In preparation for January RER, we interviewed dozens of equipment rental people about their outlook for the New Year. We’ll present a number of the interviews in RER Reports. Here Joel Theros of Theros Equipment talks about his customers’ optimism, rental rates, expansion plans and how partisan politics causes psychosis.
RER: How has 2013 turned out for you business-wise?
Theros: Revenue overall for the year is up about 8 percent over 2012, which is good. Revenue for the later months in 2013 is up 15 percent or more over 2012 though. We project to finish 8 percent or more above last year.
What areas have been strongest for you in the past year?
Revenue has been strongest in non-residential and residential construction, as well as solid performance with large construction companies. This is very similar to the pattern we saw in 2012, and we expect it to continue in the Washington D.C. metro area for 2014.
Do you expect to target a different customer base in 2014 than in the past, or emphasize a different segment than in the past?
We expect to continue to establish ourselves as a local option to our traditional type of customer — small local contractors in both non-residential commercial and residential construction, maintenance and service. Those companies are here year over year and cycle through cycle. We are not as interested in going head-to-head with big national rental companies and basing our inventory and company structure on serving big national account customers. As a local rental supply company, we want to be strong with locally-based customers. Our locations are well-suited for that, and a large component of our business model is walk-in traffic from these customers because of our proximity to their business and their jobs.
What kind of results do you expect for 2014 based on what you know or sense at this point?
Barring some Congress-induced economic calamity and/or budget-crisis, we see continued growth at a similar rate (8 percent or more) in 2014. We have managed to keep our overhead model efficient however in the event of weaker-than-expected growth. We purchased a lot of equipment at the end of 2013 to avoid Tier-4 engines, price increases, and potential service issues related to Tier-4, so we are optimistic that the customers will need it and the jobsites will be there in non-residential commercial construction, as well as in residential construction in the Washington D.C. metro area that we serve.
How are your customers looking at the year ahead?
Most of our customers are just as optimistic as we are, and already have a back-log of work booked into the early months of 2014. Only a few aren't as optimistic at this point, and that list seems to shrink with each month.
What kinds of changes did you make to your business in 2013 and what kinds of changes do you plan for 2014?
We did not experience any significant changes in 2013 purposely. We have utilized this more disciplined business environment to do just that— stay disciplined to our core businesses, and building our inventories and procedures around them. Our centralized dispatch for equipment deliveries and field-maintenance for all of our locations has been key to finding these efficiencies. We get the fleet where it needs to go regardless of its current location, and we keep it running out in the field with centralized management of our field mechanics over all of our locations. No major risk-taking or movements out of character happened in 2013. We just continue to refine and make more efficient that which got us here.
Are you planning any kind of expansion or growth in 2014?
We are looking for expansion opportunities in 2014. While we have grown by fleet acquisition and improved rental rates for the last three years, we would like to increase our local presence in the area that we currently serve with smaller branches that cater to walk-in traffic and/or the potential acquisition of another rental business.
A few years back during the recession most rental companies reduced their fleet size, and reduced personnel. Have you in the past year grown your fleet or added back personnel and do you expect to do so in 2014?
We never really decreased our fleet size any more than the normal shedding of old assets during the recession. We painted some equipment and did some overhaul of some older fleet that still had life in it, and purchased only that which needed to be replaced. We took advantage of some good opportunities when we saw other rental companies shedding fleet that was still in good condition, and were able to buy some great fleet for reduced prices. Over the last two years however, we have invested heavily in new fleet to meet growth opportunities while maintaining our existing fleet. We expect to continue purchasing new fleet in 2014 to meet growth opportunities.
What issues most concern you going into the next year, either rental industry issues or wider issues in the world related to the economy, infrastructure or politics?
Congress and its inability to get around polarizing partisan politics is a huge problem as we all know. It creates a psychosis that hampers growth in the marketplace. Healthcare and its cost have been and will continue to be an issue at the forefront of the hiring and decision-making process. Within the industry, Tier 4 engines are a big concern in all of our equipment and trucks as we buy new fleet. Whose version of Tier 4 compliance will work best? We will have to buy it and go through the process to find out, and that's disconcerting as customers will probably not be very patient with regeneration cycles, urea, or service points related to Tier 4 during a rental.
Anything you’d like to add?
Hopefully some of the aerial-only and 50-percent aerial / 50-percent excavation chain rental companies will get their rates up this year with increased equipment and operating costs. The mathematics of some their daily renting decisions around rental-rates are difficult to understand. There seems to be enough rental business out there to support a large number of competitors, but there seems to be a lack of communication between the executive offices and the sales personnel about how much better the rates can be. Attrition hasn't solved this problem as quickly as I thought it would to this point.
To read more about Joel Theros and Theros Equipment, go to: http://rermag.com/features/rentals-blood.
