Oil Prices Won’t Deter United Rentals Growth, Kneeland Says
Slumping oil prices will not have a dramatic effect on United Rentals, CEO Michael Kneeland told a conference call of investors this week, saying that upstream oil and gas accounts for only about 6 percent of the company’s business. And at the same time, Kneeland noted, lower fuel prices will have other positive effects to mitigate the effects of an oil slowdown.
Nonetheless, Kneeland acknowledged there will be concerns. “We’ve dug deep into this issue and while we haven’t seen any significant attrition to date, we do expect some impact as rig counts come down,” Kneeland said. “But we disagree strongly with the idea that our growth is at risk and I’ll give you five good reasons why we feel this way.”
First, Kneeland said, upstream oil and gas accounts for only 6 percent of United Rentals’ business companywide. “That’s a very modest exposure, given our fleet can be utilized for other types of customers,” he said. “Even in the battlefield states or a state like Texas, we’ve got deep customer relationships outside of oil. Currently more than 80 percent of our rental revenue in Texas comes from infrastructure, manufacturing, transportation, commercial building and a host of other industries.”
Second, the company has strong systems in place for fleet management, including the relocation and repurposing of CapEx through used sales.
“Third, we believe that any drag on demand for upstream oil will be mitigated by the positive effect on other industries,” Kneeland said. “Take chemical manufacturing, one of our key sectors. When oil prices decline, manufacturing costs drop, production is stimulated and consumer purchasing power increases.”
Kneeland added that United’s widespread geography footprint was a factor in its favor as well, giving it a lot of room to deploy assets, with many in the field asking for more assets, giving the company many opportunities to re-deploy fleet. And lastly, the current growth cycle, with “a lot of runway ahead in the industry upcycle, the macro economy is also trending in our favor,” he said.
Kneeland was also bullish on the performance of United Rentals’ specialty rentals sector. “Our full year revenue gain in specialty, which includes the acquisition of National Pump in April, was approximately 83 percent and a gross margin of almost 51 percent,” Kneeland said. “That’s nearly 400 basis points higher than the previous year and our fourth quarter margin for specialty was up nearly 500 basis points.”
Kneeland said “key account revenue” increased 16 percent year over year, with national accounts jumping more than 18 percent.
“For 2015, we’ve earmarked a $170 million or about 30 percent of our [gross] rental capex to meet the increasing demand of our specialty fleet,” he said. “And we plan to open at least 16 new branches, including cold starts for all of our specialty lines, power and HVAC, trench safety, pumps and tools.”
To read United Rentals’ fourth quarter and full year financial results, click on: http://rermag.com/headline-news/united-rentals-posts-big-jumps-fourth-quarter-and-full-year-2014
