Why 4 U.S. rental giants are seeing record-breaking growth

United Rentals, Herc, Sunbelt and H&E are all experiencing unprecedented growth, thanks to favorable market conditions that paint a rosy picture for 2024

Herc Rentals equipment

Major U.S. equipment rental companies have reported record-breaking performance in the last quarter, suggesting a positive outlook for 2024, thanks to factors including increased end-market demand, supply chain improvement, strong nonresidential construction and upcoming mega projects.

The latest forecast from the American Rental Association corroborates theses reports, with construction and industrial equipment (CIE) rental revenues currently expected to total $56 billion this year and $59 billion in 2024.

Here, we look at third-quarter results from four of the biggest U.S. rental chains and what their predictions might mean to the rest of the industry.

United Rentals points to broad-based demand across end-markets

United Rentals posted revenues of $3.7 billion for the third quarter of 2023, a 23% increase on the same period last year.

Meanwhile, rental revenues increased by 18%, up to $3.2 billion, a third-quarter record for the company.

United said the growth was down to the “broad-based strength of demand across the company’s end-markets and the impact of the Ahern Rentals acquisition.”

Its specialty rentals segment saw a 16.1% increase in rental revenue to a third-quarter record of $917 million, while net income was up by 16% to $703 million, another third-quarter record.

Elsewhere, used equipment sales saw the highest growth, with the $366 million representing a 102.2% increase. Adjusted EBITDA increased by 21.6%, up to $1.8 billion.

Matthew Flannery, chief executive ocer of United Rentals, said, “I’m very pleased with our third-quarter results across growth, protability and returns, which were underpinned by broad-based activity. Our ability to provide our customers with a highly differentiated value proposition, led by safety and productivity, is enabling us to outpace the broader industry and create value for our investors.

“Our full-year guidance speaks to the continued strength of our markets. Looking beyond 2023, we believe that our strategy positions us well to support our customers as they execute on the tailwinds we see across infrastructure, industrial manufacturing, and energy and power. Combined, these support our goals for profitable growth, strong cash flow, and attractive returns for our shareholders.”

Herc Rentals reports supply chain improvement

Herc Rentals has reported record total revenues of $908 million for its 2023 third quarter that ended Sept. 30, representing an increase of 18% year-over-year. Equipment rental revenue was $765 million and total revenues were $908 million in the third quarter of 2023, compared to $706 million and $745 million, respectively, for the same period last year.

“Over the course of the quarter, we also successfully rebalanced our fleet after a wave of back-ordered supply was delivered in the first half of the year,” said Larry Silber, president and chief executive officer. “And, with the health of the supply chain improving, we were able to accelerate used-fleet sales after two years to refresh our offering and make way for the new equipment.”

As of Sept. 30, Herc’s total fleet value was approximately worth $6.2 billion at original equipment cost (OEC,) and in the third quarter, the company’s fleet at OEC increased 19% compared to the same period last year. Average fleet age, according to the company, was 45 months, which is down compared to Q2’s age of 49 months.

“Continued investments in our premium fleet offering, strategic acquisitions and advanced technologies, along with robust demand across key end markets and a focus on cost discipline are driving the momentum in our business and will support sustainable, profitable growth over the long term,” added Silber.

Despite the results and returns, Herc has lowered its net rental CapEx guidance by -8.33% to $1.0 to $1.1 billion from its original guidance of $1.0 to $1.2 billion. The decrease is due in large part to the entertainment industry’s shift from studio leasing and renting to direct ownership, said Herc, which supplies lighting and grip equipment rentals through its Cinelease Studio Entertainment business, which it acquired in 2012.

“We will begin exploring strategic alternatives for Cinelease, our studio management and lighting and grip equipment rental business,” said Silber. “This decision was made due to the changing dynamics for lighting and grip rental providers in the film and studio entertainment industry, which has shifted to requiring significant capital investment in studios. For Herc to allocate capital for growth in this new real-estate-focused business model would be a divergence from our stated strategy.”

The company also announced it made two acquisitions in Q3, adding four greenfield locations. Year to date, Herc Rentals has invested $332 million on a total of eight acquisitions, adding a total of 14 locations. Most recently, Herc purchased Rental Equipment Center in Colorado.

Sunbelt Rentals (Ashtead Group) to expand network in 2024

Ashtead Group is on course to expand the footprint of Sunbelt Rentals in North America to 1,234 locations by April 2024.

The company plans to add more than 298 locations through organic growth and acquisitions between April 2021 and April 2024 as part of its Sunbelt 3.0 plan.

It added 40 new sites in the first quarter of its financial year to July 31, of which 16 were through acquisitions.

Ashtead said there was “clear momentum” in the North American market, backed by the large number of mega projects and legislative acts in the US.

US revenue for the first quarter was up by 22% to US$2.3 billion, while Canada saw an increase of 21% to C$213 million.

In contrast, there was a 2% decline in overall revenue to £178 million for Sunbelt Rentals UK, although rental revenue saw a slight increase of 1% to £150 million. The full-year guidance on growth for the UK business has been reduced to 6% to 9%, from the previous range of 10% to 13%.

Total group EBITDA profit grew by 18% to $1.23 billion, with operating profits of $733 million.

Ashtead has not changed its guidance on gross capital expenditure on rental fleet, which will be in the range of US$3.3 to $3.6 billion. There will be a further approximately $650 million in capital expenditure not related to fleet.

Ashtead CEO Brendan Horgan said, “The Group delivered another record quarter with revenue up 19%, rental revenue growth of 14% and adjusted profit before tax increasing 11%, both at constant currency.

“This strong performance is only possible through the dedication of our team members who deliver for all our stakeholders every day, while ensuring our leading value of safety remains at the forefront of all we do.”

Horgan said that the company is in a “position of strength” to capitalize on opportunities arising from favorable market conditions in North America. On the UK, he said that despite some softening the company expects overall performance to be in line with expectations.”

H&E says nonresidential construction fueling outlook for growth

H&E Equipment Services, Inc. reported financial results for the third quarter ended September 30, 2023, with fundamentally robust industry conditions, strong fleet growth and further branch expansion contributing to record adjusted EBITDA totaling $189.1 million, an increase of 36.2% compared to $138.9 million.

Revenues increased 23.6% to $400.7 million compared to $324.3 million.

Net income was $48.9 million and included a pre-tax $5.7 million non-cash goodwill impairment charge. Excluding the impairment charge, net income was $53.0 million compared to $38.4 million. The effective income tax rate was 26.1% , or 26.2% excluding the impairment charge, compared to 25.2%.

Total equipment rental revenues were $315.8 million, an increase of $62.2 million, or 24.5%, compared to $253.6 million. Rental revenues were $280.3 million, an increase of $56.1 million, or 25.0%, compared to $224.1 million.

Brad Barber, chief executive officer of H&E stated, “As expected, continued strength in non-residential construction led to strong fleet growth, healthy physical fleet utilization and further rental rate appreciation. These components of a fundamentally sound industry, combined with growth in mega projects and further expansion of our branch network, delivered another quarter of outstanding financial results.

“Total revenues improved 23.6% compared to the same quarter in 2022, while rental revenues were 25.0% better over the same period. Our 2023 growth initiatives were a modest burden on dollar utilization, which finished the quarter at 41.5% compared to the year ago result of 42.7%.”

Barber continued, “Also, improvement in equipment supply chains presented an opportunity to capitalize on the sustained strength in the used equipment market, where margins on used equipment sales reached 58.5%. With a gross fleet investment of $220.1 million in the quarter, our disciplined approach to fleet management resulted in a decline in average fleet age to 41.1 months, remaining among the youngest fleets in the industry. Finally, adjusted EBITDA totaled a record $189.1 million, with a margin of 47.2%.”

Branch expansion and fleet growth once again proved significant drivers of H&E’s improved quarterly financial performance.

“We added greater branch density in the Mid-Atlantic, Southeast, Gulf Coast and Midwest regions following the addition of five new locations in the quarter and a sixth in October,” Barber stated. “With 12 branch additions through October 2023, we are comfortably within our stated range of 12 to 15 new locations for the year and we anticipate more openings during the fourth quarter.”

He continued, “Also, our gross fleet expenditures in the third quarter contributed to a record fleet investment through the first nine months of 2023 of $595.2 million, resulting in a fleet size, as measured by original equipment cost, in excess of $2.7 billion. In view of our gross expenditures at the close of the third quarter, we are adjusting our expected range for 2023 gross fleet investment for the second time in consecutive quarters as customer demand remains elevated and availability among certain highly utilized equipment lines continues to improve. Our new range is $650 million to $700 million compared to a previously revised range of $600 million to $650 million.”

H&E believes a robust business environment will persist through the final quarter of 2023 and into 2024.

“Non-residential construction activity remains resilient, and we expect to benefit from an expansion in project opportunities,” Barber stated. “Mega projects should meaningfully contribute to the enhanced U.S. construction activity, which we define as possessing a construction value of $500 million and greater.

“These projects continue to populate our geographic footprint and have substantial equipment requirements and lengthy project completion schedules. Additionally, the value proposition of rental compared with equipment ownership is expected to lead to further growth in rental penetration. Modest rental rate improvement and favorable utilization trends are likely to continue in this attractive business environment and we intend to maintain our focus on branch expansion and fleet growth as we finalize our 2024 strategic initiatives.”

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