As previously predicted, revenue growth in the second quarter of 2024 slowed a little to 4.6 percent on average compared to the second quarter of 2023, the slowest growth period in the post-pandemic period, according to the quarterly Baird/RER equipment rental industry survey. Twenty-eight percent of respondents said they fell short of internal budgets, with only 1 percent reporting better-than-expected results, and 70 percent reported seeing results in line with expectations. The net negative of 27 percent is the third consecutive quarter below expectations.
Baird’s analysis of the results is that demand continues to moderate and normalize to pre-pandemic growth rates and that respondents’ qualitative commentary skewed cautious with many expecting tougher business conditions on the horizon.
“Construction has slowed and equipment utilization at all rental yards in the area has decreased dramatically,” said one respondent.
“Pipeline and oil field still slow,” said another. “The market [is] dramatically over-fleeted,” said a third. “Less nonresidential construction in the pipeline. Education, health care, institutional looking steady. Office and distribution down significantly.”
“Large projects are still strong, but smaller jobs, including residential, seem to be slowing down,” said another more mixed-view comment. “Seems to be less urgency for equipment from customers, likely due to many of them finally being able to receive the equipment they have purchased for themselves and do not currently need to rent.”
Another, more positive view, said, “Data center projects are driving a large demand for equipment.”
Fleet utilization was 61.6 percent for the month, an improvement compared to the first quarter which posted 57.9 percent, with inclement weather much the reason for lower first quarter utilization. The second through fourth quarters of 2023 were all in the 66 to 68 percent area, as supply of equipment has increased while demand growth is moderating.
The utilization rate for Access Equipment decreased to 63.1 percent from 65.8 percent in the second quarter of 2023. The utilization rate for earthmoving equipment decreased to 62 percent from 64.6 percent in 2Q23.
“For the most part, markets are maintaining stable rate discipline and reasonable utilization levels,” said one comment. “While the current outlook is stable, it feels as if it could quickly shift, so we’re pushing some fleet investments into 2025, opting for lower growth vs. getting caught being too aggressive. Optionality looks attractive right now. We’re comfortable paying down debt, creating additional cash reserves and seeing which way things go.”
“Time utilization has been down on the year 5 to 7 percent while rates have remained consistent,” said another. “Starting to see a little rate pressure as the lower physical utilization has lasted longer than expected.”
“Projects are starting later than expected,” added one.
“Many people out there competing for a smaller piece of pie,” said another. “Eager to see what happens into Q3/Q4.”
Rental rates still up somewhat
Average rental rates are still up year over year, up from +0.6 percent in the last quarter, down from the peak of 5 percent in Q322. The average fleet size (units) increased 6.1 percent year over year in 2024.
New access equipment availability and lead times are showing material improvement, the survey showed. Fifty percent of respondents report that Access Equipment availability is similar to pre-pandemic conditions, while 38 percent report lead times are modestly tighter longer, and only 13 percent report conditions that are still materially longer than before the pandemic.
The 2024 capex expectations of respondents are mixed, the report shows. On a revenue-weighted basis, respondents expect to increase fleet spending by 3 percent year over year. Last quarter respondents expected a 1 percent increase and in December, they expected a 1 percent decline. Higher interest rates continue to impact future capex decisions with some factoring in lower rates later in the year.
“Interest rates have a huge impact on what we are trying to do,” commented one respondent. “Our interest we pay each month has tripled from 2023.”
“Capex only for replacement if needed in 2025,” said another.
Still overall expected revenue growth for 2024 remains solid but moderate. For the third quarter, respondents expect a 5.2 percent revenue increase. For the full year, average rental revenue is expected to rise 5.3 percent.