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Rental Firms Reduced Purchases, Increased Resale Listings in 2020

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To weather a turbulent 2020, rental firms sold more equipment and purchased less resulting in an increase in the age of their fleets.

Corporate earnings season is drawing to a close for Q4 2020 and full year 2020 results. Among the companies reporting results are some major equipment rental companies. These companies, like the construction industry and the country overall, had a tough 2020 and seem like a good microcosm for us to zoom in on and understand what they were doing with their equipment. This month we will be focusing in on two major rental companies, United Rentals and Herc.

United Rentals’ activity on the resale channel had a clear pop starting in April 2020, with activity for 2020 overall about 58% higher compared to 2019. While we also observed an increase in activity from Herc starting in May 2020, we can see from the chart below that Herc also had elevated activity in early 2019 as it was focusing on “improving equipment mix and reducing fleet age.” So, full year-over-year activity from Herc dropped about 22%, but activity in just the second half of 2020 was 21% higher compared to the same period in 2019.

01_ActivityLevelsonResaleChannel.png

This observed volume is confirmed when reviewing the financial results for United Rentals and Herc, starting with the revenues from sales of rental equipment. United Rentals generated $858 million from the sale of rental equipment in 2020, a 3.2% increase over 2019.

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Taking a closer look at the quarterly results for 2020 may provide a glimpse into when the listed equipment started to sell. While we saw resale activity climb in April, Q2 2020 revenue from the sale of rental equipment was 10.7% lower than in Q2 2019. By Q3 2020 the situation had improved and sales were 0.5% higher compared to the same quarter in 2019. Finally, in Q4, revenue from the sale of rental equipment was 12.7% higher compared to Q4 2019, and United Rentals CEO Matthew Flannery commented that the, “strength in the used equipment market is a sign of future demand and need for equipment, a good sign for [2021].” This is also clear in the line graph on the previous page showing activity on the resale channel, as we can see that activity starting to decline in December 2020 and continuing into January 2021.

As previously mentioned, Herc had elevated resale listing activity in early 2019, which we can also see represented in the table above showing revenues from sales of rental equipment; both the first and second quarters showed year-over-year decreases. However, starting in Q3 2020 and continuing into Q4 2020 we see that revenue picked up significantly compared to the same periods of 2019, with a 28% year-over-year increase in Q3 2020 and a 15.2% increase in Q4 2020.

What is also interesting is the marked decrease in net rental equipment expenditures that this bump in equipment sales was paired with. United Rentals had predicted in its 2019 annual report that in 2020 net expenditures for rental equipment would be between $1.05 billion and $1.35 billion – in other words, very close to the $1.3 billion reported for 2019.

Instead, net expenditures for rental equipment dropped by 92%, with United Rentals reporting just $103 million for 2020. Herc’s net rental equipment expenditures also dropped significantly (63.4%) but at $151.6 million actually ended up higher than United Rentals. This is certainly shy of the $410 million to $450 million Herc had anticipated for 2020 in their 2019 annual report.

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The combination of this increase in sales of their rental equipment and the decrease in expenditures on new equipment manifested itself in a higher average equipment age for both rental companies. Herc’s average age increased by one month, going from 45 months in 2019 to 46 months in 2020, while United Rentals’ increase was more dramatic, jumping from 49.5 months in 2019 to 54.5 months in 2020—a full five-month increase.

Being firmly in 2021 now, we can observe that activity on the resale channel has continued to decline for Herc and United Rentals, as it has for the construction and lift categories overall. CEOs from both rental firms expressed optimism for 2021 and in particular provided guidance that net rental equipment capital expenditures are expected to rise back to ranges more similar to 2019.

This article is brought to you through a collaboration between EquipmentWatch and World of Concrete 360. Don’t miss the presentation, Making Advanced Decisions About Your Equipment, with Tom Christerson, director of sales for EquipmentWatch, that was held during the WOC 360 Virtual Industry ForumThe EquipmentWatch Market Report is a monthly resource for the construction, lift/access, and agriculture industries to help equipment managers make better-informed decisions by leveraging key equipment values, market activity, age, and usage metrics. For more information about EquipmentWatch’s methodology and data, and to learn more about what it has to offer contractorsclick here.

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