Rental Revenue Growth Moderates in 3Q12, Baird/RER Survey Shows

Baird, in partnership with RER, this week published the results of its third-quarter 2012 rental equipment industry survey, which showed positive, yet more moderate rental revenue growth of 9.1 percent year over year, compared with 10.4 percent growth in the second quarter of 2012. The initial outlook for 2013 reflects expectations for continued growth, with pricing also expected to remain positive.

“Housing is slowly coming back, large construction is booming with jobs requiring a lot of big iron,” one respondent noted. “Activity is still ‘big job’ driven, with growth focused on larger customers and industrial projects,” said another. “We've seen a general increase in quoting/award activity, which appears somewhat in line with gradual improvement of the economy.”

Rental rates in the third quarter increased by 3.2 percent year over year, compared to a 1.5 percent year-over-year increase in the second quarter. Strong underlying demand and higher equipment costs continue to push rental rates higher, though competition from the large nationals appears to remain elevated, the Baird/RER survey reports.

Respondents’ comments on rental rates in the most recent survey range from one end of the spectrum to the other. “We are experiencing strong demand in all categories of equipment, and rates are improving,” one person said. “Rental rates are increasing due to additional capital and maintenance costs,” said another.

In contrast, another survey respondent noted, “Infrastructure projects are being released for bid, but bid prices are very competitive, which forces rental companies to reduce their rates.” Said another, “Rates are not increasing in proportion to acquisition costs.”

On average, time utilization improved to 60 percent in the third quarter, an improvement from the prior quarter, which reported time utilization of 58.6 percent. Continued improvement in utilization rates appears to reflect solid underlying demand.

“We are seeing a very active market, and utilization is extremely high,” one respondent noted. “Dealer inventories are high, creating rate pressure as competitors try to get utilization and cash flow — particularly on big iron,” said another.

Used equipment sales rose slightly in third quarter, gaining 4.6 percent over the same period last year. “We are seeing rental growth, healthy used equipment sales and flat new equipment sales,” a survey respondent said.

In the third quarter, respondents reported that the number of units in their fleet increased by 5.3 percent year over year, moderating from a gain of 6.8 percent year over year in the second quarter of 2012.

Of note was the continued pressure on the average cost of new units, which increased 4.8 percent from the same period last year.

Respondents expect fleet spending over the next six months to be 5.1 percent, moderately below the 6.2-percent growth forecast last quarter.

The initial outlook for 2012 forecasts rental rates to increase 3.4 percent year over year, implying relatively consistent year over year growth from current-quarter levels of 3.6 percent growth, the Baird/RER survey reported.

“The initial outlook for 2013 is quite positive among survey participants,” said David Manthey, chartered financial analyst, Robert W. Baird & Co. “Expectations are for rental revenues to increase 8.5 percent over 2012, with fleet investment and rental rate increases continuing.”

“We think that the elections may impact the industry in the first quarter, but either way we expect to see it grow steadily. We predict positive outcomes on rents, sales, etc., next year,” one respondent said. “The market is unclear,” noted another. “There has been some increase in second- and third-quarter of 2012, but it is unclear what next year will bring.”

Participants in the Baird/RER survey are senior executives or senior managers at regional divisions of rental equipment businesses in all regions of the United States, parts of Canada and some international markets, representing nearly $13 billion in annual revenue.

Robert W. Baird & Co. is an employee-owned, international wealth management, capital markets, private equity and asset management firm with offices in the United States, Europe and Asia. For more information, visit Baird’s website at rwbaird.com.

RER has covered the equipment rental industry since 1957, providing its readers with a mix of news, features and product information. For more information, visit www.rermag.com. To let us know about any additional information you would like measured by the Baird/RER survey, post your comments on our Facebook page at www.facebook.com/pages/Rental-Equipment-Register or email RER editor Michael Roth at [email protected] or RER managing editor Brandey Smith at [email protected].