Revenue Rises 6.8 Percent in First Quarter: Baird/RER Equipment Rental Survey Respondents

In the first quarter of 2024, revenue among respondents to the quarterly Baird/RER equipment rental survey increased 6.8 percent compared to the first quarter of 2023. Twenty-one percent of respondents reported that first quarter results missed internal budgets. Nine percent reported better-than-expected results and 69 percent saw results in line with expectations. Baird’s interpretation is that demand is gradually moderating and normalizing to pre-pandemic growth rates; respondents’ qualitative commentary is mixed with many expecting tougher business conditions into 2024.

Average fleet utilization was 57.9 percent, compared to 65.6 percent in the first quarter of 2023 and 62 percent in the fourth quarter of 2023. The utilization rate for Access Equipment dropped 500 basis points year over year. Utilization for earthmoving equipment decreased to 60.2 percent compared to 65.5 percent in the first quarter of 2023.

          “We are experiencing a seasonal effect in our markets that was not present in 2021-23,” said one respondent. “During these years, we were able to maintain high utilization, however this has returned to pre-pandemic utilization trends.”

“Contractors [are] waiting for jobs to come out, some are very late starting,” said another.

Another equated softness to the weather, with contractors saying they have plenty of work on the books.

Another comment was growing concerns that their market area has become “oversaturated with competition,” which is hindering growth prospects.

Average rental rates were up 0.6 percent year over year, down from a 1.6-percent increase last quarter and a peak of 4.8 percent in 3Q22. Respondents are expecting modest rate growth to continue for the full year.

Average fleet size (number of units) increased 3.6 percent year over year in 1Q24. The fleet growth slowdown experienced in 2022 was a function of supply chains impacting OEM deliveries (particularly for smaller buyers.) However, improved supply chains resulted in higher shipments in prior quarters, but fleet growth slowed again in 1Q24 as capex is moderating. And equipment pricing is cooling as equipment availability has improved and price/cost has regained equilibrium.

Supply of equipment continues to increase

Meanwhile, the supply of equipment to the market continued to increase even as growth peaked, which impacts utilization and rental rates as well as future capex expectations.

New access equipment availability and lead times are showing material improvement. Fifty percent of respondents report Access Equipment availability has gotten better over the past three months with only 13 percent reporting availability has gotten worse (up slightly sequentially). New earthmoving equipment availability and lead times is much better as well. OEMS will be increasing shipments into 2024 given existing backlogs, although as lead times fully normalize and capex intentions moderate, pressure on orders and backlogs should continue.

Respondents’ 2024 capex expectations are muted. On a revenue-weighted basis, respondents expect to increase fleet spending by 1 percent, slightly down year over year on an equal-weighted basis.

Last quarter respondents expected a 1-percent decline in fleet spending. Higher interest rates continue to impact future capex decision with some factoring in lower rates later in the year.

For the second quarter, respondents expect a 5.1-percent revenue increase, a slight deceleration compared to the first quarter. For the full year, average rental revenue is expected to rise 6.7 percent in 2024, which is similar to revenue in the first quarter, which was 6.8 percent and modestly above the 2Q24 forecast (+5.1 percent).