United Rentals (NYSE:URI) rents construction equipment like aerial work platforms and forklifts. Its primary revenue sources are private commercial and residential construction companies, but it also rents to public clients like municipalities and utilities. URI rents over 2,900 different classes of equipment and holds about 10% of the equipment rental industry by revenue, the biggest share of any company in this segment. URI's large equipment fleet and geographic reach across the United States, Canada, and Mexico allow it to create an extensive equipment sharing network, maximizing usage and reducing the amount of equipment needed at each rental location.
United Rentals is exposed to the cyclical nature of the residential and commercial construction industries, but not in the same way as builders or equipment manufacturers. Downturns in the economy which hurt these industries mean slower demand for construction equipment. However, recessions provide increased incentives to rent rather than purchase equipment, which spurs demand for United Rentals' products and services.
United Rentals's rental units include general construction and industrial equipment like backhoes, forklifts and earth moving equipment; aerial work platforms, such as scissor lifts and boom lifts; general tools and light equipment such as pressure washers, heaters and hand tools; and trench safety equipment. The company operates 697 retail locations throughout the United States, Mexico and Canada, offering over 260,000 units of construction equipment. Although United Rentals is primarily a rental company, the company also sells new and used equipment, contractor supplies and provides equipment service and maintenance.
In 2009, URI saw a net loss of $62 million on $1.75 billion in total revenue. This represented a reduction in annual losses of 93.4% from a $943 million loss on $2.15 billion in 2008.
URI operates through two reportable business segments:
United Rentals primarily rents its equipment to the commercial construction industry, with 90% of its revenue earned in this industry. Any decreases in the demand for construction resulting from macroeconomic factors like an economic recession, increased cost of construction materials, adverse weather conditions or an increase in interest rates will hurt the demand for construction equipment rentals. For example, the seasonality of the Commercial Real Estate construction industry, with lower construction in the winter months, causes demand for equipment rentals to fall as well during the winter. Conversely, factors such as an economic downturn actually increase incentive for companies to rent rather than purchase construction equipment.
United Rentals maintains low inventory costs by grouping branches in groups of 6 to 12 according to geographic location. These groups share construction equipment, minimizing equipment idle time. United Rentals therefore relies on a highly mobilized fleet, which would be hampered by increased Oil Prices. Higher costs of fuel increase operating costs of equipment rentals, which then reduce United Rentals's gross margin. Also, rising fuel prices indirectly lowers equipment rental demand by raising the costs of steel and affecting major construction suppliers like US Steel (X).
The construction equipment rental industry in the United States has increased at a 10% compound annual growth rate since 1990. Particularly in an economic downturn, construction equipment rental becomes a better option for builders for several reasons:
United Rentals, the largest equipment rental company by revenue, is poised to prosper from significant growth in the equipment rental industry as its broad geographic footprint and large equipment fleet lead to the acquisition of new customers much easier than its primarily localized competition which lack similar nationwide reach and brand recognition.
United Rentals has made five major acquisitions since 2005. High Reach Equipment Services, LLC, an aerial equipment supplier was acquired in 2007, the company's latest acquisition in an effort to expand their services geographically by acquiring smaller equipment rental companies nationwide. By expanding geographically, United Rentals seeks to achieve higher brand recognition and higher efficiencies in resource sharing between branches.
The equipment rental industry is dominated mainly by small, independent businesses with only one or two rental locations. Major publicly traded competitors include Hertz Global Holdings (HTZ) and RSC Holdings, Inc.