Equipment Rental Industry: Resilience Amid Economic Fluctuations

Current market trends in equipment rental

Equipment rentals have surged by 6.9%, driven by a 4.0% rise in fleet productivity and strong demand across end-markets. Companies are actively managing their fleets in response to market conditions, while niche markets like waste collection equipment show consistent growth. The aftermarket business in Europe remains resilient despite a sluggish new machine market.

"For the three months ended March 31, 2024, equipment rentals of $2.929 billion increased $189, or 6.9 percent, as compared to the same period in 2023, primarily due to a 4.0 percent increase in fleet productivity, which reflects broad-based strength of demand across our end-markets, and a 3.6 percent increase in average OEC." --- (URI, sec filing, 2024/Q1)

"We constantly evaluate the mix, age and quality of the equipment in our rental fleet in response to current economic and market conditions, competition and customer demand as part of our fleet management strategy." --- (HEES, sec filing, 2024/Q1)

"Please turn to Slide 9. I'd like to focus on waste and recycling and what really excites us about our increased focus on this growing end market. As we all know, waste is an essential service and the demand for waste collection equipment and associated services has been consistently trending upwards with projected market growth at a 5 plus CAGR over the next 10 years. We have strong conviction in the future." --- (TEX, M&A Announcement, 2024/07/22)

"On the one hand, our aftermarket business in the European tower crane market is proving to be far more resilient in spite of the depressed market for new machines." --- (MTW, earning call, 2024/Q1)

"Equipment rentals increased $189, or 6.9 percent, primarily due to a 4.0 percent increase in fleet productivity, which reflects broad-based strength of demand across our end-markets, and a 3.6 percent increase in average OEC." --- (URI, sec filing, 2024/Q1)

Sector-specific demand driving equipment rental

Sector-specific demand in the equipment rental industry is driven by growth in original equipment costs, strong demand for specialized products like fiberglass insulated bucket trucks, and the need for power generation equipment due to data center expansion. Additionally, low inventory levels of used equipment further indicate robust sector-specific demand.

"Our rental fleet closed the first quarter with an original equipment cost (OEC) in excess of $2.8 billion, or 15.7% larger than our OEC on March 31, 2023." --- (HEES, press release, 2024/04/30)

"But that means nice demand for our utilities product. And what we're doing is we provide the fiberglass insulated bucket truck so line people can work safely at heights." --- (TEX, conference, 2024/06/05)

"Revenues are noted below. Fleet productivity is a comprehensive metric that provides greater insight into the decisions made by our managers in support of equipment rental growth and returns." --- (URI, sec filing, 2024/Q2)

"We continue to see strong demand for used equipment and inventories remain close to historically low levels, with just slight increases over recent quarters." --- (CAT, earning call, 2024/Q1)

"While servicing demand in North America is expected to soften, Cat reciprocating engine demand for power generation is expected to remain strong, largely due to continued data center growth relating to Cloud Computing and Generative AI." --- (CAT, earning call, 2024/Q1)

Economic cycles and strategic responses

Companies in the equipment rental industry are strategically expanding through acquisitions, partnerships, and investments to navigate economic cycles. HEES and URI focus on strategic acquisitions and partnerships, while TEX and CAT emphasize long-term shareholder value and managing costs through strategic investments.

"Also, the completion of our latest acquisition in May 2024 resulted in the addition of four branches in northern and central Montana, increasing our presence in that state to six locations while maximizing our exposure to a diverse set of project opportunities. This long-term strategic commitment to expanding our" --- (HEES, press release, 2024/07/30)

"And when we find the right partner that meets all of our three strategic criteria, as well as get to the financial output, we'll act." --- (URI, earning call, 2024/Q1)

"During the quarter, we also continued to advance our strategic initiatives to drive long-term shareholder value." --- (TEX, earning call, 2024/Q1)

"Unfavorable manufacturing costs and SG&A and R&D spend related to strategic investments are expected to act as a partial offset in this segment." --- (CAT, earning call, 2024/Q1)

"Our strong balance sheet and expected free cash flow generation continues to provide significant capacity to fuel our strategic growth initiatives, including our agreements to purchase ESG as well as return capital to shareholders." --- (TEX, earning call, 2024/Q2)

Regulatory impacts on equipment rental

Regulatory approvals are crucial for transactions in the equipment rental industry, as evidenced by Terex's pending deal, which hinges on such approvals to proceed in the latter half of 2024.

"and to increase meaningfully thereafter. The transaction is expected to close in the second half of twenty twenty four subject to regulatory approvals and customary closing conditions." --- (TEX, event transcript, 2024/07/22)

"We expect adjusted EPS to be double digit percentage accretive in 2025 and to increase meaningfully thereafter. The transaction is expected to close in the second half of twenty twenty four subject to regulatory approvals and customary closing conditions. Given ESG's" --- (TEX, event transcript, 2024/07/22)