If you run a factory, one of the last things you want to see
is production slow to a crawl while you upgrade or maintain your
To prevent this from happening, many production managers look
for ways to keep manufacturing processes in place even as
equipment is shut down. One option is to rent equipment during
the shutdown to ensure that production continues.
This is whereUnited Rentals (
) steps in. The company offers around 3,300 classes of equipment
for rent to construction companies, manufacturers, oil and gas
companies, utilities, governments and other customers.
It rents everything from backhoes, forklifts and earth-moving
equipment to general tools, pressure washers, water pumps and
The company has a nearly $8 billion fleet with more than
250,000 pieces of equipment available, says United Rentals Chief
Executive Michael Kneeland. It operates in 49 of the 50 states as
well as all 10 Canadian provinces.
"We have the broadest footprint of anyone in North America,"
Kneeland told IBD.
Customers use United Rentals' gear for a variety of reasons.
In some cases, manufacturers need to rent machines to keep
production online while their regular gear is being serviced.
In other cases, companies rent equipment to save money. This
is particularly true of construction firms that don't want to
invest huge sums in new equipment.
"Ours is a minor cost when you take a look at the overall cost
of a construction site," Kneeland said. "It's estimated that
rental costs are only 2% to 3% of the total costs for certain
jobs. You have the flexibility of owning the equipment, but you
don't have the maintenance costs or carrying costs."
For some jobs, United Rentals must be ready to respond to
orders immediately. That's why it has blanketed North America
with more than 820 rental locations.
"We have a 30-minute window," Kneeland said. "If you ordered
it at 1 p.m. and it gets there at 1:31, we failed. Our customers
look for reliability, accessibility, and product depth and
Those orders are coming in a lot more frequently these days
amid a rebound in construction and other markets. United Rentals'
financial results reflect that demand. The company has notched
double-digit sales growth in nine of the last 10 quarters.
For the third quarter, for which it reported results
Wednesday, United Rentals posted earnings of $1.63 a share, up
21% from a year ago. Though not as strong a gain as in past
quarters, the result was three pennies ahead of analyst views.
Revenue rose 8% to $1.31 billion, just below views for $1.32
During the quarter, Citigroup analyst Timothy Thein had noted
that the company's key end markets were "still in the early
stages of a recovery." He also cited United Rentals' exposure to
North America's "growing domestic manufacturing sector" and
predicted "rental penetration will continue to increase."
These trends have helped United Rentals rebound from a
downturn in business that paralleled the financial crisis and
recession of a few years ago. The company reported three straight
years of lower sales from 2008 through 2010. It lost money in
"We went through the downturn ourselves, and it gave us an
opportunity to right-size and optimize our footprint," Kneeland
Real Estate Earth Mover
The rebound in the residential real estate market has given a
boost to United Rentals' business, he says. He expects a similar
lift when nonresidential construction picks up steam.
"The nonresidential market usually trails residential by a
year to 18 months," Kneeland said. "It takes that long to put the
dollars to work. We think there's a very nice outlook for the
rental equipment industry."
Kneeland mentioned on the company's third-quarter conference
call with analysts that rental revenue increased by more than 8%,
and the company reaffirmed its outlook for a full-year rise in
rental rates of at least 4%.
"Nonresidential construction spending is recovering, although
the pace is very modest," Kneeland said on the call.
"The bulk of the upswing is expected to come in 2014 and 2015
but demand is definitely improving and we're getting a benefit
The outlook for United Rentals includes the likelihood of
buyouts to help expand its footprint. The company has made a
half-dozen acquisitions over the last couple of years, including
its $2.53 billion purchase of rival RSC Holdings, which closed in
Although deals of that size are pretty rare, United Rentals
does keep a constant eye out for buyout opportunities, Kneeland
"We've talked about leveraging acquisitions and expanding our
specialty business," he said. "We are always going to be
acquisitive. But the deals would have to be strategic, they would
have to add value for shareholders, and we would have to look at
the cultural aspects to make sure we can integrate them
On Thursday's call with analysts, Kneeland noted that United
Rentals' board has authorized up to $500 million in share
repurchases that are expected to take place over the next 18
There aren't a lot of big players in United Rentals' industry.
Publicly traded companies that rent heavy equipment
includeH&E Equipment Services (
) andHertz Global Holdings (
), though the latter firm gets the vast majority of its business
from car rentals.
Analysts polled by Thomson Reuters expect United Rentals to
return full-year EPS of $4.86, which would be up 29%, and revenue
of $4.95 billion, up 20%.
On its conference call, the company reaffirmed its 2013 target
range of $4.9 billion to $5.1 billion in revenue -- the midpoint
just above the consensus expectation of analysts polled by
By early Friday afternoon, United Rentals' stock had touched a
record price of 65.36, and was heading for a nearly 4% daily gain
and a 41% lift for the year to date.