4 percent year over year, but slightly below the 2-percent increase shown in the prior quarter. Overall pricing remains positive with higher equipment costs and strong underlying demand pushing rental rates upward.
“High levels of utilization have enabled us to raise our rental rates,” said one respondent.
“We are still seeing irrational pricing from the competition, but the general environment is improving,” noted another. “[There is] still some irrational pricing from national rental companies, but far less than 12 months ago.
Consistent with typical seasonality trends in the first quarter, time utilization moderated to 47.6 percent compared to 48.9 percent in Q412. Average utilization for big iron equipment was 48.7 percent, small iron was 46.2 percent and other was 37.9 percent.
“Solid overall utilization rates likely reflect stable underlying demand, though difficult weather comparisons on a year-over-year basis likely depressed utilization,” said David Manthey, senior analyst at Baird.
“Work is picking up, and our utilization rates are increasing given our relatively unchanged fleet of equipment,” said one survey respondent.
“Our first-quarter utilization was down due to weather delays in oil and gas pipeline projects,” said another.
Used equipment sales grew 5 percent year over year compared to 4.3-percent growth year over year in the prior quarter, consistent with typical seasonal trends. According to the survey, continued strength in rental equipment and relatively lean fleet levels appears to provide support for the used equipment market. “Sales of used equipment continue to be higher than average, due to fewer purchases of new equipment in recent years,” a respondent noted.
Fleets grew 2.8 percent on average year over year, relatively unchanged compared to a 3.1-percent year-over-year growth rate in Q412. Survey respondents noted continued pressure on the average cost of new units, up 7.1 percent over the same period last year and up 4.2 percent over Q412 for the second consecutive quarter, likely reflecting new-year price increases from equipment makers.
In their updated 2013 outlook for revenue growth, participants’ forecast a 9-percent increase in year-over-year rental revenue growth, an uptick from the previous 7.1 percent outlook and versus Q113 levels, likely reflecting normalizing weather comparisons and continued strength in residential new construction.
“We’ve seen sustained and improving rental demand,” said one respondent. “Customers’ credit scores are improving, making it easier to get financing for end-user sales.”
“Customers are starting to report backlogs,” said another. “[There were] lots of winter starts, [we’re] expecting modest overall increases for the year.”
The revised outlook forecasts rental rates to increase 2.8 percent year over year, implying moderate improvement from the current-quarter levels of 1.4-percent growth. In addition, respondents expect fleet spending over the next six months to increase 4.5 percent, slightly lower compared to the 5.3-percent growth forecast in the fourth quarter of 2012.
“We believe that expectations for increased fleet spending continue to be driven by both solid industry fundamentals and aging fleets, while modestly lower expectations reflect larger additions to fleet seen in 2012,” Baird’s Manthey said.
Participants in the Baird/RER survey are senior 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. Fifty-six percent of participants’ rental businesses generate annual revenue of less than $5 million, with 71-percent generating annual revenue of less than $15 million. When combined, participants represent roughly $5 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.
RER has covered the equipment rental industry since 1957, providing its readers with a mix of news, features and product information. For more information, visit www.rermag.com. To let us know about any additional information you would like measured by the Baird/RER survey, post your comments on our Facebook page at www.facebook.com/pages/Rental-Equipment-Register or email RER editor Michael Roth at [email protected] or RER managing editor Brandey Smith at [email protected].
