United Rentals’ Flannery Expects Continuing Growth Trends, Strong Capex in 2024
While the economic consensus is for a softer first half of 2024, United Rentals, while acknowledging certain trends, shows no signs of slowing down. For the full year 2023, rental Capex of $3.5 billion was in line with the company’s guidance. And as the company pronounced its supply chain to be “largely recovered,” it now expects a quarterly cadence of its Capex spend to be more closely matched to historic patterns, CEO Matthew Flannery told a conference call of investors last week. United Rentals’ gross Capex guidance for 2024 is $3.4 to $3.7 billion, with net Capex of $1.9 billion to $2.2 billion, reflecting continued optimism.
“We continue to see broad-based demand across geographies, verticals and customer segments,” Flannery said. “Industrial end markets saw healthy growth, led by industrial manufacturing and power. Within our construction markets, both infrastructure and non-res continued to show solid growth year over year, as our customers kicked off new projects across a diverse range of markets and these include battery plants, semiconductor-related jobs, power, infrastructure, as well as data centers.
“Geographically, we continue to see strength across the business and specialty specifically delivered on another strong quarter, with rental revenue up 15 percent year over year, reflecting double-digit growth across all businesses. Furthermore, we opened 10 cold starts during the quarter, resulting in 49 for the full year.”
Flannery said the company will continue to invest in expansion in 2024, planning an additional 50 cold starts and being open to potential acquisitions. “We’re open for business,” Flannery said in regard to potential acquisitions. “Obviously, we have a high bar, as always, but the pipeline remains robust. We’re always looking at assets that we could be a better owner of, and specifically any new products that we can add to the system for our customers."
Optimistic about rental rates
Flannery expressed optimism about the rental industry when it comes to rental rates, which often face pressure when business conditions soften. “We think there will be a positive rate environment,” he said. “We think the industry is showing good discipline. There’s still demand in the markets that we serve.”
Flannery added that pricing discipline has been a necessity because of rising equipment prices, but he added that the industry is more mature now with more information. “I would assume if we see the rising [equipment] prices, I can’t even imagine how anyone would consider that going negative on pricing would even be a reasonable thesis or financially feasible.”
In addition to investing in cold starts, acquisitions and products, the company talked about investments in technology. Chief financial officer and executive vice president William Ted Grace said the company will continue to invest in technology, telematics and “different aspects of performance optimization. Those are areas where we continue to be very focused. And in the current environment, which is this modestly slower environment, we don’t want to forego those investments that have very strong ROIs. So we’re going to continue investing in the business because we feel really good about our outlook.”
Flannery like others in the rental industry, believes the industry is still on a positive demand footing, albeit at a slightly softer pace, with the expectations that potential lowering of interest rates later in the year will spur faster growth. “The majority of our customers surveyed in our customer confidence index continue to feel positive,” Flannery said. “So I don’t want to paint a picture that there’s negative growth or that we have problems in the local market. It’s just not what it’s been for the last couple of years, and we do think it will ramp back up once the Fed takes their actions.”
Flannery said large projects continue to be strong, with many projects ongoing right now. “Some of the largest projects we’ve ever been on,” he said. “We have gear on them today and did in the back half of 2023. This is a multi-year tailwind. We’re not seeing any cancellations at all in the major projects.”
Grace added that there are a number of verticals with growth opportunities. “Manufacturing is at the top of the list,” he said. “Power is very strong. And then you look at elements of infrastructure, which may or may not be ‘mega projects.’ If you think about health care, you think about education, these are all areas where we’ve seen good momentum in 2023, and the indications are from our field team and customers that they will sustain themselves into 2024. Maybe some of those are mega projects, others maybe don’t qualify as this term, but they’re still important verticals where we’ve got very strong strategies that benefit us.”