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Midyear Business Report to 8.3 percent in 2013. Similarly, those who characterized their customers as optimistic about backlog and projecting equipment purchasing in the second half of the year grew from 19.6 percent a year ago, to 32.1 percent. "Contractors are saying 'we are finally getting a little work,'" said Bruce McFadden, president and CEO of Arkansas-headquartered Improved Construction Methods (ICM). "I believe the customers' attitudes, those who survived and new ones just starting up, are more positive." Improvements in gross margins proved harder to come by than revenue increases in the first half, as evidenced by the survey response. While more than 40 percent of dealers surveyed showed a positive improvement in margins, 38 percent experienced flat margins and 21 percent reported declining margins. By all accounts, markets remain competitive. "The problem with real good markets is everybody and his brother goes after it," said McFadden, who has locations in Texas, Arkansas, Tennessee, Oklahoma, Mississippi and Alabama. Despite revenues that are not yet back to where they were at their peak, most dealerships tell us they are operating profitably. "We're not back to '06 or '07 numbers, but we are actually operating a lot healthier, because we trimmed down," said Vincent Ryan, CEO of North Jersey Bobcat. Baschmannn Services in Elma, N.Y., who reported that rental of crushing and screening equipment is on the rise. He recently acquired a machine he sold in 2008, and is refurbishing it for a customer who will rent it long term. "You have to be resourceful," he explained. At Oregon Tractor, based in Portland, Wash., rental revenues were flat but the mix of machinery changed. "Last year we rented larger machines and many of those converted to sales. This year we are doing the same dollar amount, but there is more volume with mini and mid-size machinery," said Jeff Simonson, manager, New Product Development. Compared to past years, many dealers indicated they are seeing growth from several market segments. For Oregon Tractor, this year's activity has come from rebounding housing starts, but also mining, crushing equipment, and international sales. Across the country, North Jersey Bobcat has seen slight increases across all segments, which include housing and home improvement. For Bridwell in Oklahoma, compact equipment sales have been boosted by landscaping contractors, new home construction, and the oil and gas market. The number of dealers who have benefited from activity in the energy sector declined in 2013 (46.1 percent in 2013, compared to 56 percent in 2012). According to Bridwell, energy markets have flattened due to a change in ownership among energy companies. Forecast for Remainder of 2013 Optimism abounds in dealer forecasts for the second half, with most dealers expecting increases in every revenue stream. Nearly 60 percent of dealers expect both new equipment and service revenue to increase in the second half, while nearly 7 in 10 dealers expect rental revenues to increase. About 53 percent of dealers expect parts sales to increase and 43 percent are looking for increases in used equipment sales in the second half. The forecasts are far more positive than last year's summertime survey, especially for new equipment sales. By comparison, just 38 percent of dealers surveyed in 2012 expected to see an increase in equipment sales. "We are getting a fair number of equipment sales, particularly in Texas and Colorado," said Walter Berry, chairman and president Berry Companies, which operates Bobcat dealerships in six states and a Komatsu dealership in Kansas. "Customers have enough optimism to buy." Gary Bridwell, president of Ditch Witch of Oklahoma, concurs that some customers have accelerated purchases beyond replacements and have now started adding to their fleets. "For a lot of reasons I think we are going to have a strong end of the year," said Ryan in New Jersey. "It's likely to be the final year of bonus depreciation. The combination of that and the cost of new Tier-4 machines will drive [a positive finish]." Rental shows no signs of slowing. Nearly 70 percent of dealers expect rental to grow in the second half. "Rental has been fairly strong," said Pete Baschmannn, CEO of Buying Strategies About 46 percent of survey respondents said they would invest anywhere from 1-21 percent more on new equipment inventory for the duration of 2013. Just over 37 percent of dealers expect no change in their investment in new equipment inventory compared to last year's investment at this time. About 16 percent of dealers plan to reduce their investment. Similar patterns emerge when looking at rental. Fifty-four percent of dealers plan to increase their rental fleet investment over midyear 2012, while nearly 33 percent expect no change, and 14.6 percent expect their investment to decline. Keeping inventory in balance with demand has been a challenge for dealers over the past two years. They have had to contend with long lead times from manufacturers; correctly anticipate both Tier-3 and Tier-4 demand; and cope with hefty price increases on Tier-4 machines. Several dealers told us they plan to stock up on lower priced Tier-3 machines to avoid the sizeable price increases, for now. Logan Contractors Supply's company has added 30 percent more machines to support their rental business. "Our plan is to invest early, saving those Tier-4 dollars. Most of that equipment has increased 10-20 percent in price," reported Bruce Logan. Last year Berry Companies was faced with oversupply when machines it didn't expect for a year arrived early. "This year we are going to be overstocked intentionally," said Berry. "We're stocking up on the tried and true Tier-3 technology (continued on next page) August 2013 | Construction Equipment Distribution | www.cedmag.com | 27 26_Midyear_Feature_KP.indd 27 7/25/13 12:36 PM