United Rentals (URI) Q3 Earnings & Revenues Top, View Up
United Rentals, Inc.’s URI shares gained 2.5% in the after-hours trading session on Oct 28, after the company reported third-quarter 2020 results. Earnings and revenues topped the respective Zacks Consensus Estimate. The company also raised full-year 2020 guidance for revenues, profitability and free cash flow, given sequential improvement in its performance.
Inside the Headlines
Adjusted earnings of $5.40 per share topped the consensus estimate of $4.33 by 24.7%. However, the reported figure decreased 9.4% from the prior-year figure. Total revenues of $2.19 billion surpassed the consensus mark of $2.14 billion by 2.3% but declined 12.1% year over year.
Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) fell 13.3% from the year-ago quarter, mainly due to the pandemic’s impacts. Nonetheless, rental volumes improved sequentially in each month in the quarter, consistent with normal seasonality.
Quarterly fleet productivity was down 8% year over year due to lower rental volumes. That said, fleet productivity improved 560 basis points (bps) sequentially, depicting better fleet absorption.
Used equipment sales generated $199 million of proceeds compared with $198 million a year ago. Adjusted gross margin of 44.2% contracted 180 bps due to changes in the mix of equipment sold and pricing.
United Rentals, Inc. Price, Consensus and EPS Surprise
United Rentals, Inc. price-consensus-eps-surprise-chart | United Rentals, Inc. Quote
Segment Discussion
General Rentals: Segment equipment rentals’ revenues fell 15.3% year over year to $1.39 billion. Rental gross margin contracted 190 bps year over year to 39% owing to increased depreciation expenses and the COVID-19 pandemic’s impact on revenues.
Trench, Power and Pump or Specialty Rentals: Segmental rental revenues decreased 6.9% year over year to $470 million. Rental gross margin, however, expanded 110 bps on a year-over-year basis to 49.8% due to lower operating costs, partly offset by increased depreciation expenses.
Margins
The company’s total equipment rentals gross margin dropped 90 bps year over year. Adjusted EBITDA also dropped 10.4% from the prior-year quarter to $1.08 billion. Nonetheless, adjusted EBITDA margin expanded 90 bps to 49.4%. The improvement reflects the combined impact of the actions taken by the company to manage costs.
Balance Sheet
United Rentals had cash and cash equivalents of $174 million as of Sep 30, 2020 compared with $52 million at 2019-end. Total liquidity was $3.43 billion at quarter-end. The company’s free cash flow was $583 million for the third quarter, higher than $302 million a year ago.
Net leverage ratio was 2.4 as of Sep 30, 2020 compared with 2.6 at 2019-end. Notably, it has reduced total net debt by $1.499 billion year to date. It has repurchased $257 million of shares under the current $500-million repurchase program so far in 2020.
Lifts 2020 Guidance
Total revenues are expected in the range of $8.35-$8.45 billion (versus 8.05-$8.45 billion expected earlier), indicating a decrease from $9.35 billion in 2019.
Adjusted EBITDA is projected between $3.825 billion and $3.875 billion (versus $3.6-$3.8 billion expected earlier), suggesting a decline from $4.36 billion in 2019.
Net rental capital expenditures after gross purchases are projected in the range of $100-$150 million (versus $50-$150 million anticipated earlier), implying a decline from $1.3 billion in 2019.
Net cash provided by operating activities is expected in the range of $2.45-$2.55 billion (versus $2.25-$2.55 billion projected earlier), pointing to a decline from $3.02 billion reported in 2019.
Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $2.2-$2.3 billion (versus $2-$2.2 billion of earlier expectation), which suggests an increase from $1.59 billion reported in 2019.
Zacks Rank & Key Picks
United Rentals currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Building Products – Miscellaneous industry include Installed Building Products Inc. IBP, Patrick Industries, Inc. PATK and TopBuild BLD, each sporting a Zacks Rank #1.
Installed Building Products has a trailing four-quarter earnings surprise of 23.3%, on average.
Patrick’s earnings topped the consensus mark in three of the last four quarters, with the average surprise being 48.9%.
TopBuild’s earnings topped the consensus mark in all the last four quarters, with the average being 16%.
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