Thanks, everyone. We're pushing towards the end of the day here, but we're finishing on a really strong note here with the team from United Rentals, which backed by popular demand, I think, and we can see that in terms of the investor requests, which is off the charts. So thank you again, Matt, for your loyal and consistent support of the conference. Ted as well. Always good to see you guys. And then Elizabeth Grenfell from IR is somewhere in the crowd as well. So again, thanks, everyone, for coming. I'll just go along with Q&A unless you guys want to lead us off, and then if anyone has any questions along the way, just raise your hand. I'll make sure to get to you. So Matt, or Ted, maybe just start from an overall kind of macro perspective.
I mean, the branch network, your end market, and customer footprint gives you as good of a lens into kind of the overall market as anyone. Just what you're seeing, hearing from the branches, customers, etc., and how that informs you about your outlook for 2024, and then we can go from there.
Certainly. And as we talked about when we came out with our guidance in January, we feel good about the year. We've been saying for a while that 2024 was going to be a growth year, even as far back as a year ago, and maybe everybody was a little less sure of that. And the visibility into the project pipeline, and more importantly, the feedback that we're getting from our customers and our leaders in the field, as well as our sales teams, supports that. And we feel good about being able to come out with that guidance, and we think that this year will be driven more from the large project tailwinds that we've discussed at length.
We're seeing that manifest daily as we go forward, and really without probably a little more visibility to that today than we've ever had about what the next 12 months' pipeline looks like for a project perspective, and we feel really good about it. Ted, I don't know if you had anything to add.
And then maybe just from a vertical perspective, presumably some of the more rate-sensitive markets, you're probably some are going up, some are going down, but anything worth calling out in terms of this market maybe provides a bigger headwind or tailwind relative to what you experienced in Q4?
Yeah, outside of what we saw in oil and gas in Q4, really all the verticals continued to grow, just not at the same level. So when we talk about this mid-single-digit growth goal, that in itself is still fairly broad-based. It's just not the double-digit growth that we've been seeing in some of these end markets, except for industrial manufacturing. As we talked about, Q4 carried the ball. We think that'll continue to roll forward. Whether parts of non-res get challenged remains to be seen. I think a lot of that has to do with what the Fed does over the balance of the year, but we see that as upside opportunity in the back half or going into 2025.
The ball's really being carried by the slower growth in the markets, supported by and bolstered by the major projects that we see going on in manufacturing, as well as the infrastructure work that's starting to manifest into rental opportunity.
Yeah. Well, this reindustrialization theme certainly seems alive and well. That was one of the topics of the lunch, was around this whole notion of all these mega-trends. And certainly benefiting a domestic company like United, you guys are in a good spot. But I'm curious as to where we are in terms of it feels like we've been talking about it for a while, but I'm curious as to how much of that's actually impacting the business today. And when I say that, one of the things that I found interesting was one of the electrical component suppliers that we follow had some stats around of the I think they use a billion-dollar-plus as their definition for a mega-project. But of the billion-dollar-plus projects announced since 2021, only less than 20% of those have actually started.
And then even when they start, there's a long tailwind before there's actually activity and shovels in the ground. And each company can be impacted differently along that timeline. But I guess the simple conclusion, and it took me five minutes to present it, but is that there's quite a long runway, I guess. Do you agree with that? I mean.
When we think about the tailwinds in aggregate, we're certainly in the early innings of this game. I mean, some of the EV work and some of the chip plant work's been going on for a little bit, but there's still a lot more tail to go, to your point. And I would say infrastructure is one of the other tailwinds we talk a lot about. That's still in the very early innings. IRA hasn't even really shown up yet. And this is before we get into LNG plants and some of the other opportunities we have.
Yeah, I think.
Right? So I think that 20% number's a pretty fair number, with industrial manufacturing being probably the more tangible of all the tailwinds right now when we think about what's going to drive these mega-projects and the opportunities over the next five years.
Yeah. I think you mentioned the CHIPS Act. I think the first actual dollars actually came this weekend, though. I mean, to the point about infrastructure, there was a I listened earlier. The CEO of AECOM, his view with respect to IIJA was that the peak from a dollar being actual the funding amounts peaking in 2027, 2028. I don't know. I know that the timelines are hard to predict, but does that kind of line up with what you think what's been dispersed, how much of this has actually been released thus far? And it seems like there's a long runway, to your point.
It lines up with how we view the runway being not a near-term-only opportunity. But as far as the timing of it, I.
Hard to call.
We wouldn't even hazard a guess. But it aligns with what we say. Even aside from IRA, it's a five-year pipeline of strong work, and then we think anything that comes after that will show itself in the near future.
Yeah. You obviously don't work off a backlog, but is there a way to quantify how much, if asked? How much of your 2024 business is covered at this point? I mean, presumably it's higher than what it's been historically because of the amount of large projects in the backlog, but I don't know if is there a way to guesstimate that?
Yeah. So we don't track a backlog per se. Certainly, I think if you were to talk to the field and ask them about how they feel about visibility, I think they'd say they feel as good about the visibility they have across the construction season as they have in a long time, if maybe ever. And so supported by that combination of large projects and everything else that'll drive the growth we've talked about.
Yeah. Again, mega-projects is everyone loves talking about these, but as they've accounted for more and more or a larger percentage of the starts, something I'm hearing from the branches from United is new emphasis, push around these on-sites as a way to kind of compete and capture those awards. Can you maybe talk through because I don't think that's as well understood by investors in terms of, "Okay, you've got a big car plant or a movie studio in Bayonne, New Jersey," or whatever the big project is, an on-site to the extent you win the award, what does that entail? What do you bring to the table? And how did those if you have a relationship with a Turner or a Tutor Perini or someone, how does that help you in terms of being able to win the award?
It allows us, number one, access, right? It allows us real-time response to the customers that are on-site. So this has been something we've been doing on car plants, ground-up plants for years, stadiums. So we have a lot of history on big jobs and with having on-sites. And also in our industrial plants, through the RSC acquisition, we were behind the fence in quite a few plants, especially in the petrochemical space down in the Gulf. So it's very similar to that. I would say now that the jobs are getting bigger and more demanding, the footprint we have on these on-sites have fully baked shops in them now. We'll have retail facility there for people to come in and order equipment. So it's bolstered our site.
You'll have United personnel?
From the old days, where it used to be some equipment and a few techs. Now we'll have full service, almost a branch on-site for these major projects to help serve them. So when you get awarded that, that's a huge leg up on your opportunity to support all the needs on the entire project. It's not a guaranteed sole source, but it's a tremendous leg up.
You could have 80%-90% of the fleet?
Yeah, absolutely. And having the fleet on-site, having the capability to work on the fleet on-site, and then having your folks there to serve the customer, report to that site every day. It's a win-win situation because it allows them to move faster on the project as well as us to serve them faster.
Yeah. As you push.
And cheaper.
What's that?
And cheaper.
Yeah, more efficient.
So it's more efficient for the customer as well.
But at the same time, not everything is a large project, and you still have that walk-in or that local business. How do you kind of balance that in terms of keeping the sales force engaged that you don't lose touch with the local builder or contractor or what have you versus all just tackling?
It's a great question. So we segregate duties. So you don't have your local territory rep does not have responsibility for that project, right? So we assign reps specifically for major projects, and they'll travel with those major projects. Our national account team, as you could imagine, is selling at the corporate level for these large contractors that are doing these projects. But the people that are on-site day to day are separate from the people that are in the local market making sure because we need to stay connected to that local market, right? I always say the reason we can serve nationally is because of the presence we have locally. And you get that local presence through that local business. So that's a very important part of our business, and we segregate the sales duties for those.
The notion of converting, transferring, or whatever, converting more from owning to renting we've been talking about this for decades now. And I think the chart you show that is the index growth of construction spend versus equipment rental revenue helps to clearly illustrate that. What do you bake in, or do you assume, "Okay, well, can how do you build that into the forecast in terms of, 'Well, we assume it's not this easy, but industrial spending's going to do this, construction spending do that, on top of that is X, Y, Z points of outgrowth because we're going to assume there's some level of conversion from owning to renting'"? How do you go about forecasting that?
The way the forecasting process works is really kind of it starts at the branch level and rolls up from branch to district, region, division, corporate. So it's not tied to kind of like an ARA forecast, a Dodge forecast. It's a lot more connected to what the sales force is hearing from their customers. So really what we would do is build the forecast that way and then maybe cross-check or reference against other metrics to see what does that relationship imply, and how does that compare to history? But it's not built off some assumption around, "The industry's forecasted to grow X, and we're going to grow at some multiple of that," and that kind of methodology.
Yeah. And just in the last year or two of this elevated inflation, both on the equipment side and then just given what rates have done, has that contributed to more engagement in terms of folks that's saying, "Last time I bought a scissor lift, it was $1,000 a foot. Now it's" or, "$100 a foot. Now it's $150 a foot." I can't pencil that out. I.e., has this round of inflation, do you think, helped to lead to more rental conversions, or is that not a big?
Yeah. First of all, even the ability over the last few years to even buy a piece of equipment. Even customers we sell equipment to, we really couldn't because we were underserving our rental fleet as it was for the last couple of years. But then on top of that, the price increases, absolutely, would steer people who maybe historically would have wanted to buy a percentage of their fleet needs to have to think about it before we even get into the higher cost of money, right, to the interest rate increases. I think overall, the industry's ability of surety of supply has probably done most for penetration. And then the ancillary things like higher costs of owning the equipment, the interest rates to fund it, all that's gravy on top of it.
But the real meat in there is the ability of the industry to prove every time someone dips their toe in the rental water that the fear that had them thinking they had to own the equipment to get surety of supply is the industry's overcome that.
Yeah. I was thinking also from the standpoint of as the equipment gets more costly and difficult to own and operate, every time I swear I go to these dealer shows, there's always one of the breakout sessions is, "What can you do to improve and increase the amount of diesel technicians into the market?" And presumably, that's something that you deal with as well, right, keeping that team intact. Is that something that you've as a concerted effort from a retention standpoint to keep and grow that?
Recruit, retain, and train, right, is a big focus for us. And I think we gave a stat in 2022. I don't have the numbers top of my head for 2023, but we were able to add, during the tightest labor market and the great resignation and all the labels that were put on it, 8,000 employees to the team, mostly hourly employees, and only 2,000 of them came through the Ahern acquisition. So even after the Ahern capacity that we added, we were able to add 6,000 employees to the net. That's a net number. That's after turnover, by the way. So we're a big believer in taking care of our employees. We think keeping them from going out the back door, right? The retain part of that's a big part of our success.
The recruit and train is a big part of our success as well. We actually think this is a competitive advantage for us, our ability to hire and retain hourly labor. That's really the last mile of what the customer needs.
I mean, if you look at our retention statistics or, say, turnover statistic, which is the inverse, our turnover rates, probably 12%, a fraction of which is voluntary. The industry runs probably mid-30s%. So you can imagine. I mean, that speaks to the environment we provide and all the benefits of working at United Rentals, whether it's the culture, it's the training, the investment we're making, the compensation, etc. I think it's a huge competitive advantage because when you have less turnover, that customer experience is better. That continuity really pays dividends. And I'd say we take pride in the fact that we view ourselves as probably a high payer in the industry. And yet you can see that's not a trade-off you see in margins, right? We're getting a lot for that investment we make in our people.
I think they recognize that, and that's part of the reason we have as low turnover rate as we do.
We internalized this quite a few years ago and built a robust recruiting team internally at United Rentals. That's paid off.
Yeah. You used to have the element of the in-house services was to work on customer-owned equipment. Are you bringing that back to do so it's more focused on?
Yeah. And as well as safety training, we're believing if we're going to be the largest equipment supplier in the world, we should have the most robust training platform to train them how to operate this equipment safely, and we should have the capability to repair their equipment. So it's a core belief of ours to add those services to our value prop, and it's not something that everybody's doing in our space.
Interesting.
Man, that's bright. See from the audience if there's any questions. I think there's one over here. Excuse me.
Can you talk a little bit about how you're managing price costs?
Okay. Could you talk a little bit about how you're managing price costs this year on the rental equipment side, factoring in both the equipment inflation and labor, and then maybe put in perspective any impacts from Ahern as well on the price cost side?
Yeah. So I'll take a crack at it. If you think about price cost on the fleet side, we've talked about targeting fleet productivity above that rate of inflation. So without breaking apart what is each component of fleet productivity, certainly, we expect that to be positive. And another way to think about that is positive dollar utilization, right? The rental revenue we generate per dollar of OEC would be positive. So while it's still an inflationary environment, we expect to be above that. If you think about within costs, it's still a relatively inflationary environment. It's certainly not benign, and it's certainly not deflationary. But if you look at our guidance and you back out the impact to use, which we've talked about, you're looking at basically flat margins.
So again, we think we're managing cost well at the same time that we're making a bunch of investments in the business, Cold Starts we've talked about, other aspects of, call it, technology that we've talked about. And so we think we've been very effective at managing costs the last many years, and certainly, the focus will be on that in 2024. Matt, anything you'd add?
When you think about the Ahern component, that egg's fully scrambled. So it's integrated part of our business, and any improvement or challenges that we have from that are embedded in the guidance that we came out with in January.
To that point, on the inflation, Ted, one of your peers reported recently, and I think the forecast they gave was upwards of five points of inflation, or as you would call it, a mixed headwind in 2024, that their assumption is that they expect to be able to get pricing to offset that. And this is a public peer. So you think about the average rental company. If it's a 5-point headwind for them, presumably, what are the marginal suppliers? I mean, it's a big impact, right? So in terms of not to replace the same amount of equipment, how much more am I spending to keep the same dollar of rental revenue? So I guess the response is that on paper suggests that the industry's going to have to be fairly disciplined to be able to.
Absolutely. I mean, we think the industry has been disciplined, and we think the need to will continue as the cost of goods and really the inflationary costs in the business overall. So this wasn't just a COVID event where we got rental rates up. And if you really think back to it, I think the industry showed their discipline from 2015 beyond. When you think about when there was huge growth opportunity, people and even through that oil and gas dislocation, which challenged the end markets a little bit, you saw the discipline throughout the industry in not giving up rate and margin during that growth opportunity. People weren't trading off profitability for growth. And so I think the discipline started long before. I think the data and the information that the industry has today is so much better than it was in the past.
And I think the public companies, the transparency and leading the way, I think has helped as well. So for a lot of reasons, I think the industry's really matured over the past 10 years, and we see that price discipline play out throughout COVID in many ways.
Yeah. I know you have that slide in your deck that shows the top 10 and the percentage of rental revenues. And as you'd expect, it's continued to march higher. At the same time, it's interesting. I was reading something from the ARA this morning that was talking about the number of members has never been higher. So it's like, yes, the big guys represent a bigger percentage of the market, but they're still a pretty small business.
Still a very very fragmented business, right? You think about this business in two halves. There's always going to be a space for that local mom-and-pop, right? Let's say whatever that number is, half the industry, it's always going to be served by these mom-and-pops that have one or two stores, and they serve one end market. That's a hallmark of the rental industry, local and serving different needs for different customer bases. Then when you think about the larger half of the industry, you think about consolidation opportunities are there. When you think about the top three players, took 5% market share last year. We think the big's getting bigger, will continue to be there, but there's still a place for those local mom-and-pops in the other half of the industry.
Right. In the town I live in, there's an Ace Hardware. That's four blocks from a Home Depot, which you think, "There's no way in hell that guy can" but he's still in—I don't know. Well, he's doing but still in business. You mentioned earlier, Ted, the Cold Starts. Of the so-called $500 million-$600 million of growth CapEx that you're budgeting for the year, I think you're talking, call it, 50 Cold Starts similar to last year. Is there a rule of thumb in terms of fleet per store? I'm just curious, of that growth, how much of that's actually spoken for by the planned Cold Starts?
It's certainly a portion. Now, if you were to look at the business as a whole and say you've got $21 billion of OEC, and you've got 1,600 branches, you've got $13-$14 million of OEC per branch, that would be an average. But you can imagine there's a pretty wide range. And especially businesses tend to be per branch a little less capital actually, less capital-intensive. They don't have as much fleet per branch. So certainly, I would caution anybody against doing that math and thinking, "Well, if you do 50 branches at $15 million, that's all of your growth CapEx. That's not how it works." So it'll be a portion. It's not the majority. Certainly, we've got growth CapEx going into the general rent business as well. Specialty now is, call it, 30% of total revenue, right?
So you could think about that as maybe being roughly a way to think about a portion of it. You think that's a fair way to frame it, Matt?
Yeah. And then I would add the Cold Starts on. So specialty will get more than that 30% share of the growth CapEx. And that's part of the reason why they're growing double digits. So we see continued headwind for there. And then obviously, when you think about the replacement CapEx, a bulk of that'll go to GenRent. That also gives those teams an opportunity to reprofile their fleet, right? That replacement CapEx doesn't have to be exact asset for asset. Maybe they need to adjust the fleet mix a little bit, and they can do that with their replacement CapEx. So that level of capital spend gives ample room for the entire business to get their fleet ready for the customer demand.
On that specialty, so your 2028 targets that you outlined, it was that last spring, I think, at the Investor Day, was that gets to roughly a third of revenues. Within that bucket, maybe spend a little bit of time on what it's made of because you've got different pieces within the specialty business that are at different levels of maturity, how long they've been part of United. Where are you more optimistic in terms of the leadership, in terms of what drives that growth over the next couple of years?
So you'd certainly think when you think about trench and power being the two longest-term specialty business we have and the two largest and probably the most mature from a footprint perspective, but yet they both keep churning out double-digit growth. I mean, power led the way last year in growth for many of the regions. But then we have the less mature ones that are really growing and have great opportunity to fill out continued white space geographically in our reliable on-site business and our storage business that we got through the General Finance. We probably still have about another third of the markets that we need to cold start in there, and yet they're showing tremendous growth and way ahead of schedule. So there's different attributes for the different businesses.
Then when we think about Fluid Solutions, which is really a whole new go-to-market when we took our old pump business, acquired BakerCorp, and put them together for Fluid Solutions, that's an entire new go-to-market for us. So we're solving different problems for customers every day in that space. So we think throughout, across the board, our specialty business still has a lot of headroom for growth, and that's both through penetration and through footprint expansion.
Yeah. From a vertical perspective, power seems to be you kind of alluded to it, I know, more from the power gen side. But from an end-market perspective, that seems to be one where newer to this story at United, but it just seems like a lot of momentum across that business. I see it in our town. PSE&G is ripping up all the gas lines, and it's like a 15-year project. And I see some of the United trailers running around. So maybe talk to that again, a lot of investment in the grid and how United kind of is able to compete across those different pieces.
Sure. So this goes back. We introduced the Power Vertical strategy in 2016 at the Analyst Day. At the time, Power Vertical, so which is to say basically investor-owned utilities , was probably 4% or 5% of our total mix. It's now 10%. So on a relative basis, it's doubled or maybe a little more than doubled over that time frame. And really, what we did, bless you, we did look at different verticals and understand where could we better partner and have that's unique. Certainly, power was one example. Same at Investor Day. We introduced the Infrastructure Vertical strategy as well. But in the concept of power, we realized that with capability to serve national accounts across aspects of power generation, transmission, distribution, we've added more and more capabilities, whether it's doing different things in large power.
We've gotten a load bank, which is really an important product to various phases of power construction. We've gotten into various assets to support transmission and distribution. So bucket trucks is an example. The distribution side, we did the Cummins acquisition. Obviously, that would be in large power. And importantly, a sales force that had great relationships. So an important part of this was developing a tailored-to-market approach for utilities, which are going to act differently than construction company or other verticals we serve. So I think all those have come together, and you can see the results. I mean, again, sometimes people don't understand utilities is basically 10% of our business. And it's been both, on the one hand, kind of low-heated, as you can imagine, but it's been very strong growth.
The capabilities are true, not just in conventional generation, but we do very well in alternatives, solar and wind. A lot of that's built on the national account strategy. A couple handfuls of customers that actually dominate that kind of work, which we feel really good about going forward.
As you can imagine, transmission business still has a long way to go. Still a lot of work to come. That's getting you into a different competitor set, like a Custom Truck that you would potentially run into and.
Yeah, for parts of it, right, as we get into some of the utility truck business, certainly. But I think the opportunity we have to take existing customers that we've already been serving in trench or echos , right, in transmission and think about running lines now that we can go above ground and help them with transmission as needed there, it's an obvious extension of our relationship with a lot of these utilities already.
Yeah. And from a.
That's the one-stop shop, right? I mean, we can bring all this for a customer and their project. Without naming names, I mean, think about mono line providers. They may be really good at what they do in one specific product. The value proposition we have to utility is we can do that and everything else and bundle it. We can give much more value for their money. We can give them world-class service and execution that'll match anybody else, and they're getting a lot more value in exchange for that. That's a big part of one-stop shopping value proposition.
Yeah. Interesting. I had a question on the competitive landscape. And one of the larger OEMs is the message from corporate down to the dealers is, "We need you to get, we want you to get bigger and stronger in rental." And it's not the first time they've gone down this path. And I think there are some structural limitations, one being the inability for a group of regional dealers to penetrate a national account business. But a lot of these dealers are very well-heeled and well-capitalized. So what do you see as terms of the competitive risk from a certain group of OEM dealers potentially?
I think there's always that tension when you're a dealership. The rent-to-rent model is quite different than the rent-to-sell model, right? The aftermarket business that comes with that. Some of them do it very well, but they usually run it as a separate business when they do. But I think largely, the rent-to-rent model is really going after the business in a different way, in a very focused way that we think we're advantaged. I think more importantly, when you think about the national account business and how you can truly penetrate these large projects, the expertise that we've garnered, the distribution that we have doesn't require owners of separate businesses coordinating, right? This is all United Rentals.
I think the surety of supply, the consistency of experience that the national rental companies can support a customer with is going to be pretty hard to replicate in short order.
Yeah. You presumably have a significant scale advantage in terms of ability to buy rather than being dependent.
Once again, getting back to the people conversation we had, that last mile is the most important one to the customer and making sure that that response time and that takes a lot of folks spread across the U.S. to be able to serve these national accounts in that way.
Yeah. I think it gets back to that one-stop shopping strategy, right? We didn't start that with the intent of blunting one specific competitor. Really, the idea is if this many people can provide dirt, and then you add aerials, and then you add power, and then you add trench, safety, everything, it's a smaller, smaller competitive set. As you bundle that and add more value, you lay over technology and other kind of services that Matt talked about, it becomes a much smaller competitive set. Basically, you competitively disadvantage everybody who can't match what you do. So again, that strategy wasn't designed with the idea of going after defending ourselves from an OEM. It really kind of differentiates us from the rest of the industry. There's only a small group of companies that can kind of match the capabilities we have.
But from a shifting gears a bit on the used side, I mean, you were not alone in saying, "Look, let's not get crazy. This is not going to sustain. The market was tight and drove used values up, but they will ultimately go down." But what, 60-ish% recovery that you're forecasting this year while down from last year? Pre-COVID, we used to kind of be in the low to mid-50s%, I think, from memory. Is there something about from a product mix or, I don't know, a channel mix or something that maybe sustains it at a higher level, or just we should assume that as the cycle plays out, we'll kind of gravitate back towards that mid-50s% level?
I don't know that we'll gravitate back towards that mid-50s. I think the fact that the alternative to used equipment is new equipment, the fact that those prices are higher will give it a little bit of an umbrella of protection to not going all the way back to historical levels. Certainly, compared to others in the industry, we think our channel mix and our focus over the last 10+ years on the retail channel is going to pay off for us. But overall, as an industry, we still think used prices will fall somewhere in the middle of that 74 cents on a dollar recovery versus the 50 cents historical. And we're targeting about 60 this year. And we think it'll be somewhere in the middle of those, but we don't expect to go back to historical levels.
Yeah. From a fleet perspective, I didn't make it there this year, but I was at ARA last year. I just remember seeing the number of OEMs that had fairly prominent real estate at ARA kind of stood out, a lot of them from outside North America. What's your acceptance. Historically, I think it was a little bit narrower in terms of the fleet mix. What's your willingness to bring in other and alternative vendors? I guess the second part of that is, does your rental rate vary whether it's a Genie or brand XYZ? Curious on that.
Most customers are brand agnostic. There's some exceptions, and certainly, we know who those customers are. But I would say our top 10 suppliers, if you look at it 10 years ago and you look at it today, are our top 10 suppliers. So we have very deep, longstanding, and win-win relationships with those. That doesn't mean that, to your point, there's other people trying to get in the space and whether they'll get into a third position. And maybe we have found a couple of vendors that ended up being good suppliers to us that maybe we wouldn't have thought of a few years ago. But during COVID, when there wasn't enough supply from everybody, we tried some folks out, and they did a good job for us.
So on the margin, there's been some shift there, but I think we want to be associated with the top brands in the industry, and they want to be associated with us. So we make it work.
There's a value to the mechanics in terms of their familiarity.
The consistency and the consistency of service from the OEMs to give them some credit as well.
Yeah. Ted, I think one of the more important kind of takeaways from the Investor Day was the focus on that 15%+ ROIC target. And I think the data would suggest that as the multiple or as the returns have become higher and more consistent, there's, as you would expect, a pretty consistent relationship with the multiple. As you think about that target, do you think that's more a, "Hey, we're going to get there on," we think, is it more of a profitability or a margin story? Is it more of a, "Get an asset turn"? What do you see in terms of kind of the key drivers to that?
It's going to be both. It's hard to dissect, but certainly, we've talked about you can see what's that implied margin by 2028, 50%. So you're going to have to drive margin expansion from where we are now to get there. We talk about targeting 50%-55% or 50%-60%, excuse me, across the cycle. So certainly, we've done that historically, and we're focused on it, and we're confident that we can continue producing that. And then when you think about capital turns, again, there's going to be a few things that are at play there. Obviously, we talk about fleet productivity. So that combination of driving rate and time. You think about mixing the OEC. So we talk about this in the form of invested capital, but the OEC is the underlying asset. And obviously, there's a dollar-yield attribute.
So as you grow specialty, for example, that obviously benefits your capital turns. And you can see specialty, we expect to grow at a faster rate than the business as a whole. Specialty is implied at something like about $7 billion—is that by 2025 we set versus we did $4.1 billion last year. So certainly, that helps. And then your capital allocation policies, obviously, are also part of the recipe to get there.
On that, would feedback surprise you in terms of what you've heard from investors on the leverage target and the stepped-up share buyback?
I don't think so. I'll take a shot at this, Matt. And.
Seems to be well-received.
Yeah. But it's something we've talked about for 6-7 years, and it's really been a journey. So if you went back to kind of when we introduced that first leg of this in 2019, we said that we wanted to take leverage down a half turn. We wanted to get there, live within that new zip code, prove to the street we were serious about it, and then measure what the benefit was so we could be more thoughtful about a potential second leg. And so we did that. And so that was really 2020, 2021, 2023. And over that course, obviously, we're able to kind of understand what we thought the benefit was. There really was no cost in the scheme of things. And we talked to investors about this extensively.
So we'd outlined whether on public calls or in conversations with shareholders or prospective shareholders, former shareholders, the different ideas we had, what we thought made sense or could make sense. And we tried to solicit feedback. And all that went into informing kind of ultimately the decision we made to take it down a half turn. We do think this is now kind of the likely end state, kind of 1.5-2.5 times leverage. And that drives capital allocation decisions, right? Once you set your leverage strategy, your balance sheet strategy, it then drives the outcome of how do you manage your excess capital to ensure that you stay within those boundaries. So certainly, we've long been a big acquirer of our own shares.
If you look in the 10 years ending last year, we spent $6 billion buying equity that's now worth $26-$27 billion. So you're looking at a compound annual return probably or internal rate of return over that time period of 26%-27%. So certainly, we think it's been a very good use of excess capital. We introduced the dividend a year ago. Certainly, that was part of the strategy. Our intent is to continue growing the dividend within reason, in line with long-term earnings. But the net of all that, I think, gives shareholders a high degree of confidence that we'll run the balance sheet very prudently and run the capital allocation strategy in a way to maximize value. And I think that's the net of it. And that's why I think it was well-received.
Excellent. I think we have to wrap it there. So thank you, guys.
Yeah. Great.
Good stuff.
Thank you.