Strong Earnings for United Rentals

Zacks

United Rentals, Inc. (URI) reported first-quarter 2013 earnings of 58 cents per share, beating the Zacks Consensus Estimate of 52 cents and exceeding the prior-year quarter’s earnings of 36 cents per share.

On a reported basis, earnings were 19 cents per share compared with the prior-year quarter’s earnings of 17 cents per share. Earnings in the reported quarter include RSC merger related costs along with restructuring and asset impairment charges.

Operational Update

Total revenues improved nearly two-fold year over year to $1.1 billion in the quarter, meeting the Zacks Consensus Estimate. The year-over-year rise is mainly due to an increase in equipment rentals.

Cost of sales increased to $715 million in the first quarter from $443 million in the year-ago quarter. Gross profit increased an impressive 80% year over year to $385 million. Consequently, gross margin expanded 300 basis points (bps) to 35% in the quarter.

Selling, general and administrative expenses went up 57% year over year to $160 million. Reported operating profit rose 71% to $149 million. Adjusted operating profit almost doubled to $225 million in the quarter. Operating margin increased 300 bps to 20% in the quarter.

Adjusted EBITDA in the reported quarter improved 55% to $451 million from $231 million in the year-ago quarter. Time utilization increased 30 bps year-over-year to 64.2%. The size of the rental fleet was $7.24 billion as of Mar 31, 2013, compared with $7.23 billion as of Dec 31, 2012. The company also realized cost synergies of $53 million in the quarter from the RSC integration.

Segmental Performance

Revenues in the General Rentals segment increased 80% over year to $854 million in the reported quarter.

Trench Safety, Power & HVAC segment’s revenue climbed 29% to $62 million in the quarter from $48 million in the year-ago quarter.

Financial Update

Cash and cash equivalents were $147 million as of Mar 31, 2013, compared with $106 million as of Dec 31, 2012. Long-term debt stood at $6.58 billion as of Mar 31, 2013, compared with $6.67 billion as of Dec 31, 2012.

Cash provided by operating activities was $409 million as of Mar 31, 2013, compared with $254 million a year ago. For the first quarter 2013, total rental and non-rental capital expenditures were $303 million, compared with $426 million in the prior-year quarter.

Outlook

United Rentals reaffirmed its adjusted EBITDA guidance for full year in the range of $2.25 billion-$2.35 billion. The company has reiterated its outlook for time utilization of around 68.0%. It has also retained the outlook of cost synergies on a run-rate basis in the band of $230 million-$250 million for fiscal 2013.

United Rentals is planning to expand its sales force by at least 10% this year to capitalize on over a billion dollars of net fleet purchases. It will also continue to drive cost efficiencies and reduction of debt.

United Rentals will benefit in near future from the secular shift to rental. It is predicted that non-residential construction will show reasonable improvement, with larger upswings in 2014 and 2015, which will enhance its performance. The integration with RSC has been successful, although it's not yet complete. The company has a scope of progress by shifting its focus to driving improvements across the entire business.

Greenwich, CT-based United Rentals is the largest equipment rental company in the world, with an integrated network of 830 rentals. The company offers for rent about 3,300 classes of equipment with a total original cost of $7.23 billion.

United Rentals currently retains a short-term Zacks Rank #3 (Hold). Other companies in the building and construction industry with favorable Zacks Ranks are Headwaters Incorporated (HW), James Hardie Industries plc (JHX) and Masco Corporation (MAS). Each of them carry a Zacks Rank #2 (Buy).
 

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