The new RER 100, announced this week, reached close to $22 billion, coming in at an all-time high of $21.917 billion in rental volume for the 100 companies on the chart. The chart total was a 13.6-percent increase compared to last year’s chart total of $19,299.4 million in rental volume.
Topped once again by United Rentals with $5.715 billion, and followed by Sunbelt Rentals, Herc Rentals, Home Depot Rntals, Maxim Crane Works, BrandSafay, Ahern Rentals, BlueLine Rental, Sunstate Equipment Co., and H&E Equipment Services, the top 10 of the 100 totaled $15,574.5 million, compared to $13,291.1 million, a 17.2-percent year-over-year increase.
While not every rental company had a record year or a double digit or even a single digit increase, enough of them did. There was upward momentum in residential, non-residential, commercial, industrial and -- to the relief of many -- the oil-and-gas industry. Most customers of rental companies have plenty of work on the books and many say their primary customers are booked for the whole year.
“The equipment rental industry has a lot to be optimistic about these days,” says Bob Kendall, CEO of Seattle-based Star Rentals (No. 47). “A strong construction market, low inflation, and solid margins and returns. What’s not to like? But the overall industry continues to remain oversupplied. Too many companies with too much equipment chasing the same deals. Yes, we have seen some very modest rental rate improvement over the past couple of years but at the end of the day everyone is paying more for the same equipment than they were a decade ago and renting it for less. If they say otherwise, they are not being truthful.”
“2017 was a record year for our company including gross revenue, profit and EBITDA,” adds Lance Renzulli of High Reach Co., Sanford, Fla. (No. 55) “We are expecting 2018 to be like 2017 and most likely another record year with approximately 5 to 10 percent growth. The majority of our customers interviewed have backlogs well into the year already with a few into 2019. We currently feel very confident in the U.S. economy for 2018 and hopeful it will carry into 2019.”
According to respondents to the recent Baird/RER first quarter survey, rental rates have swung upwards 3.8 percent compared to the first quarter of 2017. However, not many of the RER 100 said the rental rate improvement was that strong in 2017 – going up a couple of percentage points at best. In fact, many say the rate competition is disturbingly familiar and that no matter how much demand improves they are still renting equipment for rates not much different than 10 or more years ago. Many on the RER 100 said that while rental rates improved a little bit, that increase didn’t come close to making up for the increases in the cost of equipment. When it comes to rental rates, a couple of percentage points doesn’t cut it.
There are some headwinds to watch out for. A study released this month by the Associated General Contractors of America shows the cost of goods used in construction increased in April at the fastest year-over-year rate since 2011. The cost of diesel fuel leaped 41.6 percent. A measure of all materials used in construction showed a 6.4-percent increase, but they have only raised prices 4 percent. The result of this means contractors either reduce their profit margins, or, in some cases, back away from projects. Neither result will benefit rental companies. Also, some manufacturers are raising the cost of equipment because of higher materials costs and citing issues with tariffs. Rental companies are waiting a lot longer for deliveries of equipment.
That might have a silver lining. Lack of availability might help prevent rental companies from expanding more than they should and getting over-leveraged. But in this expansion, rental companies are a lot more measured than in the mid-zeroes before that recession hit.
So, challenges aside, for the most part the overview of 2017 was good and the outlook for 2018 very optimistic because customers are so busy. As Kendall says, “What’s not to like?”
To read the full RER 100, check out RER’s latest digital edition: http://viewer.zmags.com/publication/a942842b