Third Quarter Shows Strengthening Rental Revenue Growth, Baird/RER Survey Shows

After several quarters of moderate rental revenue growth, revenue grew nearly 10 percent in the third quarter of 2013, according to the latest 2013 Baird/RER rental equipment survey. Respondents reported an average rental revenue growth of 9.8 percent year over year, an increase from last quarter’s 5.8-percent growth and 6.9 percent in the first quarter of 2013.

Activity appears to have picked up, particularly in Canada, and the West and Northeast regions of the United States, following poor spring weather, which delayed the start of the construction season. The strongest end markets in the quarter were residential (single-family and multi-family), some commercial, infrastructure and energy/utility. The weakest markets were public and mining.

“Volume is starting to slowly increase; summer weather was very nice this year,” a survey respondent said.

Rental rates increased 3.7 percent year over year, an improvement from 2.2 percent last quarter and toward the high end of growth over the past three years (Q411, +3.8 percent). Regions with the largest year-over-year increase were the South with 6.4-percent rental rate growth and the West with 5.6-percent growth. Respondents expect a 2.6-percent rate increase in total for the second half of 2013, implying moderation in Q413.

“[There is an] uptrend in small contractor and homeowner rentals, rental rates are coming back up also,” a respondent said. “Rates are improving significantly, but there are competitors that consistently keep rates low,” said another. “Machine prices are going up, rental rates are not yet reflecting that,” added another respondent. 

On average, equipment time utilization held relatively flat sequentially at 54.7 percent. Big Iron Access equipment utilization was 66.2 percent, while Big Iron Earthmoving utilization was slightly lower at 59.1 percent in the third quarter.

“Our orders are increasing, leading us to have a more bullish outlook on the current rental market,” one survey respondent said.

“Business is increasing every month, however the end of the year could slow, which is normal,” said another.

Sales of used equipment increased 2.3 percent year over year, a decline from prior highs of 5.9-percent growth in Q212 and 8.8-percent growth in Q113. Respondents cited a preference for rental units versus purchases, given a still somewhat tenuous demand outlook.

“We see an increase in rentals for highway and multifamily housing,” relayed a survey respondent. “Buying is slowly growing but customers are still timid about buying due to an uncertain outlook.”

Average fleet size grew 5.5 percent year over year, with growth increasing significantly from the Q213 increase of 2.3 percent. While more than 50 percent of respondents kept the number of units relatively flat, about 25 percent of respondents increased units 6 to 25 percent, and about 5 percent experienced more than a 35 percent increase in fleet growth.

“We see a broad spectrum of rentals for all trades; a great rental products mix — not just lifts or excavators are busy,” one respondent said. “We have increased our rental fleet mid-year to meet the demand.” 

“With Tier 4 around the corner, people are trying to get ahead of the large price increase,” said another.

Respondents now expect about 8-percent revenue growth in the second half of 2013, down somewhat from the third quarter growth of 9.8 percent, but stronger than first-half 2013 growth of 6 percent. Outlooks vary considerably depending on end market and geographic exposure, with the West and Canada being the strongest.

“[There is] very nice, improved construction and repair demand — repair is where our small independent rental company does best,” a survey respondent said. “Housing builds are up, which is a good leading indicator; small and mid-sized contractors are increasing their activity as work picks up,” another noted.

Participants in the Baird/RER survey are senior executives at rental equipment companies 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-one percent of participants’ rental businesses generate annual revenue of less than $5 million, with 72 percent generating annual revenue of less than $15 million. Rental companies generating more than $50 million in annual revenue represent 13 percent of the respondents.

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].