United Rentals Inc-Rental Industry
United Rentals Inc is the largest equipment rental company in the world. It was founded back in 1997 in the United States. Michael Kneeland is the company’s Chief Operating Officer. The headquarters are in Greenwich Connecticut. To date, it has over 625 rental locations in 48 states in Northern America, 10 Canadian provinces and Mexico. More over, the company has a diverse customer base that includes construction, industrial companies, utilities, municipalities and homeowners. The customers are served by the over 9 900 employees working in the different sectors of the company.
The company is listed in the New York Stock Exchange under the symbol URI (United Rentals Inc, N. d. ). The main divisions of the company include general rentals, aerial, HVAC/Pump &Power and trench safety. The general rental branches are regarded as the most productive and yielding for the company. The company offers rent over 2800 classes of rental equipment with a total original cost of 4. 1 billion dollars (Bratman, 2009). However, the other divisions are also increasingly a large portion of United Rentals Inc revenues (United Rentals Inc, N. d. ).
2. 0 UNITED RENTALS INC; REFLECTING ON 2008 2. 1 Successes In 2008,
The 3. 3 billion dollars in revenue was posted despite the fact that the construction market, in America especially, was considerably weak in the second half of the year as a result of a weakened economy. In addition, the credit crunch has hit hard. the banks are no longer offering finances to their customers which can then be pent to hire equipment from such companies as United Rental Inc. More over, the company was also able to increase its rental revenue to 765 of the company’s total revenue. The increase was reflective of the company’s strategic refocus on their core business which is equipment rental.
The company was again able to increase its gross margin on contractor supplies by 460 base points to settle at 23. 6% for the year. Nevertheless, the most important thing to note about the company was the fact that it was able to hold its time utilization constant at 63. 6 (Yahoo Finance, 2008). The table 1 represents United rentals Inc’s revenues by its divisions. 2. 2 Failures However, the company lost some ground rate. According to the CEO of the company, Mr. Michael Kneeland, the company either closed down or consolidated a massive 43 branches in the fourth quarter alone.
Initially, the company had only planned on closing down 30 branches (Rental pulse, 2008). Accordingly, the figure was 13 more branches than had been earlier anticipated. Thus, in total, the company reduced its branch count by 75 locations in the year 2008. However, the company did not exit any state or provinces. This then means that all the branches that were closed down were not all located in one locality. The company also retrenched some 1000 workers. This was despite the fact that in 2007, the company had already retrenched some 1100 employees (Rental pulse, 2008).
The failures experienced by the company may be attributed to the fact that the operating environment had considerably worsened. Commercial and industrial construction was greatly affected by a weakened economy and the credit crisis. The fact that customers do not have jobs and have no access to finance has a domino effect on equipment demand. According to Kneeland, the company’s CEO, the jobs dried up the instant that the banks stopped lending to their customers. The lack of money means decreased spending.
It does not take a rocket scientist to discern that when there is no money, there is no demand for certain services, rentals being one of them. California and Florida remain the company’s weakest markets. Of the 43 branches that were closed down on 2008, 20% were in the two states. 3. 0 GOALS TO RECOVERY. According to Kneeland, though 2009 is a new year, 2008 problems are still haunting the company. For instance, the construction of retail stores, hotels and ware houses considerably slowed down in January of 2009. Nevertheless, the company has a disciplined plan in place that will see the company safely through 2009 and well into 2010.
The company seeks to prioritize the bulk of its efforts on for main factors. These are cash generation, liquidity, cost control and customer service (United rentals Inc, Q4 2008 Earnings call, 2009). 3. 1Key points of the plan One of the major activities that the company plans on performing is defleeting. This will be done by reducing underperforming categories of older units in the general rentals. Defleeting began to take effect in the last quarter of 2008. United Rentals Inc sold off 209 million dollars of OEC (Original Equipment Cost).
Though the price was much lower than historical margins, it was still profitable for the company. According to Kneeland, the primary goal in the sale of used equipment is to properly manage the size and age of the company’s fleet and its free cash flow (United rentals Inc, Q4 2008 Earnings call, 2009). 3. 2 SG&A (Selling, General & Administrative expenses) In 2008, United Rentals Inc experienced a decrease of 84 million dollars in SG&A expenses. Accordingly, Kneeland’s goal for 2009 is to considerably lower the SG&A number by about 40 million dollars, to stand at 50 million dollars.
In most instances, the SG&A are inclusive of bad debt expenses, advertising and marketing expenses, management salaries, clerical and administrative costs (Yahoo Finance, 2008). Table 2 represents SG&A expenditure data. SG&A expenses are a give in any business. Nevertheless, managers should always make sure that the expenses never eat into the profits and revenue of a business. In a successful business, the SG&A expanses are always maintained at a low level. In the first quarter of 2008, SG&A expenses are shown to have decreased somewhat. As compared to the same period in 2007. According to United Rentals CEO, Mr.
Kneeland, this is testament of the cost saving measures employed buy the company including reduced compensation and travel costs. However, it is important to note that Kneeland has been categorical that all the company’s commitment to cost control is not just a temporary reaction to the weakened economy. According to him, cost control is the foundation stone of the strategy that the company put in place back in 2007. In the strategy. the company redefined itself as being first and foremost an equipment rental company committed to improving its cost structure and fleet management (United rentals Inc, Q4 2008 Earnings call, 2009).
The company is looking into different ways through which it may control its general costs. These include business process enhancement, new efficiencies in the information technology infrastructure and sales force productivity tools. Consequently, in 2008, United Rentals Inc, through their strategic source initiative was able to negotiate new supplier agreement. This was a step in the right direction for the simple fact that the company was able to save a whooping 22 million dollars in 2008. It does not need additional explanation; in a weak economy, any cost saving measures are openly welcome.
All the same, it should be noted that the company expects the incremental benefits of strategic to lessen over 2009. Still, the company expects to realize 15 million dollars in savings in 2009 through its cost saving measures (United rentals Inc, Q4 2008 Earnings call, 2009). 3. 3 Rates In 2008, United Rentals Inc rates dropped 6. 4% in the fourth quarter to settle at 3. 1%. According to Kneeland, the decline is to be attributed to the market place competitive pressures. Another goal that the company is focused on is attending to the most profitable customers instead of chasing deals wherever they appear.
Thus, the company’s strategic goal of managing rates is to first grow its market share. This is to be achieved by bringing on board larger accounts and industrial companies. The company has already made meaningful strides in this area. Since 2008, the company has been focused on national account agreements. The biggest advantage with these accounts lies in the fact that they transact at lower rates but produce higher volumes. More over, they are more efficient to service. Accordingly, United Rentals Inc has already signed up 15 new agreements in place (United rentals Inc, Q4 2008 Earnings call, 2009).
3. 4 Industrial rental market According to Kneeland, the industrial rental market is an opportunity for highly profitable business for united rental inc. Consequently, the company is expected to make a strategic shift geared towards serving industrial customers. Further more, the market may provide more industrial companies that may also be added into the company’s national account programs. It is to be noted that while the industrial rental markets generates a staggering 12 billion dollars worth of activity, United Rentals Inc only serves 4%. Think about the existing opportunities for growth.
Since it is possible for United Rentals Inc to handle more, it is time they seized the bull by the horns (United rentals Inc, Q4 2008 Earnings call, 2009). As a way of dealing with the weakened economy, the US Congress signed the stimulus package into law. The package is for purposes of stimulating economic activity in a weak economy. In the package a total of 135 billion dollars has been set aside for infrastructural development. This is good news especially for United Rentals Inc end markets. Consider this. Some 7. 2 billion dollars has been set aside for expanding the broadband network with another 4 billion dollars for sewer works.
United Rentals Inc is considered to be one of the leading trench safety rental companies in the Northern America. Accordingly, the company expects to immensely benefit from the government expenditure on infrastructural developments (Herszenhorn, 2009). According to Kneeland, reducing the branch network by getting rid of underperforming entities, reducing the number of employees, cost control and fleet management are all strategic decisions by the United Rentals Inc aimed at stabilizing the company in a weakened economy and triggering future growth of the company (United rentals Inc Q4 2008 Earnings call, 2009).
Nonetheless, the above may be termed as the short term objectives of the company. The long term objectives remain the growth of the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), market share and ultimately customer leadership. 3. 5 Customer service. In 2009, the company recently launched what was referred to as Operation United. This may be defined as a company wide initiative aimed at earning and retaining customer loyalty. According to research, there is no equipment rental company in Northern America that has been successful as far as differentiating itself on the basis of customer service is concerned.
United Rental Inc is committed to capturing this particular objective. According to Hennig-Thurau & Hansen, customer retention will translate in increased revenue and high profits. It is important to know that as far as customer retention is concerned, customer satisfaction is imperative. If United Rental Inc hopes to retain its customers and gain more through referrals, their services should be impeccable. It is at this point that the principle of Customer Relationship Management comes in handy.
Customers are primal to a company as they make the difference between successful and not so successful companies (2000). Thus, United Rental Inc has plans to offer incomparable customer service and experience. The services in all its branches will be of high standards and will also be consistent. As part of Operation United, which is geared towards maintaining customer loyalty, the company is also planning on altering its sales compensation system, the account service organization and benchmarking to greatly replicate its goals.
According to the CEO of the company Mr. Kneeland, United Rentals Inc plans on winning new accounts, augment its wallet share using existing accounts and ensconcing their brands as the customer’s choice for equipment rentals (United rentals Inc Q4 2008 Earnings call, 2009). The 2009 plans have their basis on the strategic plans implemented back in 2007 where the company set to grow its earnings to higher margins and generate cash flow.
The core elements of the 2007 plan were to focus on employees and the sales representatives in the company’s core rental business, optimize the management of its rental fleet and most importantly reduce the operational costs (United rentals Inc Q4 2008 Earnings call, 2009). 4. 0 COMPANY’S FINANCIAL STRUCTURE 4. 1 Cash flow. Despite the economic downturn in America, United Rentals Inc seems to be performing well. Consider this. In 2008, the company was able to generate significant cash flow. In 2008 alone, the company generated 335 million dollars as cash flow.
In 2009, the company hopes to generate 300 million dollars in cash flow in 2009. As is to be expected, the cash flow is expected to be lower in 2009 due to the current state of the American economies. There is no sure way of telling if the stimulus plan will work as expected and if the benefits will trickle down to companies as United Rentals Inc (United rentals Inc Q4 2008 Earnings call, 2009). 4. 2 Liquidity According to United Rentals Inc’s chief financial office, Mr. William Plummer, the company has a strong liquidity position.
Towards the end of 2008, the company had over 600 million dollars in liquidity (United rentals Inc Q4 2008 Earnings call, 2009). 4. 3 Financial flexibility The capital structure of United Rentals Inc provides the company with ample flexibility. For instance, as far as debt maturities are concerned, the company has no significant debt maturities until the year 2012. This is when the company’s 6. 5% senior notes mature. The company’s financial flexibility then makes it possible to retire 125 million dollars of the 14% Hold Co notes in the third quarter of 2009 (United rentals Inc Q4 2008 Earnings call, 2009).