While results were for the most part flat in the third quarter for United Rentals and the company continues to face three ongoing headwinds in the rental industry – the Canadian economy, upstream oil and gas, and the current fleet balance – CEO Michael Kneeland told an investor conference call this week that the company sees very positive prospects going into the fourth quarter, especially in terms of customer expectations.
“There are some positive indicators,” Kneeland said. “Dodge has reported that new constructions starts are up over 22 percent sequentially in August with the most meaningful gains coming from commercial and public construction. Non-residential starts increased significantly overall 43 percent in August and another 5 percent in September. This is consistent with other U.S. construction data, which show the backlogs for large contractors hit a new high this year. And many of these jobs can take months or years to complete, which gives us added visibility into demand going forward.
“Another key bellwether is our customer survey. Our customers felt good about their business prospects throughout the quarter. In fact, the August survey indicated the strongest optimism of the past nine months. And the September employment report was also encouraging, which show that jobs in the U.S. construction sector increased for the first time in months. While there is some evidence of headwinds such as a modest contraction in the architectural billing index in August, overall the market feels positive to us. So, it's a widely marketplace for us in the U.S. with the strong pipeline of new projects breaking ground. Geographically, we're seeing the most growth on the East and West coasts. On the West Coast, we have four major construction projects that will run through at least mid-year 2017. Another two sites are starting up this quarter. Solar power and automotive, our two key verticals in government spending in California remain robust.
“In the Mid-Atlantic, our business is trending up from the past two quarters with the healthy mix of projects. These include power and pharmaceutical plants, a casino, hospital, airport renovation and retail malls. Further south, a number of tourism projects are driving growth, and automotive plants are underway in South Carolina. The Southeast metro areas overall continue to represent large opportunities for both our gen rent and specialty operations.”
Kneeland said the company’s specialty segment continued its strong performance. “Rental revenue for this segment increased by more than 9 percent in the quarter versus 2015, within that segment revenue from Power & HVAC was up 17 percent and Trench Safety was up over 5 percent,” Kneeland noted. “The largest tailwind behind these two increases was same-store growth. We also had a 5 percent revenue growth in Pump where our strategy of end market diversification is paying off.”
And Kneeland was optimistic that the oil and gas market was showing signs of improvement after its long slump.
“The good news is, we do feel it’s bottomed out,” Kneeland said. “And so, we don’t know, we’re not counting on much of an uptick in upstream right now, but we are positioned in case there is one. I think the surprising element that not everybody on the call may recognize is that refining is still a pretty robust end market for us. We're up almost 10 percent in refining on a year-over-year basis. So, not all oil and gas is a challenge for us, just really the upstream. And we’re encourage by that, and we think this fourth quarter there will be even more activity, a lot of turnaround activity that our customers are speaking of, so we feel pretty good about that sector.”