Sunbelt rental revenue rises amid persistent large rental activity

Sunbelt Rentals’ rental revenue grew in the second quarter of its fiscal year as rental rates remain strong amid growing megaproject activity. 

Ashtead Group, Sunbelt Rentals’ London-based parent company, continues to benefit from progressively higher rental rates, Chief Executive Brendan Horgan said during the company’s earnings call today.  

“Importantly, rental rates have continued to progress year-on-year, doing so despite industry utilization levels still lagging highs reached in previous years,” he said. “This is again affirmation of the ongoing good rate discipline in the industry as a result of the ever-clear structural progression that we’ve experienced over the years.” 

In addition to strong rental rates, megaprojects, which Ashtead Group defines as projects taking longer than three years to complete, continue to boost the company’s financial performance, Horgan said. The value of megaprojects is forecast to jump 91.4% to $974 billion over the next three years, according to the earnings presentation. 

What they’re saying 

J.P. Morgan analysts expect an uneven performance in equipment rentals going into 2025, partly due to an “unusual cycle with economic slowdown concerns, at the same time strong growth outlook driven by infrastructure and manufacturing/industrials investment,” the company stated in a research note. “We think investment in certain sectors like data centers and semiconductors, as well as onshoring of manufacturing capacity, is likely to extend the rental cycle even if there is weaker economic growth in 2025.” 

J.P. Morgan also said it expects larger rental houses to benefit more than smaller rental houses. 

“We think the large national rental companies will likely increase market share benefiting from the long-term growth of megaprojects while smaller local and regional rental companies are likely to see market share declines due to lower exposure to these megaprojects,” according to the note. “We expect slower activity of small/mid-size projects to impact smaller/regional rental companies more than large national rentals in 2025.” 

By the numbers 

Rising rental rates continued to increase revenue for the Ashtead Group in Q2, ending Oct. 31. 

During the quarter, Ashtead Group reported: 

• Global total revenue totaled $2.9 billion, up 2.2% YoY; 

• U.S. total revenue grew to $2.5 billion, up 1.1% YoY;  

• Global rental revenue rose to $2.7 billion, up 5.4% YoY; 

• U.S. rental revenue increased to $2.3 billion, up 4% YoY; 

• Global used-equipment sales landed at $125.9 million, down 34.6% YoY; 

• U.S. used-equipment sales finished at $104.6 million, down 34.9% YoY; 

• Last-12-month U.S. dollar utilization declined to 56%, down 400 basis points YoY. 

Market reaction  

The Ashtead Group also wants to move the company’s primary stock listing to the United States from the London stock exchange, which it believes better fits the company’s overall positioning, Horgan said.  

“The center of gravity of the group has been moving west over a long period of time, and today, we are, to all intents and purposes, a U.S. company,” he said. “We see this move as an exercise where we will be aligning the listing venue with where the vast majority of the operations, leadership, employees, revenues, profits and future growth are based and derived.” 

The company did not specify which stock exchange it was targeting. 

Other larger U.K. companies have left the London stock exchange for New York, including CRH, Flutter Entertainment and chipmaker Arm Holdings, according to Bloomberg. 

Market outlook

Following the company’s Q2 performance, Ashtead Group reduced U.S. and group guidance to the following rental revenue guidance for fiscal 2025, according to the earnings presentation: 

• U.S. rental revenue guidance of 2% to 4% growth YoY, down compared with 4% to 7% guidance in the first quarter; 

• Canada rental revenue guidance of 15% to 19% growth YoY, flat with Q1; and 

• Global rental revenue guidance of 3% to 5% growth YoY, down compared with 5% to 8% guidance in Q1. 

Despite the strong performance in Q2, Ashtead lowered U.S. and group guidance because of the outliers in Q2, Horgan said. 

“Overall outlook for construction growth continues to be underpinned by megaprojects and infrastructure work, which continued to gain momentum, albeit slowly, …”he said. “At the same time, there’s an ongoing softening within the local commercial construction space as the prolonged higher interest rate environment has weighed on local and regional developers.” 

Shares of Ashtead Group (OTCMKTS: ASHTY) were down $12.47 or 15.47% from market open to $68.15 as of market close today. Ashtead Group has a market capitalization of $34.89 billion. 

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