A strong operating environment with many infrastructure projects, a healthy oil-and-gas outlook, core business and the continuing growth of the specialty segment all point to a promising 2017, United Rentals CEO Michael Kneeland told a conference call of investors last week.
“The premise of our 2018 guidance is a strong operating environment,” Kneeland said. “There are two questions that cover the basics; first, will our core business and our specialty segment continue to see solid demand in 2018. And second, will this demand be driven by a healthy rental cycle without relying on natural disasters, legislation or other events. In our opinion, the answer to both these questions is yes. Our core general rental business is performing extremely well, commercial construction remains robust and we're seeing continued strength in rig infrastructure which has been a strategic focus of ours for more than a year. In fact, our revenue growth in this vertical has been outpacing market growth.
"Our infrastructure contracts run the gamut from airport renovations in New York and New Jersey to roads and bridges in Texas, and a pipeline work in the central region. States and municipalities are finding the money to make critical infrastructure repairs, and if Washington comes up with funding for public works that money will benefit future years. In other verticals a large number of energy related projects has been at present supplies, it's encouraging to see oil prices stabilize in the 60's and corporate construction is going strong; this includes large corporate campuses and data centers. There is over $4 billion of data center construction scheduled for Virginia D.C. area alone, and tax reform encourage more corporate spending possibly as early as 2019. More immediately, there are signs of that plant turnarounds could ramp up later this year and this should benefit our industrial business.”
Kneeland added that all of United Rentals’ geographic regions performed well in 2017 and have high expectations for 2018.
“Internally, all of our regions submitted market outlooks that are bullish on 2018,” he said. “Perhaps the most important is the customer sentiment is positive and on the rise; almost 66 percent of our customers surveyed in December described their outlook is improving. This was the strongest reading in almost four years and in fact, the quarter as a whole showed sizeable gains in customer confidence, both sequentially and year over year. In Western Canada, which has been an economic outlier our team reports that customer sentiment is positive for the first time in three years."
Once again, Kneeland noted, the company’s specialty segment continues to be the pace-setter.
“Our trench, power and pumps operations gained significant ground in the fourth quarter,” he said. “As reported, segment rental revenue was up almost 39 percent year over year primarily on a same-store basis. The gross rental margin increased 230 basis points to 47.5 percent for the segment. The plan for this year is to open at least 18 specialty branches and continue to grow this very successful arm of our strategy; and this follows the 16 cold starts that we opened last year. So that's a backdrop for 2018, a number of promising dynamics underscored by broad-based demand in a healthy cycle. And this is consistent with virtually every key indicator for our industry.”
Kneeland outlined an optimistic growth plan for 2018.
“Given the level of customer activity we've earmarked up to $1.95 billion of gross rental CapEx this year; and as we consistently demonstrated to our investors we maintain a high standard for the use of capital and we'll be keeping a close eye on market trends. We won't hesitate to adjust our CapEx up or down, if necessary.
“Another tailwind for us in 2018 will be the added capacity we brought on board last year. Our acquisition of NES last April gave us greater density on the East Coast, Gulf and Midwest, and further entrenched our brand as an aerial supplier. With Neff we gained a strategic position in earthmoving with almost a 40 percent increase in dirt equipment. Our general rent segment has been able to sell more effectively the vertical such as infrastructure and disaster recovery with this fleet. And in addition, we expanded our specialty offering with smaller acquisitions focused on power equipment and site services.”
Based in Stamford, Conn., United Rentals is No. 1 on the RER 100.