Construction Equipment surveys firms with fleet-replacement values of $25 million or more each year to gauge their business outlook and fleet-management intentions. The Giants list includes construction firms, materials producers, rental companies, industrial companies, government agencies, and other owners of mixed fleets of mobile diesel equipment. Contractors make up 47 percent of the full Giants list.
The economy is strong and Giant contractors and materials producers are riding high on highway funds flowing from last year's Transportation Equity Act. According to the Construction Equipment Giants survey, it appears as if some of the country's largest equipment-owning firms had a hard time staying in the saddle during the wild ride of 2005.
Business seemed almost too good last year, particularly for rental, contractor and materials-producer Giants. Firms working those vocations were coming off of three years of very strong work-volume growth. Last year, tremendous percentages of them forecast increases in work volume — the most ever for rental and contractor Giants. Respondents to the Giants survey early this year indicated that even more firms increased work volume in 2005 than anticipated — all of the rental firms, 74 percent of contractors, and 61 percent of materials producers.
Contractors' 2006 work-volume forecasts have moderated compared to last year's juggernaut, but if they remain true to their historical accuracy, the percentage of Giant contractors that logs actual work-volume increases this year will be greater than in any year from 2004 back to 2000.
The percentage of Giant contractors that anticipate 2006 will be a very good or excellent business year increased several points to 49, marking the third year above 40 percent for this indicator of bountiful business. In a similar way, the percentage of contractors increasing spending on replacement equipment has grown through the mid 40s over the past three years.
Materials producers don't have the same track record for work-volume prediction. In 2005, 14 percent of them underforecast work volume. Perhaps as a result of this pleasant surprise, a remarkable 67 percent of materials Giants expect work volume to increase again this year — second only to the rental firms on the Giants list.
Fifty-five percent of materials firms plan to spend more on equipment this year than last — a number that equals rental Giants' expectations. And 56 percent of materials producers expect 2006 to be a very good or excellent business year.
About 17 percent of mining Giants didn't achieve their projections for work-volume growth last year, but it's clear that their workload leveled off at a profitable point. Even though the percentage of miners expecting a very good or excellent business year dropped by 18 percent, the 58 percent expecting a big year is second only to rental firms among Giant vocations. Giant mines' fleet buying should remain on the rise, as half of them expect to spend more on equipment this year.
The contrasts in rental Giants' 2006 business outlooks and plans could prove to be an example of business being too good. Ninety-four percent of rental Giants expected very good to excellent business in 2005. All of them saw work volume increase last year, and 91 percent expect work volume to grow again this year. It's the most positive forecast among Giant vocations, and supports 64 percent of rental firms that expect very good or excellent business this year. Nonetheless, the percentage of Giant rental firms with great business expectations plunged 30 percentage points compared to the 2005 outlook.
Extreme work volume growth for three years inspired 88 and 91 percent of rental Giants to increased spending on replacement equipment in 2004 and 2005. With little let-up in demand expected, only 55 percent of rental Giants plan to increase fleet spending this year. That forecast is tied with materials Giants for the lead in equipment-spending growth plans, but it is 36 points below last year's level.
Utility companies with Giant fleets have the only really damp outlook on 2006. Five percent of utilities were expecting work volume to rise last year, but instead found work holding pace with 2004. None expect business to be very good or excellent this year.
With expectations for business quality drooping but favorable, some business sectors are ripe for mergers and acquisitions. Some Giant contractors are trading on recent success to add market share and build bidding strength. Parsons, for example, bought RCI Construction Group, the largest minority-owned business in Washington, last year. Giant vocations such as rental, mining and materials that are more sensitive to mixed signals in today's economic tea leaves (slowing housing starts and 17 prime-interest-rate hikes combating inflationary energy and raw-material costs) are awash in acquisition activity.
Six of the seven largest rental fleets are openly involved in some kind of acquisition. Ashtead, European parent to Giant rental company Sunbelt, bought NationsRent in August. An investment group called Diamond Castle Holdings bought NES earlier in the year, and H&E Equipment paid nearly $60 million for California's Eagle High Lift. Atlas Copco expects to close the sale of its rental subsidiary RSC within a couple of months, and the newly independent Hertz Corp. could find a buyer for its equipment rental company (HERC). Maxim Crane Works recently hired Goldman Sachs to "explore strategic alternatives," including merger or sale of the country's most valuable crane fleet.
Mining titan, Barrick Gold, bought competitor Placer Dome to become the world's largest gold miner. Phelps Dodge is trying to buy Inco, which was unable to close a deal to buy Falconbridge. Teck Cominco is competing with Phelps Dodge for Inco, and Xstrata is now attempting to buy Falconbridge.
Ashland is negotiating the sale of its APAC paving subsidiary to Irish materials-company consolidator OldCastle, and the Aggregate Industries subsidiary of Holcim US bought The Meyer Co. last year.
It's shaping up as a year of change for Giants. Some super-heated businesses — rental and mining firms in particular — are cooling to manageable levels. Others — contractors and materials Giants, for instance — seem to be just reaching a temperature where they can really cook.