With the worldwide construction market in disarray and lack of customer confidence in the economy, I think the construction equipment rental market is going to see the largest increases within the industry. Manufacturer production is going to be trailing demand for years to come, buyers are going to be gun shy, and lenders are tightfisted, so it seems like a no -brainer.
I am going out on a limb here but unless there are alternate variables or extenuating circustances unforeseen, here is my forecast on the top eight leaders in the construction equipment rental market (as their position has been rated by RER top 100 2010).
United Rentals: United has been somewhat quiet during the market decline. They kind of have to be low key when they are bleeding money. Before the marketplace melt down, they were heavily clustered in many major areas to the point that they had to shed nearly 100 branches (as did Sunbelt and RSC), but they did so in a very efficient way. Their stock rebounds seem too inflated and I don’t see how that valuation can hold up unless they see significant increases in 2011. Their management team is excellent and has a proven record of success, but then again so was the management of Bear Stearns. The investigation and subsequent conviction of their former CFO didn’t seem to phase the stockholders. Their fleet aging has been increased, but still within acceptable range and will get better with their $200MM capex spending for 2010. If they could only try to shift their focus from aerial and expand their general and industrial tool divisions, they could capitalize on their number one position.
RSC: RSC is hard to gauge. Their stock has been steady. They are quiet within the market. Describing the industrial market as their primary market could prove to be fatal for strong growth because it raises the question of their commitment to the general construction market they have been known for. Their continued shift toward being a more efficient and environmentally friendly company has proved to be expensive but it looks like it will pay off within the industrial market. They strategically sold off a large portion of equipment over the past two years and that has helped them reduce their fleet aging and increase time and dollar utilization. I expect to see them fall lower on the RER100 in 2011 as a result of the industrial aimed shift. Again, I don’t think that’s in their best interest unless they are looking to shed their construction sector altogether, which is a possibility given the rumors they have been trying to find a buyer for several years now.
Sunbelt Rentals: Sunbelt has a terrific management team in place and their parent company, Ashtead, has done well to keep their cash cow in good condition. Their fleet aging is one of the best in the industry and they utilize value priced equipment within their fleet to keep costs down. They have done fantastic at diversifying their rental fleet so that they are not too heavy in any certain area, although I think specialization branches create too much inner competition and bickering within the company’s branches. Their sales force could use some more industry veterans and less college grads, but their corporate training team has done well to get them to an acceptable level. If they went public, I would put my money on them being the industry leader within three years.
Hertz: Hertz is not looking good this year or next. They also have been pushing into the industrial sector. Their president Gerald Plescia is certainly no Michael Kneeland. I mean no offense by that, but he does not have the general sense for the construction industry that Kneeland does. The fact that they are franchising locations out, shows that they are looking to delegate the risk to others instead of focusing within the market themselves. Good move financially for Hertz Global Holdings, but bad for their lifespan within the market because I simply don’t see a franchised dealership competing with Sunbelt and United. Expect to see them fall significantly on the RER 100 over the next two years.
Home Depot: Home depot has done well to keep within the top ten of the construction equipment market. They have focused on what the major competitors consider the “leftovers”. None of the majors like homeowners or “cash customers”, and Home Depot has been able to capitalize on that. I am not quite sure how they sustain their position because their staff is usually not well trained and in some cases is actually just cashiers from inside the store. From what I can tell, they have no president of their equipment rental division and we all know Frank Blake is not the driving force behind equipment rentals. Leaving that to a retail management team doesn’t do well to prove their commitment to the construction rental market. Their stores are the whole reason their equipment division survives. How long can that last?
Maxim Crane: Although this is certainly not a terrific market for the crane market, their partnership with Platinum Equity should prove beneficial to survive until the big jobs break ground again. Their focus on energy and industrial markets will help them weather the economy and there has been talk of acquisitions which should put them in a strong position to inch higher on the RER 100. They have nvested heavily in crawler-crane fleet as part of fleet-repositioning effort. I’m not a crane guy, but I expect them to grow in 2010.
Ahern Rentals: I think Ahern is the sleeper in the industry right now. They have an incredibly strong management team and board of directors and deep roots within the construction equipment market. Because they are a private company, they don’t have stockholders to impress or numbers to manipulate, they have loyal investors. Their commitment to the market has always been transparent and even in a losing market like Las Vegas, they have been able to remain in a strong position. It’s evident that 2009 and 2010 were not nice to them, but I foresee strong growth for them in 2011, especially if they shift their focus further up and down the east coast. These areas have proved to be windfall areas for customer oriented customers and have very resilient markets. Don and Evan Ahern have the experience it takes to put Ahern in the top five of the RER100 over the next couple years through growth and acquisition.
NES Rentals: NES has a cautiously optimistic approach with a 50MM capex planned for 2011. Their focus is on the aerial market so they have taken a brutal beating. I am not sure that they will still have a place in the top ten for 2011, but they do deserve it even if only for their customer loyalty. Rental decreases of nearly 30% have put them in a great place for growth. As the saying goes, that which doesn’t kill us, makes us stronger. Diversification would do them well.
I think the key to future growth for the entire industry boils down to two things:
Diversification and trusting your gut. The numbers don’t mean anything anymore. There is no way to base the future on past performance because this recession has changed the face of the construction industry so much that any adjustments based on past performance could set you back years and ultimately cause catastrophic failure.