Oversupply of Fleet Pressuring Rates Despite Solid Activity, Kneeland Says

United Rentals CEO Michael Kneeland told an investor conference call that an oversupply of fleet in the rental industry is pressuring rates and utilization. The oversupply, created in expectation of positive construction growth, is a challenge as is the weakness in upstream oil and gas activity and a weak Canadian economy, he said. He added that these dynamics were not unexpected and that United Rentals is running its business with great cost discipline in the current environment.

“As the numbers show, we stay true to our strategy by taking a balanced approach in a competitive market environment,” Kneeland said. “That’s what our focus is today and that’s what it will continue to be in 2016.”

Kneeland added, however, that while the rental industry grew steadily through 2015, the demand for equipment rental in North America is far from hitting its peak.

“In the third quarter, we once again increased our volume of equipment on rent and while time utilization eased year over year, it was still a healthy 70 percent,” he said. “About half of our regions had year-over-year rental revenue growth in the quarter. Our mid-Atlantic region was particularly strong with double-digit growth. Activities in this region anchored by large manufacturing plans under construction in South Carolina and Tennessee, as well as data center work in solar farms. Industrial activity remains strong with year-over-year growth and an attractive pipeline project. Our utilization in industrial has been in the mid-70s for the past four to five weeks.”

United Rentals’ specialty businesses remained the strongest portion of the company, with its Trench Safety division generating more than 16 percent year-over-year revenue growth and Power & HVAC delivering 20-percent growth.

“These increases were primarily driven by same-store growth, which is another indicator of demand,” he said. The company has opened 15 new specialty branches in trench, power, pump and tools so far in 2015, with three more in construction.

Kneeland said the pump network will pursue a new penetration strategy in 2016. “Many of our pump cold starts in 2016 will be co-located with the existing branches where customer relationships can leverage for cross-selling and if we have good success in developing a customer base for pump and verticals that deal with the exposure of upstream oil and gas,” Kneeland said. “The business is now shifted to less than 50 percent of upstream and is growing in other areas.”

Kneeland added that another positive indicator of demand is the performance of the company’s national accounts which showed a good revenue increase in the third quarter. “And we have had good success in selling to high growth verticals to just chemical processing, power and multi-family residential construction,” he noted. “National and strategic accounts are driving some of this business but these verticals are also benefiting from a broader customer base.”

The United Rentals CEO also said that forecasts indicate multiple years of upcycle still to come. “A number of factors are working in our favor,” Kneeland said. “For example, a fair amount of U.S. construction growth is being driven by large multi-year projects with price tags of $50 million of higher. In the U.S., spending on plant maintenance projects is ticking upwards, which adds to industrial demand and industrial spend in Canada is forecasted to begin a modest but steady recovery starting in 2016.”

Still the company expects to spend less Capex in the first quarter of 2016 than in the first quarter of 2015. “We will be watching demand very closely and we will make sure we continue to meet our customer needs as the year unfolds.”

To read about United Rentals third quarter results, click on: http://rermag.com/headline-news/trench-safety-and-power-hvac-pace-united-rentals-q3