Rental equipment swings into high gear.

As we forge through 2006 there is little question that things are flying high once again in the rental equipment industry. I'm talking about the side of the business that gets involved in renting backhoe loaders, skid steers, and mini-excavators. A few years ago, this end market--which many

Fortunately, these things do get turned around and rental equipment finally came out of its funk in 2004 and was really running in 2005. In 2006, the industry is in high gear and running full out. Rental revenues from equipment, which were about $9.6 billion in 2003, hit $12.8 billion in 2005 and are heading toward $14.0 billion this year. If our projections are right, the industry's growth in three years will be up 45%, which is very good considering where things were in 2003.

We have most big rental companies reporting very good profits and higher revenue levels each quarter. A strong economy and high construction spending for residential and nonresidential construction are helping matters to be about as good as they get for rental equipment. Housing starts, which hit 2 million for the past three years, are still at a level of 1.85 million units, while nonresidential construction of all types is keeping contractors working in every state and most of the provinces in Canada.

So, what is happening with the big rental equipment companies in view of all of this construction and hoopla? Several of the top 10 companies are making some serious changes. Late last year, the Hertz Corp., which had been part of Ford Motor Co., got spun off and sold to three private equity investment companies known as CCMJ Holdings.

Hertz Equipment Rental Corp. (HERC) is a part of all of this, so it no longer answers to Ford. We look for HERC--which has a network of 265 rental locations in North America, total revenues of about $1.4 billion and rental revenues of about $1.0 billion--to get spun off sometime in the next year or two depending on investment market conditions. Hertz Equipment Rental will go for big bucks, when it goes!

Many are probably already aware that RSC Equipment Rental (RSC) is being sold by Atlas Copco. Too much of a good thing, I guess. Atlas has owned the company for about five years, and is ready to move on to bigger and better profits in its business. The operating margin for RSC in 2005 was only 23% before taxes, which isn't too bad considering that it was only 8% in 2003 when life was tough. RSC is the second largest rental equipment company in North America with 465 locations in 38 states and five provinces of Canada and Mexico. "Get out at the top," as they say.