Four things we learnt from North American rental giants’ Q3 results

Major rental companies in North America have announced their third-quarter results. Here are four key takeaways from their announcements.

1. Inorganic growth in top lines

The equipment rental sector softened in the United States amid a high-interest rate environment during the three months ended 31 September 2024. Rental companies showed a mixed revenue performance.

United Rentals experienced a 7.4% growth in rental revenue during the first nine months of 2024. (Photo: United Rentals)

United Rentals, the largest equipment rental company in the United States, saw its rental revenue increase 7.4% year-on-year to a third-quarter record of $3.46 billion (€3.26 billion), thanks to the impact of the acquisition of temporary roadway business Yak, which was concluded in March this year. 

Without that deal, the company’s rental revenue growth would have been 4.4% for the third quarter. In the entire year of 2023, the company’s rental revenue grew 19.3% year-on-year.

In August, the American Rental Association (ARA) downgraded the revenue growth forecast for the construction and general tool rental sector in the United States.

It expected the equipment rental sector’s revenue to grow 8.9% to $78.7 billion in 2024 and increase 5.3% in 2025. Its previous forecast was that revenue would rise 9.7% to $79.2 billion this year.

However, bucking that trend was Herc Rentals, an equipment rental company in the US and Canada, significantly outpaced overall industry growth in total rental revenue and organic revenue.

It reported record rental revenue of $866 million, up 13% year-over-year, in the third quarter.

“We increased third quarter rental revenue by 13% to a new quarterly record, primarily reflecting the continued robust growth from mega projects and contributions from our increased branch network and recent acquisitions,” said Larry Silber, president and chief executive officer of Herc.

“This growth was achieved despite a tough year-over-year comparison and a challenging interest rate environment for local project starts,” he said.

The company’s Cinelease studio entertainment, lighting, and grip equipment rental business partly contributed to Herc’s rental revenue growth. Excluding the studio business, Herc’s rental revenue would have increased 11.8% in the third quarter, still bucking the overall industry trend.

2. Pressure on time utilisation and rental rates

H&E Equipment Services, one of the largest equipment rental companies in the United States, said its third-quarter rental revenue grew 3.3% year-on-year to US$326.2 million. The slower growth in the quarter, compared to a 9.8% year-on-year increase in the first half, was due to softening fleet utilisation and lower rental rates.

The company’s physical fleet utilization averaged 67.6% in the third quarter of 2024, or 240 basis points down from last year. This shows lower customer demand and a lingering modest oversupply of equipment. 

Rental rates declined 0.1% compared to the prior-year quarter and were down 0.6% from the second quarter.

“Construction spending in the U.S. continues to demonstrate the slowing rate of growth observed over the first half of 2024,” said Brad Barber, chief executive officer of H&E Rentals. “We believe a trend of moderating activity will persist through the remainder of the year, with physical fleet utilisation and rental rates below year-ago measures.”

3. Declining sales of rental equipment

Large rental companies also saw a year-on-year decline in their sales of rental equipment in the third quarter:

• United Rentals: -12.3% to $321 million
• Herc Rentals: -34.7% to $81 million
• H&E Equipment Services: -47.3% to $27.8 million

These resulted in slower year-on-year growth of the three companies’ total revenues in the third quarter from the first half:

• United Rentals: +6% to $3.99 billion (compared to +6.1% in H1)
• Herc Rentals: +6.3 % to $965 million (compared to +7.1% in H1)
• H&E Equipment Services: -4% to $384 million (compared to +9.5% in H1)

Herc Rentals said its rental equipment sales decreased by 34.7% year-on-year in the third quarter after its fleet rotation in the prior year period was accelerated due to the easing of supply chain disruptions in certain equipment categories.

Pandemic and geopolitical conflicts caused global supply chain disruptions in 2021 and 2022.

4. Prudent CapEx growth

Although Herc Rentals recorded a 13% growth in its rental revenue in the third quarter, it has remained prudent in increasing its capital expenditures (capex).

The company expects its rental revenue to grow by 9.5-11% for the full year of 2024, compared to its previous forecast of 7-10% annual growth.

It said its net rental equipment capex would reach $650 million to $700 million in 2024, up from the previous estimate of $500 million to $700 million.

In the first nine months of this year, the company’s net rental equipment capex was $555 million, down 36.1% from $869 million in the same period of last year.

Equipment manufacturers welcome rental companies’ plans to boost fleet investment. However, they are suffering from weak performance outside of North America. 

Oshkosh Corporation, the parent company of JLG, said its sales from the access division rose 3.4% year-on-year to $1.3 billion for the third quarter. Sales growth in North America was offset by lower sales volume in Europe, Africa, the Middle East, and the Rest of the World regions.

Terex’s Genie aerial platform business also saw a better performance in North America than elsewhere for the same period. It said its sales were up 4% in North America but down by 23% in Europe, by 24% in Asia Pacific (including China) and down by 13% in the rest of the world.

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