Equipment Rental Company Earnings Summary 2Q 2021

Key Insights

Rental companies remain bullish about the short-term outlook, with strong demand from both residential and non-residential construction sectors driving their confidence. In response to this heightened demand, rental firms are increasing their fleet investments, boosting capital expenditures to meet customer needs. However, some equipment manufacturers face challenges scaling up production due to component shortages, which may delay the addition of new equipment to rental inventories. Most industry players expect the current positive trends to continue for the foreseeable future. The fundamentals are improving for equipment rental companies as the construction sector recovers from the pandemic-induced slowdown. Rental rates and equipment utilization are trending positively, indicating a growing need for more fleet investments. Manufacturers are encountering difficulties ramping up production, potentially impacting equipment deliveries in the latter half of 2021.

Company Perspectives

Company	Outlook	Date
Alta Equipment	Positive	August 12, 2021
United Rentals	Positive	July 28, 2021
Herc Rentals	Positive	July 22, 2021
Ashtead (Sunbelt Rentals)	Neutral	June 15, 2021

Alta Equipment

Ryan Greenawalt, CEO of Alta Equipment, highlighted that their second-quarter performance demonstrated a favorable operating environment across the material handling and construction markets they serve. Constraints in the supply chain have boosted demand for higher-margin product support offerings and increased rental utilization. Tighter supply chains have also driven up equipment prices across the board, creating unique opportunities to strategically sell rental fleet, meet customer demand, and achieve field population goals typically associated with new equipment installations. Greenawalt expressed satisfaction with their ability to adapt swiftly and efficiently to various market conditions, resulting in healthy year-over-year and sequential adjusted EBITDA growth. "The strength of our first-half results, combined with a record backlog in our Construction and Material Handling divisions, positions us well to meet our full-year growth objectives," he added. Customer demand surged throughout the second quarter, while new equipment supply constraints persisted, extending delivery lead times. The supply-demand imbalance has driven price appreciation for both new and used equipment, as well as increased rental rates.

United Rentals

Matthew Flannery, CEO of United Rentals, noted that their results reflected a continued recovery across construction and industrial markets. Looking ahead, they remain optimistic about their end-market indicators, including improved customer sentiment and project visibility. They've raised their guidance to account for the expected contributions from recent acquisitions and accelerated momentum in their core business. This, they believe, will enable them to deliver strong growth and returns in the second half of the year. "Our operating environment continues to recover. Customers are increasingly optimistic about their prospects," Flannery stated. Customer optimism is a promising sign, and the trends observed in the field support this view. 2021 marks a pivotal year for United Rentals, confirming their return to growth, highlighted by a 19% rental revenue increase in the second quarter. Geographically, the rebound in their end markets remains positive, with all regions reporting year-over-year rental revenue growth.

Herc Rentals

Larry Silber, President and CEO of Herc Rentals, emphasized that their second-quarter performance set the stage for the remainder of 2021. A tight supply of new equipment and steady demand from key markets created a favorable operating environment. Total revenues for the quarter rose 33%, with adjusted EBITDA increasing by 39% compared to the previous year. Adjusted EBITDA margins improved by 170 basis points year-over-year, reaching 42.3% in the second quarter, reflecting solid overall performance and robust growth in their specialty businesses. Herc Rentals' strong free cash flow supports their fleet investments, greenfield expansions, and M&A activities. They are enthusiastic about carrying their momentum from Q2 into the rest of 2021, aiming for what could be a record year in terms of revenues and net income. "In light of the current market conditions, we've decided to invest an additional fleet before year-end and have raised our 2021 net fleet capital expenditure guidance to $500 million to $550 million. Our year-to-date momentum is expected to drive record performance," Silber explained. The current market environment, characterized by tight equipment supplies and steady demand, has reinforced their focus on pricing. Their team continues to deliver rate increases, and they remain confident in their ability to maintain leadership in pricing thanks to their advanced tools and disciplined sales approach. "We are clearly in the early stages of the next construction upcycle, with steady demand even before considering any potential benefits from future infrastructure spending. Equipment suppliers are strained, with OEMs struggling to produce and deliver new equipment due to global supply chain bottlenecks." "There's ample demand in most of our end markets to sustain growth through 2021 and into 2022." "Our procurement team has excelled in sourcing additional fleet in an extremely tight market. As a result, we're raising our net rental equipment CapEx guidance to $500 million to $550 million. We're pleased with our quarterly performance and are excited about what lies ahead."

Ashtead (Sunbelt Rentals)

Brendan Horgan, CEO of Ashtead Group (parent company of Sunbelt Rentals), remarked that the current activity levels align with the positive Dodge momentum index, which is at its highest since 2007, and strong ABI figures. The same positive momentum applies to their business and non-construction segments like MRO, emergency response, and live events. "There seems to be an abundance of momentum in the markets. These are good conditions," Horgan noted. Residential construction, which has been a pleasant surprise this year, shows no signs of slowing down. Their extensive fleet planning exercise conducted last fall and early winter proved crucial this year, as original equipment manufacturers (OEMs) navigate supply chain and workforce challenges while ramping up production levels.

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