선벨트 렌탈스(SUNB) 2027 회계연도 1분기 실적 발표 컨퍼런스 콜: 가이던스 상향

핵심 요약

• 선벨트 렌탈스(SUNB)는 2026년 7월 31일로 종료된 2027 회계연도 1분기에 사상 최대 매출, 조정 EBITDA, 조정 영업이익, 조정 EPS를 기록했다고 발표했습니다.
• 총매출은 전년 동기 대비 11.2% 증가한 31억 달러를 기록했으며, 렌탈 매출은 12.5% 증가한 29억 달러를 기록했습니다.
• 조정 영업이익은 13.8% 증가한 7억 5,900만 달러를 기록했으며, 마진은 60bp 확대된 24.4%를 나타냈습니다. 조정 EPS는 20.4% 증가한 1.18달러를 기록했습니다.
• 북미 스페셜티 부문이 성장을 견인하며 렌탈 매출이 25.3% 증가했고, 금액 가동률은 300bp 상승한 77%를 기록했습니다. 북미 제너럴 툴 부문의 렌탈 매출은 7.4% 증가했습니다.
• 경영진은 2027 회계연도 가이던스를 총매출 성장률 6%~9%, 렌탈 매출 성장률 7%~10%, 조정 EBITDA 49억 2,000만~51억 2,000만 달러로 상향 조정했습니다.
• 회사가 메가 프로젝트, 스페셜티 및 에너지 분야의 확정 수요를 목표로 함에 따라 총자본지출 가이던스는 27억 5,000만~31억 5,000만 달러로 상향 조정되었습니다.

주요 재무 데이터

경영 및 영업 성과

북미 제너럴 툴 부문은 전년 동기 대비 5.7% 증가한 17억 달러의 총매출을 기록했습니다. 렌탈 매출은 대여 장비 증가와 요금 인상에 힘입어 7.4% 증가했습니다. 금액 가동률은 47% 수준을 유지했습니다. 조정 EBITDA는 3.2% 증가한 반면, 마진은 52.8%에서 51.5%로 하락했으며, 마진 변동의 약 절반은 연료비 상승에 기인했습니다.

북미 스페셜티 부문은 총매출이 24.5% 증가한 11억 달러를 달성했습니다. 렌탈 매출은 전력 및 냉난방(Power and HVAC) 부문이 성장을 이끌고 인수합병 및 FIFA 월드컵 활동의 지원을 받아 25.3% 증가했습니다. 또한 온습도 제어, 가설재, 바닥재, 펌프, 지반 보호재 및 임시 펜스 전반에 걸쳐 광범위한 성장이 이루어졌습니다.

스페셜티 부문의 조정 EBITDA는 19% 증가했으나, 마진은 48%에서 45.8%로 하락했습니다. 경영진은 마진 변동의 약 4분의 3이 노동 집약적 설치 및 복잡한 에너지 관리 프로젝트 전문 지식을 포함한 부가 매출의 빠른 성장에 기인한다고 설명했습니다. 회사는 이러한 서비스가 매력적인 수익률을 창출하고 렌탈 침투율을 높인다고 덧붙였습니다.

영국 부문은 매출 2억 4,000만 달러, 조정 EBITDA 6,100만 달러를 기록했습니다. 조정 EBITDA 마진은 25.4%를 나타냈고, 조정 영업이익률은 10bp 개선된 8.3%를 기록했으며, 금액 가동률은 54%로 상승했습니다.

모듈러 사업 인수는 회사 전체 렌탈 매출 성장률에 약 100bp, 스페셜티 렌탈 매출 성장률에 약 300bp 기여했습니다. 선벨트는 8월 초에 시스템 통합을 완료했습니다. 경영진은 모듈러 사업을 통해 2,400만 달러 규모에 달하는 669건의 교차 판매 가망 고객(lead)을 발굴했으며, 이 중 250만 달러 이상은 이미 수주했고 1,400만 달러는 공식 제안요청서(RFP) 단계에 있다고 밝혔습니다.

선벨트는 13개의 신규 지점을 개설하고 2건의 인수를 통해 17개의 스페셜티 지점을 추가했습니다. 2027 회계연도 동안 약 55개의 신규 지점을 개설한다는 목표는 차질 없이 진행 중입니다.

경영진 가이던스

경영진은 높여 잡은 전망치가 1분기 실적, 대형 및 전략 고객의 견조함, 메가 프로젝트 활성화, 안정적인 지역 비주거용 건설 시장을 반영한 것이라고 밝혔습니다.

추가적인 장비 투자는 메가 프로젝트, 스페셜티 및 에너지 분야의 구체적인 기회에 투입됩니다. 경영진은 이를 투기적 CapEx가 아닌, 확정된 고객 수요와 뛰어난 장비 생산성에 뒷받침된 기회 대응형 투자로 규정했습니다.

회사는 투자 확대에도 불구하고 2027 회계연도 동안 견조한 잉여현금흐름을 창출할 것으로 계속 기대하고 있습니다. 또한 경영진은 이번 전화회의에서 새로운 일정을 명시하지는 않았으나, 애널리스트 데이(Capital Markets Day)에서 논의된 200bp의 마진 개선 달성에 대한 자신감을 재확인했습니다.

리스크 및 주시 영역

• 경영진은 이러한 활동이 매력적인 자본 수익률을 창출한다고 밝혔지만, 부가 매출과 스페셜티 부문의 가파른 성장은 보고되는 조정 EBITDA 마진을 낮출 수 있습니다.
• 연료비 및 배송비 상승은 마진 측면에서 계속 고려해야 할 요인입니다. 경영진은 유류 할증료 회수에 일반적으로 약 1분기가 소요된다고 언급했습니다.
• 텔레핸들러, 울트라 붐, 300kW 이상의 발전 장비 등 수요가 높은 일부 장비의 경우 공급 용량이 제한적입니다. 이는 수요가 가속화될 경우 추가 장비 공급을 제약할 수 있습니다.
• 회사의 가이던스 가정에서 지역 비주거용 건설 수요는 가속화되기보다는 안정적인 상태를 유지하는 것으로 산정되었습니다.
• 2027 회계연도의 늘어난 CapEx 계획이 집행됨에 따라 감가상각비 증가세는 분기별로 확대될 것으로 예상됩니다.
• 데이터센터 건설 유예 조치가 일부 지역에 영향을 미치고 있으나, 경영진은 프로젝트 착공이 늘어나고 있으며 전체 메가 프로젝트 파이프라인은 여전히 다변화되어 있다고 설명했습니다.

애널리스트 Q&A 하이라이트

가격 결정력 및 가동률: 경영진은 렌탈 요금 모멘텀이 5월부터 7월까지 개선되었으며 8월에도 이어졌다고 밝혔습니다. 회사는 요금과 물량의 비중을 수치화하지는 않았으나, 렌탈 요금과 시간 가동률 모두 상승했음을 강조했습니다. 추가적인 요금 상승 가속화는 가이던스의 상방 요인이 될 수 있습니다.

마진 추세: 경영진은 마진이 연중 점진적으로 개선되면서 2027 회계연도 전체로는 전년 대비 대체로 보합세를 유지할 것으로 예상합니다. 지지 요인으로는 가격 반영, 연료비 및 배송비 회수, 운영 효율성, 견조한 가동률, 감가상각비 증가율을 상회하는 렌탈 매출 성장률 등이 꼽힙니다.

장비 보유 규율: 전년 대비 장비 증가액 중 약 1억 달러만이 기존 제너럴 툴 지점에 투입되어, 렌탈 매출 증가에도 불구하고 해당 지점들의 장비 증가율은 약 1%에 그쳤습니다. 경영진은 이를 지역 비주거용 시장에 장비를 과도하게 투입하지 않고 있다는 증거로 제시했습니다.

메가 프로젝트 다변화: 선벨트의 전체 메가 프로젝트 중 반도체 프로젝트는 3%, 데이터센터는 13%를 차지합니다. 파이프라인 내 프로젝트의 약 80%는 개시 예정, 확대 단계 또는 진행 중으로 보통 최소 3년의 비전을 제공하며, 20%는 축소 단계에 있습니다.

에너지 기회: 선벨트는 비상 전력, 시운전, 로드 뱅크, 라이브 이벤트, 예비 전력 용량 및 광범위한 전력화 부문 전반에서 지속적인 수요를 확인하고 있습니다. 경영진은 시운전 과제의 경우 프로젝트에 따라 보통 8~12개월간 지속될 수 있다고 언급했습니다.

FIFA 월드컵 기여도: 월드컵 관련 활동은 회사 전체 렌탈 매출 성장률에 약 250bp 기여한 것으로 추정됩니다. 경영진은 관련 매출의 약 75%~80%가 스페셜티 부문에서, 나머지는 제너럴 툴 부문에서 발생했으며, 해당 작업이 조정 영업이익률 개선에 기여했다고 설명했습니다.

실적발표 전화회의 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Greetings, and welcome to the Sunbelt Rentals First Quarter Fiscal Year 2027 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] It's now my pleasure to turn the call over to Kevin Powers, Senior Vice President, Investor Relations. Kevin, please go ahead.

Kevin Powers

Thank you, operator, and good morning, everyone. This morning, I'm joined by Brendan Horgan, our Chief Executive Officer; and Alex Pease, our Chief Financial Officer. Today, we'll review our first quarter results for the period ended July 31, 2026, discuss our operating and financial performance, and we will share industry perspectives and strategic outlook. We will then open the call for questions.

Let me remind you that today's call will include forward-looking statements. These statements are based on the environment as we see it today and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the press release and 8-K filing as well as other filings with the SEC.

Today, we are reporting financial results on a U.S. GAAP basis. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations to these non-GAAP measures to the closest GAAP equivalent can be found in the earnings release and the conference call materials.

Before we start, I'll note that we'll be attending the Morgan Stanley Laguna Conference next week, and we hope to see some of you there. And now I'd like to turn the call over to Brendan.

Brendan Horgan

Great. Thanks, Kevin, and good morning, everyone. As you've now come to expect, we'll begin with an update on our safety performance before heading into the quarter 1 highlights.

I'm proud to report that we continue to see world-class safety performance across the organization. In the quarter, we achieved a total recordable incident rate of 0.46 and a lost time rate of 0.14. Results like these do not happen overnight, they reflect the strength of our Engage for Life culture and our team's relentless focus on doing the right things the right way. I cannot thank our team members enough for their commitment to safety, dedication to our customers and their drive to get better every day.

Our culture of continuous improvement and disciplined execution remains a key differentiator for Sunbelt, and it continues to show up in our performance, especially reflected in our recent results.

Now on to the quarter. We delivered record first quarter results in revenue, adjusted EBITDA, adjusted operating profit and adjusted EPS. These results were supported by strong levels of demand across a broad range of end markets, including mega projects, energy, live events, industrial nonconstruction MRO along with another quarter of stability and demand in our local nonresidential construction markets.

Notably, rental revenue growth was broad throughout our customer base, with strength across small and medium enterprises and outsized growth with our large and strategic customers, growth that significantly outpaced the broader market, demonstrating the strength of our leading position and breadth of expertise and solutions. The momentum we're seeing across the business gives us confidence in the trajectory of the year ahead, and, as a result of this, we are raising our fiscal '27 guidance for revenue, adjusted EBITDA and CapEx. Alex will cover this and our financial performance in greater detail shortly. But first, I'd like to highlight the quarter and the drivers that underpin our confidence in the business.

Total revenue grew 11%, and rental revenue increased 13% as growth accelerated across North America General Tool and Specialty, which increased 7% and 25%, respectively. Adjusted operating profit increased 14% with margins expanding to 24.4%, while adjusted EBITDA increased 9% at a margin of 42.2% compared with 43.2% last year.

The adjusted EBITDA margin performance was consistent with our expectations, reflecting faster growth in ancillary revenues and in specialty. Although this mix shift affects EBITDA margin, Specialty generates structurally higher returns on investment than General Tool meaning each point of sales mix towards Specialty will, over time, enhance our return on capital.

Finally, adjusted EPS increased 20.4% to a first quarter record of $1.18, driven by higher operating profit and the benefit of our share repurchase program. These results reflect our disciplined investment, stronger price and execution, improved recovery of fuel and delivery cost and most importantly, our ability to deliver for our customers. That success is driven by the hard work, best-in-class execution and customer-obsessed mindset of our team members.

During the quarter, we continued to win across a broad range of opportunities from serving as the sole rental provider on a leading hospital expansion in Rochester, Minnesota, to supporting one of Canada's largest data center developments in Saskatchewan, to summer cooling solutions for large distribution and warehouse operations and, of course, one of our most watched projects this summer, the 2026 FIFA World Cup. While these are only a few examples of our proven position as a partner of choice for the most complex projects, we're experiencing strong broad-based customer activity, which continues to support higher fleet on rent levels, higher utilization and strengthening rate momentum.

As local activity remains stable, we're encouraged by the positive leading indicators, especially in 2 specific areas. First, when we look at the Dodge Momentum Index, it continues to show increased positive movement in planning activity, which historically moves into construction starts within 12 to 18 months. Second, industry supply and demand remains balanced, supported by strong utilization levels and improved pricing. Manufacturers have maintained capacity discipline, while fleet investment remains closely aligned with customer demand. As project activity expands, particularly across mega projects and energy demand, customer requirements become more complex, providers with scale, fleet availability and specialized expertise are best positioned to win. We believe these dynamics position Sunbelt to capture attractive growth opportunities across our markets.

Against this backdrop, broad-based growth accelerated throughout General Tool and Specialty. General Tool benefited from increased fleet on rent and activity across our local markets and strategic accounts. While Specialty delivered strong growth, notably across Power HVAC, climate control, scaffolding, flooring, pump, ground protection and temporary fencing. Within Specialty, Energy Solutions remain a significant opportunity for Sunbelt. As power needs become increasingly complex, our customers are looking for partners who can deliver both equipment and expertise. Through our energy management as a service offering, we're helping customers manage these needs across the project life cycle, positioning us exceptionally well to capture ongoing growth.

We'll continue to differentiate Sunbelt as our ability to leverage the full breadth of our platform to serve customers in more meaningful ways. Through the power of Sunbelt as we call it, we are increasingly bringing together our General Tool and Specialty offerings, which now include modular solutions capabilities. This enables us to support a broader range of customer needs and the integrated approach, deepens customer relationships, increase the share of wallet and creates new cross-selling opportunities throughout our current and future customer base. Importantly, our system integration of Aries into Sunbelt was complete in early August, which will help support future needs.

As we integrate modular solutions into our offering, the immediate cross-selling opportunity is evident. Our teams are introducing modular solutions to existing Sunbelt customers, while former Aries customers are gaining access to a broader General Tool and Specialty portfolio. This early adoption reinforces our view that customers value multiple solutions through a single relationship. Looking ahead, we see meaningful opportunities to expand modular through greenfield openings, fleet investment and continued integration across the power of Sunbelt.

Modular Solutions is currently in just 14 of our top 50 Sunbelt markets, and we continue to expect to significantly scale the business in the coming years.

With that, I'll turn it over to Alex for more detail on the quarter and updated outlook.

Alexander Pease

Thanks, Brendan, and thank you to everyone who joined us on the call today. As Brendan noted, first quarter momentum was strong across the business, led by broad-based growth across General Tool and Specialty. This was supported by the ongoing structural progression across our business and our industry as well as continued execution of our strategy to deepen market presence and expand our addressable market opportunities.

Total revenue increased 11.2% to $3.1 billion, while rental revenue grew 12.5% to $2.9 billion. The contribution from [ ARRIS ] acquisition contributed approximately 100 basis points to rental revenue growth and we estimate that the contribution from our efforts to support the FIFA World Cup added another 250 basis points to rental revenue growth in the quarter.

Total company average OEC increased 6% and also within rental revenue, ancillary revenues grew at more than 2x rental revenue growth. Moving to used equipment. While sales were $85 million compared to $103 million last year, we saw recovery rates increase pointing to pricing stabilization and demand within the used equipment market. As we continue to scale our new retail channel, we expect used equipment margins to improve further.

Depreciation was $556 million and adjusted operating profit increased 13.8% to $759 million, with operating margins expanding 60 basis points to 24.4%. The improvement in margins was primarily due to SG&A expense leverage and a reduction of depreciation expense as a percent of sales reflecting our disciplined approach to fleet growth investments.

Adjusted EBITDA increased 8.7% to $1.3 billion at a margin of 42.2% compared to the prior year quarter of 43.2%. We estimate that roughly 3/4 of the year-over-year margin change reflected higher relative growth in ancillary revenue, partially offset by rate improvement. Importantly, adjusted EBITDA margin improved 350 basis points sequentially from the fourth quarter, reflecting better recovery of higher fuel and delivery costs as well as pricing momentum.

Finishing up the P&L. Interest expense was $107 million and adjusted pretax profit was $652 million. Adjusted EPS increased 20.4% to $1.18 per share.

Turning to our segments. North America General Tool total revenue increased 5.7% to $1.7 billion. Rental revenue increased 7.4% and dollar utilization was consistent with last year at 47%. This improved growth was driven primarily by higher fleet on rent supported by rate improvement. Adjusted operating profit increased 4% and adjusted EBITDA increased 3.2% at a margin of 51.5% compared to 52.8% last year.

We estimate that about half the margin change in the quarter was the result of higher fuel costs, which was partially mitigated by rate.

Continuing with our segments. North American Specialty total revenue increased 24.5% to $1.1 billion. Rental revenue grew 25.3% and dollar utilization increased 300 basis points to 77%. Growth was broad-based across multiple verticals, led by Power and HVAC and also benefited from recent acquisitions as well as World Cup-related activity.

Our acquisition of Ares in May added approximately 300 basis points to Specialty rental revenue growth in the quarter. Adjusted operating profit increased 24.3% with margins consistent with last year, supported by ancillary revenue growth of more than 40% with strong returns on capital.

Adjusted EBITDA increased 19% with a margin of 45.8% compared to 48% last year. We estimate that about 3/4 of the margin change in the quarter was due to higher relative growth of ancillary revenues. As a reminder, within ancillary revenues, these offerings to our customers reflect the specialized expertise and labor-intensive installation often required for our solutions, particularly in complex energy management projects. These projects deliver attractive returns, deepen rental penetration and expand our addressable market.

U.K. total revenue was $240 million. Adjusted EBITDA was $61 million at a margin of 25.4%, while adjusted operating profit margin expanded 10 basis points to 8.3%. In addition, dollar utilization improved to 54%.

We continue to remain focused on actions to improve margins and return on investment within this segment. Moving on to CapEx. Gross rental capital expenditures nearly doubled to $759 million, and net rental capital expenditures increased 78% to $682 million. The higher level of investment is supporting existing customer project wins, while we are experiencing higher time utilization across the fleet as our project pipeline continues to grow.

Shifting to returns and cash flow. Our return on investment on a trailing 12-month basis remains strong at 14.6%, which was an improvement from year-end, and we expect continued progress this year. Free cash flow in the quarter was $70 million and the change compared to the prior year reflects significant growth in CapEx, combined with the timing of cash payments in the first quarter related to equipment landings, which occurred in the fourth quarter of 2026.

We expect free cash flow generation to improve throughout the year as our business continues to demonstrate through the cycle cash generation. This supported the opening of 13 greenfield locations in the quarter, and we remain on track to open approximately 55 this year. We also completed 2 acquisitions, including the previously announced Aries acquisition, which combined, added 17 specialty locations.

On the balance sheet, Net leverage was 1.8x at the end of July, within our long-term target range of 1 to 2x. Liquidity remained strong at approximately $3.8 billion. Of note, during the quarter, we completed an offering of $1.2 billion in unsecured senior notes, consisting of a $450 million tranche at a rate of 4.95% and a $750 million tranche at a rate of 5.65%. The success of these transactions demonstrates the strength of our balance sheet and our investment-grade rating as well as extending our debt maturity profile and providing additional financial flexibility. We intend to use the net proceeds for refinancing existing debt, funding capital expenditures and working capital and supporting other business opportunities.

During the quarter, we returned $363 million to shareholders through share repurchases and dividends. In the quarter, we made our final fiscal year 2026 dividend payment of $0.75 per share under our previous U.K. framework, and we're now transitioning to quarterly dividends as a U.S.-listed company.

Our first quarterly dividend of $0.30 will be paid on October 2, and our capital allocation priorities remain consistent: organic growth, bolt-on M&A, supporting our progressive dividend and finally, share repurchases.

Now let's move to fiscal 2027 guidance. We're raising our outlook for the year and now expect total revenue growth between 6% and 9% and rental revenue growth between 7% and 10%. These updated ranges reflect our first quarter performance, continued strength across our large and strategic customers, strong mega project activity as well as stable local nonconstruction -- nonresidential construction markets. We now expect adjusted EBITDA of between $4.92 billion and $5.12 billion. This represents solid year-over-year dollar growth, and we continue to expect full year margins to be broadly consistent with the prior year.

On fleet investment, we're raising gross capital expenditure guidance to between $2.75 billion to $3.15 billion and raising net rental capital expenditure guidance to between $2.4 billion and $2.8 billion. These increases are driven by demand that has exceeded our original expectations, particularly across mega projects, specialty and energy. The additional investment is targeted towards these specific growth opportunities and supported by committed customer demand and strong fleet productivity.

With these increases to guidance, we continue to expect strong free cash flow generation throughout the year, while investment levels are increasing to support accelerating growth opportunities across the business. We remain confident in our ability to generate meaningful cash flow and create long-term value for shareholders.

Before we begin the Q&A, I'm going to pass back to Brendan to give us some closing thoughts.

Brendan Horgan

Thanks, Alex. And to wrap things up, if there's one takeaway from today's call, it is what we have clear top line and bottom line growth and momentum. With broad-based strength across the business, as an organization, we remain laser focused on our customer success obsession, share gains, driving improved utilization, progressing rate further, improved recovery of fuel and delivery costs and advancing the operational excellence initiatives that support further efficiency gains. The team delivered a strong quarter, and as reflected in our increased guidance today, the beginning of what we expect to be a great year.

And with that, operator, we will open the call for questions.

Operator

[Operator Instructions] Our first question today is coming from Rob Wertheimer from Melius Research.

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Robert Wertheimer

So obviously, it's strong revenue momentum, op margins up, which is great. When you look at margin performance overall, ancillary drag, I guess, we can call it kind of a good thing. You had some fuel costs. Can you kind of remind us on what time frame you typically recover fuel costs? And does it feel as easy to do that as typical or as it should in this environment? In other words, can you get back pretty easily on that?

Brendan Horgan

Yes, sure. Rob, from a fueling standpoint, there's 3 points of course, where we charge for the service of fueling, fueling at the rental return, which is no real harder than it's ever been and it's remarkably just mechanical. Second will be on larger on-site fueling services that are part and parcel of an overall package and also would include in that larger live events. And there, we have a range of different agreements that are part of the overall engineered design and solution with pricing to the customer. And then, of course, a large element of that is just the -- what we charge for the service of delivery and pickup of our rental assets. It's also worth pointing out in all of that, this is all very high ROI because we're making margin on all of that. The margins vary a bit between those different tranches and different sort of product applications and scale. But nonetheless, we are seeing that progress as you've seen that sequentially, as you pointed out, that we are seeing all of this actually flow through positive incrementally to adjusted operating income.

Robert Wertheimer

Okay. Perfect. And then, obviously, revenue growth is pretty strong. Can you just update us on how you think about flow through? I don't know if there's any abnormal inflation pressures or investments you're doing or whether we continue to see kind of healthy flow-through.

Brendan Horgan

Yes. Thanks, Rob. Look, we look at flow-through from an EBITDA flow-through standpoint. We look at EBITA or an operating profit flow-through. And I think, really, the question is answered in the guide. So we've increased our rent revenue guide, and we've actually maintained our margin. You heard Alex talk about how ancillary revenue growth is significantly outpacing that of pure rental revenue growth. And that demonstrates really the focus and the discipline and the operational excellence initiatives that the business has underway that are driving incremental margins in those ancillaries and there -- as I've just said, they're being accretive.

Operator

Your next question is coming from Annelies Vermeulen from Morgan Stanley.

Annelies Vermeulen

So my first question was also on the margin. So you're keeping your EBIT margin guide flat year-over-year, but your operating profit margins are higher for the first time in a couple of years, I think, and that's despite the fact that I think you said previously, Aries would be a margin drag in year 1. So can we unpack that progress a little bit in terms of how much is the lower depreciation charge? How much is better rates or better utilization, better fuel pass-through that you've already touched on? Any mix effects to consider clearly with Specialty growing faster? And putting all that together, would you expect to continue progress operating profit margins in the coming quarters? That's the first one.

Alexander Pease

Okay. So there was a lot there, Annelies. So I'll do my best and then just feel free to ask follow-ons, if I don't get it all. So first of all, underlying the guide, we are continuing to assume that Specialty growth will outpace general tools. So you'll continue to have this mix impact, especially growth growing significantly more than General Tool, even though both segments will continue to demonstrate strong growth levels. So you will have that dynamic there.

We also -- because of the significant amount of mega project activity and live events, we'll still see significantly higher ancillary growth. So again, as a reminder, in Specialty, for this quarter, 75% of the margin was explained by this higher level of ancillary growth. We would anticipate that to continue.

In terms of the other factors that you mentioned, Brendan talked about fuel typically takes a quarter or so before we start realizing the benefits of the fuel surcharges and so we should anticipate seeing that. And then all of the operational efficiency initiatives that we're executing on around delivered cost recovery, as we mentioned, managing overtime expenses, staffing levels, those sorts of things are already generating significant operational benefits, and we'll begin to see the financial benefits of those.

Last thing I'll mention is, we've actually not baked in a lot of momentum on rate despite the fact rate improvement has accelerated through the quarter. So that would represent upside to the guide. We've also pointed out in our prepared remarks that the local residential construction markets remain stable and that's also what's embedded in our guide. So hopefully, that help unpack your question a little bit.

Annelies Vermeulen

Yes. Super clear. And then the second one was on the CapEx guide, which you've raised today. So could you talk a bit about where that additional fleet is going? And how much of that is indicative of what you expect for demand into next year rather than this fiscal year? And as part of that, do you have any concerns around overfleeting in the industry given all the CapEx increases we've seen across the sector so far this year?

Brendan Horgan

Sure, Annelies. I'll take that. Look, this CapEx that was deployed in the quarter and the CapEx that we have guided here today, the increase in the balance of the year CapEx, this is very much opportunity CapEx. So the growth CapEx inside of that, not that, which is not the replacement CapEx is going to areas of immediate opportunity. Be that our Specialty same-store branches, greenfield openings, which have been very, very biased to Specialty over the course of the quarter, mega project wins et cetera. I guess it's really important to your question though, when it comes to are we concerned with industry over-fleeting. And certainly, the way that we're seeing things today, I mentioned in the prepared remarks, we see a pretty strong discipline from an OEM capacity standpoint, said another way, they're just not creating all that much or manufacturing all that much more equipment going into the marketplace. And yes, we've seen CapEx raises from other public companies. It really demonstrates the big getting bigger because the opportunities that we're talking about today in many of these markets are just that.

Customers looking for a far broader a far broader solution that the likes of Sunbelt are able to deliver. One thing we've been watching extraordinarily closely, as we think about that local non-res market that we're talking about has good demand but is stable on a year-over-year basis. How much of the fleet growth is going to our same-store General Tools? So if you look at it in round numbers, our fleet size is about 1.4 bigger at the end of July than it was last year. And if you look at where that has grown, only $100 million or so has gone to our General Tool same stores, meaning those branches only have 1% more fleet than they had a year ago and look at the growth that they delivered in the quarter, which gives us great comfort that we're not over fleeting that local non-res business. Even though we continue to see improved signs there, what you're seeing from the business is, which is a bit added on to your first question that Alex covered, you're seeing improved time utilization. You're seeing improved rental rate. You're seeing improved operational excellence, discipline and execution, and that look no further than seen rental revenue growing at 12.5% versus depreciation growing at 2.5%. Very important that we're in this really good place from a supply and demand standpoint.

Operator

Next question is coming from Jerry Revich from Wells Fargo.

Jerry Revich

Alex, could you just go back to comments that you made earlier in terms of rental rate being a positive surprise. Can you just frame that for us? Typically in an up cycle, we see rental rate during the construction season up 50 to 100 basis points per month. Is that the magnitude of improvement that you're seeing? And can you just calibrate us on where your general rental time it stands versus prior cycle highs, just to put better perspective?

Alexander Pease

Sure. So I'll give you sort of the current state on the battlefield and then Brendan can talk about prior cycles just given his history. We obviously don't comment specifically on rate. But what I will say is the momentum with rate has been improving as we've gone through the year, and we're continuing to see that in through August. So as Brendan would have mentioned in his prepared remarks and also in his response to Annelie' question, supply and demand is tight. Utilization rates are up and fleet on rent is up. So all that would point to a very supportive rate environment. So that's sort of consistent with what we would see through the balance of the year. Obviously, as I mentioned in my response to Annelies' comment, to the extent the rate environment continues to accelerate, that would be upside to our guidance. And I'll turn it over to Brendan to comment on how this compares to prior cycles.

Brendan Horgan

Yes. First, Jerry, thanks. But I'll just say I don't think Alex said surprised if you did the aspire, I didn't mean to say is pre, we weren't surprised with rate over the course of the quarter. That was exactly what we expected. We challenged the team this year to drive the overall economic, and with the capital investment that the team has earned in the business, they've done just that. They've delivered strength in time utilization, strength in wins and strength in rental rate progressed nicely from a momentum standpoint from May to June to July and moving forward.

from a historical standpoint, time utilization, we're in a really good position. We're in a really good position compared to our historical highs. So we're going to be in those top sort of 2 or 3 years that we've had over time. And it appears as though, so does the industry. But it's worth pointing out just because just as our team would say to us, hey, I'm at my all-time high in a particular district or region, et cetera., we'll remind them that our quantities are a lot higher than they were before. So if you own 1,000 in a market as opposed to owning 500 of a particular CAT class in the market, you have the ability to extract even higher time utilization with having healthy availability there to say yes to our customers.

So look, as we all know, when it comes to rental rates in this industry, first things first. Think about how resilient pricing was over the last few years and look at now the momentum in pricing and momentum is required a bit of swagger is required, and that's exactly what the team is delivering.

Jerry Revich

Super appreciate the context. And then from the semi's end market standpoint, right, the pricing improvement that we're seeing is with semi's CapEx actually still coming down, the CapEx plans from the industry are to go back towards '24 level highs. Can you just put that in perspective for us and what that could mean for Sunbelt back in '24? Brendan, where was your fleet deployed towards semis and electronics, just so we can get a sense for the magnitude of upside as they ramp new [indiscernible] facility CapEx from here?

Brendan Horgan

Yes. I mean, look, we are, as I said, in terms of the CapEx, similar to what we -- how we executed in the first quarter in terms of where that CapEx was pointed, the increased guide that we gave follows precisely that same path. I do think as we win more megas and it's a very broad range of mega projects, not just those that you would have cited or embedded in your question, we'll see more of that allocate that way as well, but also further investment in some of the energy opportunities that we're seeing, some of the energy wins that we're seeing, and we expect that to continue to be at a very high time utilization level and with progressing rental rate.

Alexander Pease

The only other point I'd make on your specific question, Brendan touched on it, but our mega project universe is incredibly diverse. It spans entertainment venues, infrastructure projects, transportation projects, semiconductor, which was your specific question, is only 3%. If you broaden your question to data centers more broadly, that's only 13%. So combined, that's 16% of our mega project universe. So we're certainly not over-indexed to that.

The other point I'd make is, of the projects in the funnel, a full 80% are either upcoming, ramping or active. So the vast majority have at least a 3-year time horizon ahead of us. And then there's 20% that are ramping down. So there's much more to come than is already behind us, would be the only additive points that I'd make.

Operator

Next question is coming from Kyle Menges from Citigroup Inc.

Kyle Menges

You touched on growth in small and medium-sized customers in the quarter. I mean it sounds like you're just assuming a stable outlook for those customers going forward. Just would love to hear what you think has driven the growth and just your thoughts on potential upside to that stable outlook and maybe what needs to happen to actually see that upside come through?

Brendan Horgan

Yes. Kyle, as part, I will refer to Slide 7 and then Slide 8 to answer this. But when we talk about stability, I want to be a bit more clear in terms of how precisely we are measuring this. We've mentioned before our synthetic analysis of starts versus completion. All of you are familiar with Dodge. Dodge actually attracts projects from preplanning, planning, design, bid, award and then starts. Dodge themselves does not have a classification of a project as complete. So what we've done is we've created a synthetic version of that. So if it's a 6-story or below hotel, and on average, that takes 22 months, that's what we plug into the system. And we have found this to be remarkably accurate over time. And to put that in perspective, if we look at sort of a 28-month period from January '23 through April 2025, we saw 28 months -- that 28-month period, where we saw completions outpacing starts in a rather meaningful way that actually led to a square footage reduction of 22% between that period and the '23 through -- between the '21 and '22 period to the '23 and '25 period.

What we've seen now from May of 2025 through today, is 16 months of flat or positive. So that's how we're describing quite detailed technically how we see stability in that local non-res.

When we look to see it move forward, we're looking for all of the signs that we track internally and those parts of internal elements for us are our quotes, our reservations, our continuing contracts, daily contracts, et cetera, which we're all seeing point positive. And I will refer to the DMI on Slide 7, and you'll see there, once again, we have another high. So that's planning activity. So that's speaking specifically to that local non-res construction because those are projects under $0.5 billion, not including manufacturing. And just in July alone, we saw 59 projects of over $100 million in value. And similar to what Alex talked about, on the mega project landscape side, even those projects are remarkably diverse between hospitals, solar, there's a bit of data center in there, but they're the smaller ones, research facilities, government buildings, recreational, just to name a few.

So that's what we see. It's why we are confident in terms of saying that we have good stability there, good supply and demand, and we look forward with quite a degree of confidence.

Kyle Menges

That's great color, Brendan. And then just on Aries, would love to hear maybe your early learnings now that you've completed the acquisition? And then just also, I think you've mentioned potential greenfield store openings. Would just love to hear a little bit more about how you're thinking about maybe greenfields versus further M&A to augment that Aries portfolio.

Brendan Horgan

Sure. Look, we have a very strong pipeline from an M&A standpoint. In the quarter, we added 30 locations, and that's a mix between 17, of course, which were Aries' and 13 greenfield. So overall, there between General Tool and Specialty, your 26 and 4. I'm glad you asked the question in terms of how we're seeing things actually progress with Aries.

We have a great lead funnel. And to be exact, we have 669 leads that have been tracked by what is today the Sunbelt Modular Solutions team with an overall value of $24 million. Now to put that perspective, that's one quarter worth of cross-selling generating that level of opportunity for growth. There's over 2.5 million landed and 14 million of that, which is in actually hard RFPs. So we feel really strong and encouraged about that cross-selling and collaboration. I also mentioned on the call, as of August 1, the systems integrations were complete. So we have bounds of confidence that we will see that business grow significantly over the course of time and also contribute to even stronger growth for our specialty -- broader Specialty and General Tool business.

Operator

Next question is come from Ken Newman from KeyBanc Capital Markets.

Unknown Analyst

Congrats on the quarter. Wanted to follow up on the question earlier about the increased fleet CapEx guide. I think 1 of your larger competitors noted earlier this year that it could be difficult for suppliers to further flex up production if demand were to continue to accelerate. Curious, are you guys seeing a similar dynamic from your specialty suppliers? And maybe just any color on how you think about balancing the opportunity to flex that production if demand comes in stronger versus maybe allowing the utilization rates and the dollar utilization rates to improve even further in that tightness?

Brendan Horgan

Yes. I think it's a fair characterization. I mean, let's face it, when it comes to primary OEMs that supply the industry, there's clear prioritization in terms of who gets the allocations first. And as you've come to expect from us, we are constantly working with our OEMs quite a long ways down the line. It is fair to say for certain high-demand SKUs, so whether that be telehandlers, ultra booms, power generation in the certainly 300 kW and above environment. There's not a whole heck of a lot of spare capacity out there. And as a result of that, we are able to get our preferred position to contribute to what we've guided in terms of increase there's not a whole heck of a lot of flex capacity out there beyond that. But all of that is going to contribute to even more positive as we talked about, as you mentioned in your question, dollar utilization, ability to inch up time utilization further, and it creates a strong rate environment.

Unknown Analyst

Yes. That makes sense. And then for the follow-up, Brendan, I think you mentioned earlier that data center is around 13% of the rental revenue exposure today. Obviously, I think a lot of investors are hyperfocused on the AI infrastructure build-out here in the States. Curious, do you have any color on what you're seeing from activity as it relates to maybe the rising moratorium that you've seen across the country in recent months? Or just any comments on visibility to that sector through the remainder of the year?

Brendan Horgan

Yes, sure. I mean, answered simply, there are -- we're seeing increased starts. So projects that were planned progressing to the actual start phase. Alex talked about the shape overall the mega projects in terms of their phases. And as we're seeing that, we continue to see the pipeline fill.

Now when Alex talked about the spread of overall mega project activity, that's actually what the mega projects have been in terms of segments from effectively this year through 2030. So yes, data centers is 13% of that overall. You have big contributing areas like energy and the rest that he mentioned. We are seeing some of that moratorium realities coming into effect in certain localities. However, in most of those that come to my mind right away, one of which is within 5 miles as a [indiscernible] where we're sitting this morning, we see that there are many starts that have just started before the moratorium. And then certainly, when you talk to our teams and our strategic sellers, what is to follow all of that is energy, energy, energy, and it's a big part of the opportunities that we're seeing. And this ranges from examples like bridge power, commissioning, certainly live events that you're seeing, redundancy desires, lack of grid reliance and capacity and then really just a general increased demand for electrification. So it's not a -- we're not concerned about an oversaturation in one particular area.

Operator

Next question is coming from Tami Zakaria from JPMorgan.

Tami Zakaria

Nice quarter. I wanted to circle back on all the rate comments, which I thought was quite interesting. So my question is, is the rate improvement you're seeing driven by your self-help initiatives like the intelligent customer pricing program? Or is the overall industry rental rates are improving? Or asked another way, it seems the industry rental environment is improving, but yours is improving more or faster due to self-help. Is that a fair comment?

Brendan Horgan

Look, I think the -- I don't know what other rates are doing other than the typical intelligence that we deploy by calling, et cetera. Look, our pricing is coming from, Number 1, discipline that we and the industry have shown now through the cycle; Number 2, through our ordinary plumbing and our ordinary intelligent customer pricing or dynamic pricing that we've had for quite some time. And yes, of course, we have this new next level customer dynamic pricing pilot that we've talked very widely about. But I wouldn't attribute this -- these actual gains from that at this juncture. We're seeing promise in those, and ultimately, when we do roll that out throughout the entire organization, we'll share that with you.

This is good old-fashioned discipline. This is customers' understanding that we are delivering breadth in solutions. We're delivering expertise in solutions, and furthermore, as the structural progression continues pricing of 2%, 3%, 4%, 5% here and there is not the difference maker for our customers. It's the right product for the right application, all tied together the right way to deliver success for their projects. So we just have overall momentum and a good landscape in order to execute.

Tami Zakaria

Understood. That's very helpful. And my next question is more near term. How should we think about the sequential improvement in EBITDA margin in 2Q versus 1Q? I think typically, you see, due to seasonality, call it, about 150 to 200 basis points of sequential improvement. Is that a fair assumption? Or are there other puts and takes we need to be mindful of for 2Q?

Alexander Pease

Yes. So I think we didn't guide to Q2. But I will say our expectation is you should see margin progress as we go through the year. We pointed to essentially flat margins year-over-year. And all the things that we've been talking about around rate, around some of the operational efficiency, movements around the very strong utilization rates around rental revenue growth, significantly outpacing depreciation growth, all of that would support turning the corner as we get towards the back half of the year.

Last thing I'd say is we didn't -- we haven't talked about this yet, but we are extremely committed and confident in our ability to deliver the 200 basis points of margin improvement that we talked about during our Capital Markets Day and sort of have line of sight to this level. And as Brendan mentioned in his call, because of the strong margin performance, you'll continue to see ROIC progress as we go through the year as well.

Operator

Our next question today is coming from Suhasini Varanasi from Goldman Sachs.

Suhasini Varanasi

My first question is on rates, please. It's very encouraging to see the rate improvement that you flagged during the call. Is it possible to maybe unpack how much was the contribution from rates versus volumes in the quarter? And did -- in Specialty, in particular, did the World Cup contributed in particular to rates? Was there a meaningful difference in rates excluding that live event? And maybe if you could give some color on early trading, that would be helpful.

Brendan Horgan

Sure. Let's start with early trading. Look, August felt like Q1 and hence give us confidence for the increased guide that we've shared today. The World Cup would be negligible in terms of impact on pricing, whether it be in the quarter or certainly for the year. We just -- we're not going to break down the details between the parts -- between rates and time utilization, rather I'll just refer back to our comments of strength and momentum in both and look back at, again, 2.5% growth in depreciation, 12.5% growth in net rent revenue.

Suhasini Varanasi

And my next question is just a housekeeping one, please. Given the growth rate and depreciation, which is so much lower compared to rental revenue growth in the quarter, how should we think about the phasing of depreciation growth for the rest of the year, especially in context of your CapEx guidance raise?

Brendan Horgan

Yes, you will see, consistent with our guide, we'll see that depreciation grow compared to the 2.5% as we progress sequentially through the quarter, and we'll see that in Specialty and General Tool as we remain focused and measured with that allocation as we go through the year, but you'll see that as we progress.

Operator

Next question today is coming from Neil Tyler from Rothschild & Company Redburn.

Neil Tyler

A couple from me, please. Firstly, just coming back to the topic of time utilization that you were discussing earlier. I just want to ask a couple of questions around given the sort of timing of landings and as we think sort of through the remainder of this year, are you still expecting time utilization to sort of to be broadly stable? Or are you anticipating sort of moving up sort of through the gears relative to, I guess, those sort of best 2 or 3 years that you mentioned earlier, Brendan? Can you still sort of expect to get towards what was a previous peak?

And then sort of thinking about that previous peak over the longer term, your earlier answer suggested to me that as a larger business, there should be scope for -- to raise that peak essentially. Is that the right way to think about, I guess, asset utilization more broadly? That's the first question. And I'll come on to my follow-up.

Brendan Horgan

Sure, Neil. I mean, I think we have to answer these, both in the context of the segment. So it's important that you look at General Tool time utilization is General Tool time utilization, and John Washburn and the team who lead that business focused on that by region, by district, by SKU, by cat class. And yes, we expect that with scale, we can set new heights. It's all part and parcel of our operational excellence programs that we have shared so clearly over time. I wouldn't go so far as to say that we're expecting significant incremental progression as we go through the year. There will be a certain seasonality element, of course, that we'll come on to.

And from a Specialty standpoint, once again, we're looking at that by SKUs within Specialty. But also remember, overall, Specialty carries a lower time utilization than the General Tool, but you would have seen, of course, in the quarter, about a 300-basis-point improvement from a dollar utilization standpoint in Specialty. So I would say really more stable as we go through the year rather than significant upside from a time utilization.

Alexander Pease

Yes. The only point that I'd add, which we covered in some of the prior comments on capital, all of this capital is pointed towards -- directly towards customer demand. This is not speculative capital. It's going towards megaprojects. It's going to large national strategic accounts and identified Specialty opportunities. So given that dynamic, you wouldn't expect to have a material impact on time utilization.

Neil Tyler

Got it. That's very helpful. And then the second question was really a follow-up to again, earlier comments, Brendan. When you were answering around sort of semis and data center, you mentioned the relationship with power. And I wanted to just clarify because obviously, there are power projects that are being constructed and then there's obviously your power business and power and HVAC. Is there any sort of alteration in the duration of rental in your power business in terms of you actually sort of playing the role of bridging power in those projects? Or is this -- are you specifically talking about servicing the construction of utility type power and other?

Brendan Horgan

Well, I mean, the short answer is all of the above. There is a significant -- if we look at the pipeline of mega project, of that 21% that we cited specifically, there is certainly an element of that, that is pointed directly to actually power some of the data center work that's going on. But there are many other aspects of that outside of that, and that's more just toward the grid in general. And then from a duration standpoint, it just depends. Commissioning is going to be 8 to 12 months when we were specifically commissioning, depending on what it is, whether it's a data center or it is a different type of project. And then also, of course, as part of that, you have the load bank contribution. Live events, well, they're live events. Super Bowl duration is different than a construction project and we have powering construction, which is different than the bridge power, the commissioning, the live events. And then, of course, there's the big piece, which is just behind the meter and general electrification, as I've said. Rest assured, there's a lot more to come from us overall as it comes to this -- or when it comes to this energy management as a service that we're seeing big opportunity in.

Operator

Next question is coming from Allen Wells from Jeffries.

Allen Wells

Just 2 very quick ones from me. Firstly, just on the FIFA World Cup revenues. Obviously, you flagged the 250 basis points impact on growth. But I'm not sure if I missed it, but did you split out how that was allocated between General and Specialty? And then is there any color you can provide on how we should think about the drop-through on that revenue and if it was accretive to margin in each division? That's my first question.

And then follow-up question would just be going back to some of the questions on the rate environment. Anecdotally, we hear over the last 18 months or so, they've been 1 or 2 of the kind of competitors that you had that had been pretty aggressive on rate. I just wondered if you could maybe make some comments on the general rate environment, what you're seeing out there in terms of some of that freight discipline? Is it coming back a little bit? Is that helping the broader rate environment overall for Sunbelt?

Brendan Horgan

Sure. I mean it's -- from a GT versus Specialty standpoint, it's 75-25, 80-20, Specialty to GT from a World Cup revenue standpoint. And look, as you would have seen in the print, it was incremental to operating -- adjusted operating income margins and that's the important thing to us because, ultimately, that's going to be also accretive from an ROI standpoint. I think we've said a lot when it comes to the rate environment, the pricing environment, our focus and our discipline. And I think that largely the industry is taking a very similar role. and most importantly for us, as I said before, our customers are looking for breadth in solutions, expertise in solutions, capability, proven track record in resume and that gives us the confidence as we move forward. There will always be some out there who will price differently, but that's not getting in our way to advance pricing.

Operator

We reach the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Brendan Horgan

Great. Thank you, operator, and thank you all for joining this morning. We are pleased to share a good first quarter and our optimism for the balance of the year, and we will look to seeing some of you at the conference next week. And otherwise, we'll speak with you in December as part with our Q2 results. Thank you.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.