Steady and solid business
By Lindsey Anderson09 August 2017
Frank Nerenhausen, JLG’s president, shed a positive light on the market when we sat down during The Rental Show recently. The buoyant and personable Nerenhausen says 2017 and the coming years will see positive ticks, where technology, data, standards and political landscapes will boost overall market sentiments – and sales. Here’s what he had to say.
ALH: What are your expectations for ConExpo?
Nerenhausen: I think it will be a good selling show. I think we will see a continuation of the upbeat sentiment that we’re getting from the marketplace. We’re also really excited to show our new technology and new products that we’re going to be releasing.
ALH: Do you see ConExpo as a buying show?
Nerenhausen: Yeah, I do. I’d like every show to be a buying show, but ConExpo in these types of years, typically will be a legitimate buying show. It won’t be just a staged event. Legitimately, we will sell gear. We will sell here [at ARA] today. We see smaller intendent rental companies come here [ARA] and buy things. Certainly ARA is not an NRC event; although they are attending more and more every time I come. But, mostly, it’s the smaller players that will order a truck-full of scissors. They are ordering. I’ve been listening to the deals come down.
ALH: There has been lots of news in the last month – we learned JLG is closing three facilities and sales were down in the first quarter compared to 2016. But, you’re talking positively about the market, so do you see this as an up cycle?
Nerenhausen: We have to qualify or quantify when we’re talking about scaling back. First off, with telehandlers, we’re the leader in the global marketplace and we are staying committed to telehandlers. What you’re seeing is a difference in two major mature regions.
In Europe, what we have is a very complex lineup of telehandlers – multiple brands, multiple markets – but we don’t have the same type of commanding share there that we have here (in the U.S.) So, as we use our ‘simplify’ strategy, which basically applies an 80/20 rule, this is a deep-dive analysis, I am oversimplifying it. We look at where we are expending a lot of effort for very little return. And if we can’t bring those items to health, then we divest. And on the flipside, where we’re spending little effort and getting a high return, we invest. It’s a very high-level, basic thing.
So when we did our analysis for global markets and our footprint, we looked at Europe and we said there’s way too much complexity for what we’re getting in return. We’re not abandoning the market, we’re scaling down, we’re taking some models out, and by taking that model out, we’re able to consolidate our footprint within the region.
We’re taking down the UK engineering center, but we’re moving that activity to North America. We’ll have less model-mix, but we’re establishing a healthy base in Europe which we can grow from. We’re working with our distribution partners there and getting this all worked out in the interim.
In North America, we did the same process. We made some make-buy decisions in McConnellsburg (Pennsylvania) that allows us to move out some component manufacturing that we had and that opened up enough floor space where we could bring Skytraks into McConnellsburg. So we were able to consolidate footprint while still looking out over the five-year horizon. We have plenty of capacity available to satisfy market requirements and in no way, shape or form are we constraining our ability to grow with the marketspace.
Also in North America what you’ll see is a telehandler model line expand. [JLG introduced new models at ConExpo. This interview was conducted prior to ConExpo.]
ALH: What is selling best for JLG?
Nerenhausen: Honestly, we just had a really good first quarter. It was at our expectations. We saw good growth, especially across North America, across all segments. We’re seeing growth in our aftermarket as we continue to expand service offerings to our customers – and those aren’t completely unrelated. You have to take care of the customer. Our stuff is getting some pretty good accolades. The market’s looking at total cost of ownership; you have to take care of them in-between, good price, good quality and have a disposal plan available. And we are offering that now with our used equipment service that’s growing. Or we can recycle it through other means – recondition or certified.
So, to your question of what’s selling well? It’s all selling really, pretty good right now in North America. Booms are doing well in Europe. Scissors are doing great in Asia. Booms are growing – we’re ramping up a little bit more than we anticipated in China. On both scissors and booms. That market is growing nicely. Overall, it’s a good market. We’re not at peak, but it’s a good, solid market with a positive sentiment for the future. And that’s a nice place to be.
ALH: Do you see the rental market for the next 12-18 months staying where it is? Single digit growth?
Nerenhausen: I stay within the same guidelines that our customers are saying. They are seeing good growth for the next two to three years. Is that single digit? Probably. But, slow, steady growth – I’ll take that every time to some sort of logarithmic whipsaw approach where you have one year of fun and then it crashes. This slow growth is good for the entire industry. Inventory levels are more in balance now. We don’t have that issue to deal with. It creates a good, healthy business environment for the next two to three years.
ALH: Have you heard any murmurings about the oil and gas fields?
Nerenhausen: There’s some life moving back into O&G. Rig counts have increased. Our investor relations team tracks the rig counts from Baker Hughes. They are published every week. They are up 50 percent year-over-year as of February. This is from a low base, but that’s the right direction. It’s been consistent over the last couple of months. It has been a nice steady increase in the rig count.
ALH: So we are seeing good ticks going on.
Nerenhausen: Good ticks across most of the macros. Whether it’s ABI or IHS data. It is all positive. Housing is moving in the direction. It’s all good.
ALH: What is the pulse for European sales in general?
Nerenhausen: European sales are good. They are on track. There’s not huge growth year-over-year; I think we gauged it at being flattish and it’s coming in that way, and that isn’t bad. Europe is coming off a pretty low trough as well as we are. It’s right in that flat range.
U.S. is coming in right as expected. Our first quarter we were down 7.7 percent year-over-year, but our margin was up 19 percent. What really happened there was a couple things: we sold more machines in North America than in Europe. Europe has a good backlog; it’s a timing issue on the shipments to Europe. So, we had a regional mix improvement but then we had more booms in there.
Booms are more profitable than telehandlers. So, we had that and some cost control and things like that over the top gave us a nice margin boost for the quarter. So, seven to eight percent is our guidance for het year. We came in between seven and eight. I can’t give new guidance at this point but I would say that from the point we set that guidance to now, the core sentiment of the market has improved. That gives me a positive outlook that at least our current guidance is sound.
ALH: Did Brexit affect business at all?
Nerenhausen: In the early stages, everyone froze a little and panicked, but then it became pretty much business as usual. The Pound moved. We have a little different situation; we don’t buy as much from the U.K. as we sell in there so we don’t have the natural hedge that we do against the Euro, but all in all, it’s business as usual. The UK is coming down a little, we predicted that. It’s been riding pretty high for a couple years, so it is eking down just a hair. But it’s nothing noticeable out of Brexit.
ALH: How will our new President affect business? Will infrastructure pump up because of his plans?
Nerenhausen: We haven’t banked any guidance into our outlook based on a presumed increase from the Administration in infrastructure. We’re basically looking at the data that we have, but we are hopeful that the Administration will do these things and be very supportive for infrastructure. That will help all of us. But that’s not baked-in to our current outlook. From that standpoint, I hope they do a wonderful job and are very successful. From a business perspective, [President Trump] is saying some of the right things and if he pulls through with most of it, I think it will be very beneficial and support that two- to three-year positive outlook that most of us and our customers are talking about.
ALH: We have very big ANSI Standards changes about to come up. Talk to me about changes from JLG in regard to these Standards.
Nerenhausen: We have dual capacity on a number of our booms already. A lot of it is physics. You put more in it, you don’t range out as far. I think what it will largely do is create more of a global-like safety standard. You’ll start to see load sensing systems on everything. Other safety aspects were already taken care of – now that we’ve gone standard with our SkyGuard, we have that piece covered. A lot of the things are positive form a safety standpoint. We’re still fleshing out the costs of these things. Moving to all-solid or foam tires is probably one that will be the hardest to digest. We are ready for it when it comes and in some cases, it’s already standard on our machines.
ALH: Any trends we should be aware? Anything in technology?
Nerenhausen: There are a couple things that sell our machines. They have to be safe. They have to be productive and there’s a little smidge creeping in – environmental awareness and sustainability associated with hybridization. Trends and technology are going to end up supporting those elements. Our customers need to make money with our machines. That means they need to be safe, they need to be rentable at all times. How do we support the customer with parts and service throughout the equipment’s lifecycle? I think we’re going to see more connected machines: mega data, big data coming through these machines through telemetrics. And how we use that data and turn it into information to support the uptime of those machines is going to be the biggest, biggest trend. There is going to be a lot of data. It will have to be turned into information. We’ll be having some launches around that within the next four to six months.