Rental Demand Stable, Revenue Up 5.7 Percent YOY in Q3, Baird/RER Survey Shows

Rental equipment demand held stable in the third quarter with modest gradual improvement, according to a survey conducted by Robert W. Baird Associates in partnership with Rental Equipment Register (RER). While rental rates continued to face pressure, and continued weakness was evident in oil-and-gas regions, respondents to the survey cited generally healthy residential and non-residential construction trends, stable top-line growth and a cautiously optimistic growth outlook, albeit below last quarter’s outlook.

Average rental revenue grew 5.7 percent year over year, according to respondents, compared to 5.4 percent year-over-year growth in the second quarter. Rental rates increased 0.4 percent, marking the sixth consecutive quarter where rates ranged between -1 percent and +1 percent. The price competition appeared to be greatest at larger firms.

The average fleet size/units on rent grew 2.9 percent year over year in the third quarter, lagging revenue growth. Slower fleet growth is currently viewed as positive for the industry in helping to ease excess capacity and aid rental rates.

Respondents forecast rental revenue over the next 12 months at 3.5 percent, compared to last quarter’s forecast of 6.2 percent. Respondents expect a 1.4 percent increase in fleet purchases during the next 12 months, a sharp drop from the +6.3 percent forecast last quarter. Investment expectations had been steadily moving higher the prior three quarters. Both big iron and small iron spending expected to grow in low-single digits. This metric, however, has been volatile throughout the history of the survey.

Government regulations and uncertainty, including the election, demand weakness and rental rate pressures continue to top the list of respondents’ fears.

The utilization rate for access equipment increased to 69.2 percent from 61.4 percent last quarter and 60.8 percent in the third quarter of 2015, while the utilization rate for earthmoving equipment held steady sequentially at 60.5 percent but declined from the 65.4 percent rate in the third quarter of 2015. The utilization rate for small iron decreased to 36.8 percent compared to 42.2 percent during the second quarter, but increasing from 33.8 in the third quarter of 2015.

Equipment sales by units hiked 4.1 percent year over year in the third quarter, while growth in the cost of new units increased 2.6 percent, slightly below last quarter 3-percent gain. Recent history suggests that the cost of new units is holding relatively stable.

Revenue growth was strongest in the West, Midwest and Northeast, and weakest in Canada. Conversely rental rates were most pressured in the West and South. Utilization rates were highest in Canada, lowest in the North East and South. Growth outlooks are also high in the Midwest and West, weaker in Canada and the South.