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United Rentals (URI) Q2 Earnings Lag, Rise Y/Y, 2021 View Up

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United Rentals, Inc. URI shares dropped 3.4% in the after-hours trading session on Jul 28, after it reported second-quarter 2021 results, wherein both earnings and revenues missed their respective Zacks Consensus Estimate.

Nonetheless, both the top and bottom lines grew on a year-over-year basis, given continued recovery across its construction and industrial markets. The company raised its previously announced 2021 guidance on the back of strong visibility into end-markets served and completed buyouts.

Matthew Flannery, CEO of United Rentals, said, “Looking forward, we remain encouraged by the gains we’ve seen in end-marketindicators, including our customers’ sentiment and project visibility. We are raising our guidance to reflectthe expected contribution from our recently completed acquisitions, as well as accelerated momentum inour underlying business. Combined, we believe this positions us well to deliver strong growth and returnsin the second half of the year.”

United Rentals, Inc. Price, Consensus and EPS Surprise

United Rentals, Inc. Price, Consensus and EPS Surprise
United Rentals, Inc. Price, Consensus and EPS Surprise

United Rentals, Inc. price-consensus-eps-surprise-chart | United Rentals, Inc. Quote

Inside the Headlines

Adjusted earnings of $4.66 per share missed the consensus estimate of $4.81 by 3.1%. Nonetheless, the reported figure increased 26.6% from the prior-year figure of $3.68 per share. Total revenues of $2.287 billion fell shy of the consensus mark of $2.209 billion by 3.5% but grew 17.9% year over year.

Rental revenues increased 18.8% from the year-ago quarter to $1.951 billion. Fleet productivity was up 17.8% year over year and improved 1,800 basis points (bps) sequentially backed by better fleet absorption.

Used equipment sales increased 10.2% from a year ago. Adjusted gross margin of 47.9% expanded 190 bps due to higher pricing, which marked the third consecutive quarter of increase. Used equipment proceeds were 59% of original equipment cost or OEC, up 500 bps from the year-ago period.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues grew 16.8% year over year to $1.466 billion. Rental gross margin expanded 250 bps year over year to 35.9%, courtesy of a decrease in depreciation expense (as a percentage of revenues).

Trench, Power and Pump/Specialty: Segmental rental revenues increased 25.3% year over year to $485 million. Rentals gross margin, however, decreased 40 bps on a year-over-year basis to 46.4% due to the dilutive impact of the General Finance buyout.

Margins

The company’s total equipment rentals gross margin rose 200 bps year over year to 28.5%.

Adjusted EBITDA also grew 11.1% from the prior-year quarter to $999 million. However, adjusted EBITDA margin contracted 270 bps to 43.7% for the quarter owing to lower rental margin, thanks to higher bonus accrual and increased delivery expense.

Balance Sheet

United Rentals had cash and cash equivalents of $336 million as of Jun 30, 2021 compared with $202 million at 2020-end. Total liquidity was $2.826 billion at quarter-end and it has no note maturities until 2026.

Cash from operating activities increased 43.9% to $1,176 million but free cash flow fell 46.5% from the prior-year quarter to $437 million due to higher purchases of rental equipment.

Raised 2021 Guidance

Backed by solid first-half 2021 results and recently completed acquisitions, the company lifted its full-year 2021 financial guidance.

Total revenues are now expected in the range of $9.45-$9.75 billion versus $9.05-$9.45 billion projected earlier. This indicates a solid increase from $8.530 billion reported in 2020.

Adjusted EBITDA is now projected between $4.225 billion and $4.375 billion compared with prior projection of $4.1-$4.3 billion. The current projection indicates a massive jump from the year-ago figure of $3.932 billion.

Net rental capital expenditures after gross purchases are now projected to be $1.5-$1.7 billion compared with $1.25-$1.45 billion expected earlier, indicating an increase from $961 million in 2020.

Net cash provided by operating activities is anticipated in the range of $3.25-$3.65 billion versus $3.1-$3.5 billion projected earlier, suggesting a rise from $2.658 billion in 2020.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $1.6-$1.8 billion compared with $1.7-$1.9 billion anticipated earlier. This suggests a decrease from $2.454 billion reported in 2020.

Zacks Rank

United Rentals — which shares space with Masco Corporation MAS, Owens Corning OC and Installed Building Products, Inc. IBP in the Zacks Building Products - Miscellaneous industry — currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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