Oil and Gas Markets to Lead in 2014, Q413 Baird/RER Survey Shows

Rental revenue growth slowed to mid-single digits in the fourth quarter of 2013 from exceptionally strong Q313 levels with average rental and utilization rates holding relatively constant, according to the latest 2013 Baird/RER rental equipment survey. Respondents reported an average rental revenue growth of 7 percent year over year from last quarter’s 9.8-percent growth, still higher than Q213’s 5.8-percent growth and Q113’s 6.9-percent rental revenue growth.

Planned spending on new capital equipment increased in the fourth quarter, as did expectations for rental rates. End market commentary is mixed, with the exception of oil and gas markets, which show strength through 2014. Revenue trends were comparatively stronger in the Midwest, West and South, with weaker trends noted in the Northeast and Canada.

“Contractors are starting to see more work to bid on and a larger backlog,” one respondent said. “The economy is getting better and the construction segment continues to add jobs.”

“We have many new projects set to break ground in 2014,” said another. “Same time last year [there were] only two major, but many small to medium projects in play.”

Rental rates increased 2.3 percent year over year, generally in line with rate growth over the past three years, suggesting stability. Regions with the largest year-over-year increase were the South, with 3.0 percent, and the West, with 2.9-percent rental rate growth.

“Interesting, while smaller firms cited significant pricing pressure, particularly from larger firms (we believe equipment pricing plays a role here), overall rate expectations are trending higher with 5.1-percent growth expected in 2014, the highest outlook in our survey’s history (since 2010),” explained Andrew Wittmann, Baird senior analyst.

On average, equipment time utilization rates are moving slightly higher, at 56.5 percent in Q413, with a 62.4-percent utilization rate on big iron access equipment and 64.1 percent on big iron earthmoving equipment. This improvement in utilization is similarly facilitating an uptick in capital forecasts and rental rate expectations.

Sales of used equipment increased 6.8 percent year over year in Q413, also representing a 2.3-percent increase from last quarter’s rate. Respondents continue to cite a preference for rental units versus purchases, prompting higher rental rate forecasts in 2014, should demand come to fruition.

Average fleet size grew 5.1 percent year over year, similar to Q313 growth of 5.5 percent. While about 40 percent of respondents kept their fleet levels relatively flat, about 50 percent reported increasing their fleet size, with only 10 percent indicating a reduction in their fleet.

Similar to recent quarters, survey respondents expect 8-percent revenue growth in 2014. While commentary is generally optimistic, many individual respondents see continued pressure based on local market conditions.

“There is still a degree of overall business ‘hesitancy’ in the response pool, though this trend seems to be moderating,” said Wittmann.

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-three percent of participants’ rental businesses generate annual revenue of less than $5 million, with 71 percent generating annual revenue of less than $15 million. Rental companies generating more than $50 million in annual revenue represent 16 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].