High-margin specialty rental driving dealer, rental house investment

Equipment dealer and renter Custom Truck One Source and equipment rental house Herc Rentals are prioritizing specialty rentals to drive higher utilization, margins and long-term growth. 

Kansas City, Mo.-based Custom Truck One Source (CTOS) intends to invest heavily in vocational specialty rentals, which have higher utilization and rental rates, Chief Financial Officer Christopher Eperjesy said on Sept. 18 during the 2025 D.A. Davidson Diversified Industrials and Services Conference in Nashville, Tenn.  

“As we have grown the fleet and grown OEC [original equipment cost] on rent, certainly there’s an efficient impact there of having the fixed cost structure across 40 sites, but [with] higher revenue,” he said. “We have seen a little bit of that impact in the higher utilization.” 

At the same time, the company’s rental fleet grew slightly while reducing repair and maintenance costs as a percentage, Eperjesy said. 

CTOS reported strong rental demand in utility and other core markets in the second quarter, with average OEC on rent up 15.6% year over year to more than $1.2 billion and utilization nearing 78%, according to the company’s 10-Q filing with the SEC.  

The company continues to expand its rental fleet, ending the second quarter with a record $1.6 billion in OEC and planning additional investment to meet demand, Chief Executive Ryan McMonagle said during the company’s July 31 earnings call. 

Favorable rate environment amid tariffs 

CTOS also expects a favorable rental rate environment in 2026 because it accelerated chassis purchases into Q2 to avoid tariffs, further boosting specialty rental, McMonagle said during the D.A. Davidson conference. 

“That will be part of how we set rental rates heading into 2026,” he said. “The real impact is it was a lot of noise in the beginning of Q1 — the beginning of the end of Q1 and the beginning of Q2 — and it’s really turned into not that big of an impact in our overall.” 

The company experienced just less than a 1.5% tariff impact on overall parts cost, with slight margin pressure partially offset by passing costs through to sales, McMonagle said. 

H&E prioritizes specialty rental 

Following its acquisition of H&E in June, Herc Rentals began to focus on integrating and optimizing its combined fleet, repositioning capital and accelerating specialty growth from 150 to nearly 200 locations without adding fixed costs, Herc Senior Vice President and Chief Financial Officer Mark Humphrey said during Morgan Stanley’s Laguna Conference on Sept. 11.  

The deal reduced the company’s specialty rental fleet to 16% of the total fleet, compared with 20% before the transaction, due to H&E’s limited exposure, but Herc expects stronger purchasing power and expansion in specialty rental to drive margins and utilization, Humphrey said. 

“We’ll continue to walk that back up to 20%,” he said. “Longer term, the number is 25% for us, and as we move that along, that will continue to help our dollar utilization and our margin profile.” 

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