Balancing act: Lois Boyd, president of Hertz Equipment Rental Co (HERC), talks to IRN.

Lois Boyd, president of Hertz Equipment Rental Co (HERC), tells IRN about juggling priorities at a business that is growing fast in North America and facing enormous opportunities in markets like China and the Middle East.

Lois Boyd had little control over when she was appointed president of Hertz Equipment Rental Co (HERC) in April 2011, but it has proven to be good timing, with her tenure coinciding with the US rental recovery and the return to growth of the HERC business itself.

She was probably due a break, since her previous task at Hertz had been to take Advantage Rent A Car – acquired by Hertz out of bancruptcy in 2009 – back into profitability, something that she achieved before the switch to HERC.

Since then her leadership at the rental business has been a story of capitalising on the North America upturn – HERC’s revenues grew by 12% in 2011, 15% in 2012 and 14% in the first nine months of last year – and increased engagement in international markets.

Ms Boyd, speaking to IRN by telephone from the US, says the much talked about increase in rental penetration in the US has helped propel the North America growth, with some contractors now favouring rental over ownership; “It appears that it will continue to trend that way – a lot of people got stung when the downturn came.”

At the same time as that ‘secular shift’, other markets have opened up; “There is an ongoing upturn in oil and gas production in North America. So that has continued to absorb more equipment.”

While Ms Boyd remains cautious about the US economy – describing it as “solid, but not robust” – it is HERC’s North American business that has been driving the improved results, which is not surprising given that it still represents more than 90% of the company’s annual US$1.4 billion revenues.

With the growth have come significant changes in the way HERC operates in North America, with traditional construction markets now representing 35% of revenues, down from 50% at the peak of the market in 2006 when HERC’s revenues were nearer $1.7 billion.

Filling the gap has been the ‘industrial’ sector, which now accounts for 25% of the total, up from 15% in 2006. “Construction business has been HERC’s claim to fame, but it’s very cyclical”, says Ms Boyd, “We need diversification and stability in the business, and we need to be the right size to take construction business when it comes back. Industrial sectors are more stable – they are always doing plant turnarounds and shutdowns [for maintenance].”

This has meant that HERC has had to restructure its depot footprint, migrating to new areas where its customers are, whether through acquisitions or greenfield openings.

Hand-in-hand with this diversification has been a new hub and spoke strategy, with plans to develop around 20 to 25 major hubs, centralising fleet servicing and repair activities.

“We expect to have eight to 10 superhubs by the end of 2014”, she tells IRN, “We have started the process on the East Coast and some in the West.” Hubs have been created in New York/New Jersey, Toronto, Atlanta and also Houston, while there are others in the San Francisco Bay Area as well as Puget Sound, the region in the North West that takes in Seattle. There is also one in the Oil Sands area of Canada.

This process will not see a reduction in the number of overall sites, rather “more spokes, more smaller stores.” Acquisitions play a part in this geographical shift, with Ms Boyd citing the example of a 2011 acquisition in North Dakota (WGI Rentals), which has become a mini-hub, with two ‘spoke’ depots added.

Also filling the gap left by the construction downturn has been niche or specialty rentals, including pumps, power and entertainment/film rentals, the latter boosted by the 2012 acquisition of Cinelease. This kind of equipment now represents around 15% of the fleet, double what it was in 2006, and is presenting further growth opportunities.

“Cinelease is expanding throughout North America, into New York, Miami etc.”, she says, “There is state funding for the entertainment sector…We’re expanding that and will continue to expand off the North American continent.” For example, Cinelease has recently been working on a project in Iceland.

The model for these specialty businesses, which further diversify the business, is to “take a capable acquisition and grow it naturally”, she says, “They balance us and we will continue to invest in them.”

Another example is DW Pumps, bought in 2011, which has helped give HERC national coverage in pumps. “We will look and see if it makes sense to put it into other markets”, says Ms Boyd.

The North American fleet has changed along with the customer base, and HERC continues to investigate new products, such as portable accommodation, a market dominated by companies like Williams Scotsman, Mobile Mini and Modspace.

“The bungalows seem to be working pretty well in Europe so we will do a test in a small way in North America”, she says, “We are also looking at partnering; sharing deals with new partners.” These trials are being conducted in Central US.

As an aside, it is notable that aerial platforms continue to occupy an important place in the fleet – aerials have increased as a proportion of the fleet from 22% in 2006 to 24% in 2012. This reflects the ubiquity of scissors and booms in the expanding industrial sector as well as in niche markets like entertainment and film rentals. That contrasts markedly with the fall in the size of the earthmoving fleet, down from 30% of the total in 2006 to 22% now, reflecting the reduced exposure to pure construction.

International strategy

Given the size of the company and its parent, there are some who wonder why it has been relatively modest in its international expansion. These businesses still represent only 10% of total revenues, and are dominated by the well-established operations in France and Spain.

Ms Boyd acknowledges that a lot of focus in the past few years has been on exploiting the North American upturn; “I would like it [the international operations] to be a larger percentage of a larger whole, but after the downturn we have invested a lot in North America, which started to come back sooner and had less risks – we are cognisant of our shareholders and the need to make smart investments. So that’s why there was more going on there.”

Despite this domestic focus, HERC has continued to invest in its Chinese operation – where it currently has around five locations – as well as Saudi Arabia, with local partner Dayim Holdings, where it recently opened a second location.

However, it is Europe where the main international business is, and where HERC has been weathering a long downturn, which has led the company to scale back its Spanish operation and focus on power rentals. In France it operates a more conventional general rentals operation with more than 60 locations.

Ms Boyd says the European operation “is coming out of a downturn. We have stabilised that business and projects are in play to optimise the business. We’re trying to expand the specialty businesses, such as power generation, and will continue to grow those. We’ve added bungalows [portable accommodation].” HERC recently established its fifth Energy Services power rental operation in the country, located in Bordeaux.

She says she is proud of the European team , which is led by Jay Early, HERC’s vice president for the international businesses; “They have been making great progress and have levels of KPI [Key performance Indicators] that they thought they could never do, in some of the measures.

“There’s a positive explosion of energy going on in Europe. Once we get our business to the level we set in the plan, which I think is coming soon, we’ll look at other opportunities…I think you’ll be reading news from us, maybe even during next year [2014] and 2015, on things that are going on in Europe.”

Of course, for HERC, the choice in entering international markets is whether to do it itself – corporately – or through a franchise partner, in some cases existing car franchise holders. So, for example, new HERC operations in Mongolia and Chile – both areas with expanding mining and natural resource sectors – are being undertaken through franchises. Franchises, of course, make it possible to enter a market without the capital investment required of a corporate initiative.

Wouldn’t Australia be a natural candidate? “Australia is very saturated”, she explains, “We did look but the EBITDA multiples they wanted [for acquisitions] were pretty high, so that didn’t make financial sense. We looked at greenfield as well, but the timing isn’t right, as it’s into a bit of a downturn.” She says HERC is still having a dialogue with Hertz’s Australian car rental franchise partner.

India and South Africa remain on HERC’s ‘potential’ list, but China and Saudi Arabia are the two markets where it has decided to go on its own. “We see that the China market will be expanding on an ongoing basis…we are watching China carefully, and we’re looking at multiple growth strategies. We are doing a lot to diversify the customer base there.”

With international revenues still representing only 10% of revenues, IRN asks if a target of 25% within five years would be realistic. “We want [international] to be more”, says Ms Boyd in response, “Franchises don’t really roll up to us, that kind of figure [the 25%] would take a lot of corporate activity. We will do some, but not a ton.”

Of course, the perennial question for any HERC president is whether Hertz Corp is committed to owning it, with the most recent speculation about a HERC sell-off sparked in late December by a Financial Times story. Ms Boyd, speaking before the latest bout of speculation, opts not to add to the “constant chatter”.

She prefers to highlight her pleasure at being in charge at HERC, at visiting the individual depots – 180 of the 350 locations seen so far - and in being involved with an engineering and equipment business, having spent thirty years with vehicle component suppliers Vickers and Tenneco before joining Hertz in 2007.

“It’s like full circle for me. I’ve always been in the trenches, since I was a kid”, she says, “It’s good to be back in the trenches.”