William Plummer, chief financial officer of United Rentals – the largest rental company in the world – said the company would be willing to spend more than the US$1.2 billion (€1 billion) it is investing this year in its fleet in 2017.
Speaking during the company’s second quarter earnings conference call, Mr Plummer said, “How far up we would go in that total range? Hard to say right here and now - US$1.7 billion (€1.53 billion) is the max that we've ever spent, US$1.6 billion (€1.44 billion) would be a shade under that.
“More realistically, I think we are probably looking something more like what we spent last year, that US$1.5 billion (€1.35 billion) number. Again, that would be dependent on us saying, yes, we've got a rate environment that's okay, and we've got a demand environment that looks like it's going to sustain.”
Supply and demand
CEO Michael Kneeland said that market data suggested the supply of fleet in the US rental industry was still growing faster than demand.
“Much of that imbalance is driven by heavy dirt equipment, which makes up a small percentage of our fleet. But nevertheless, we would obviously like to see the industry return to equilibrium,” he said.
“In our own business, we're being very disciplined with CapEx management.For the first six months of 2016, we invested US$722 million (€650 million) of gross rental CapEx, compared to over US$1 billion (€900 million) in 2015 for the same period.
And Mr Kneeland highlighted United Rentals' strategy of diversifying into specialty rental as another factor in its favour.
“In the second quarter, our rental revenue from specialty segment was up 8.4% in total. Within that, our power and HVAC business was up 15.7%, and our trench business was up 14.9%. The power and trench increases were almost entirely due to same-store growth," he said.
“Another one of our specialty operations, pump solutions, was down 5%, due to the headwinds from upstream oil and gas.
“Excluding that sector, rental revenue from our pump was up 21%, so we're having good success at cross-selling our pump fleet to our current existing customer base, with our general rent customers, and those who use our other specialty services that we offer. In the first six months of 2016, cross-selling revenue from pump increased by almost 14% over the prior-year.”
Mr Kneeland said the company’s customer base was much more diversified than it was ten years ago.
“We have a better balance between construction and industrial business, and a broader vertical strategy that limits our reliance on any one end market,” he said.
Mr Kneeland said market conditions in general were in the company’s favour, and it was working card to capitalise on demand.
“Conditions remain challenging in Canada, but activity is strong in many areas for core US markets.We believe the demand that we're seeing goes beyond seasonality, and it shows that we are still in up cycle, with an added benefit with secular penetration,” he said.
“Regionally, customer activity is robust on both the East and West Coast. The Northeast has a large number of multi-year construction projects underway. Massachusetts is a good example. We're on two casino projects and a railcar facility, and work began in the second quarter and should ramp up in the coming months.
“In our Southeast region, rental revenue was up 12%, led by South Carolina and Florida. These two states had increases of over 20%. On the West Coast, commercial activity is stable to up, in nearly every market. The technology and entertainment sectors are driving the bulk of the commercial activity right now, and infrastructure spending is strong. And nationally, our customer survey show that optimism is still on the rise.”
But industrial production remained lacklustre, according to Mr Kneeland. “Several of our industrial markets have been challenged by weak commodity prices and the impact of a strong US dollar on exports,” he said.
Mr Kneeland also touched on the expansion of United Rentals’ digital customer service platform.
“The launch of a true e-commerce capability will give us more ways to connect with customers and engage in new markets,” he said.
“Our system is the first in North America to fully automate the rental transaction process end to end, and the first to offer online ordering to all commercial renters and consumers.
“We are always looking at ways that walk in our customers' shoes, and while many of our customers want a consultative approach, there are always customers that know exactly what to order, and prefer to operate in a more digital manner, and we are excited to get those customers a more streamlined way to transaction with us.”