Sunbelt Rentals’ rental revenue grew due to increased volume and rates in its U.S. fiscal second quarter, which ended Oct. 31.
The Ashtead Group, which operates its equipment rental company as Sunbelt Rentals, saw rental revenue and used equipment sales grow year over year in Q2, according to the company’s earnings release.
- Rental revenue rose to $2.3 billion, up 12.2% YoY;
- Used equipment sales grew to $160.6 million, up 35.8% YoY;
- Last-12-month dollar utilization remained flat at 60%;
STATE OF PLAY: Higher rates and increased volume were key to the revenue growth, Michael Pratt, chief financial officer of Ashtead Group, said during the company’s Dec. 5 earnings call.
“The rate piece continues to be an important part of the equation given the increased costs we face … [and] the impact of inflation on our rental fleet and operating cost base,” he said.
The increase in used-equipment sales is the result of Sunbelt having a better understanding of fleet utilization and the second-hand equipment market, Pratt said.
NOTEWORTHY: Rising costs continue to drive up prices for rental equipment, but that has not led to customers abandoning rentals for used equipment, Ashtead Chief Executive Brendan Horgan said during the call.
“What’s not gone is that step change,” he said. “For anyone to go buy something new, they would be paying materially more, therefore, that 7-, 8-, 9- or even 6-year-old asset is going to be significantly more expensive.”
Ashtead Group sells its used equipment through wholesale, auction and direct sales, as well as to “second-tier rental houses,” which then rent out the equipment, Horgan said.
MARKET REACTION: Shares of Ashtead Group (OTCMKTS: ASHTY) were up $2.69 or 1.09% from market open to $249.44 as of market close today. Ashtead Group has a market capitalization of $26.58 billion.
FUTURE LOOK: Ashtead Group projects full-year growth in the U.S. rental revenue market, according to the earnings presentation, with rental revenue growth projected to land between 11% and 13%.
The company’s growth, however, is dependent on increasing supply chain constraints with OEMs as the company looks to fill inventory, Horgan said.
“We used to be able to order 1,000 Bobcat and get them in 90 days,” he said. “Today if we want 1,000 Bobcats, we’re probably talking 180 to 270 days.”
THE BOTTOM LINE: As more large infrastructure projects continue in the U.S. and Canada, Ashtead Group expects demand for rental equipment to increase, Pratt said.
“This increasing proportion of larger projects, they’re almost totally rental,” he said. “For that type of project and what that customer wants … they’re not going and buying second-hand fleet; they’re renting good quality fleet.”
