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Why Is United Rentals (URI) Up 1.1% Since Last Earnings Report?

A month has gone by since the last earnings report for United Rentals (URI). Shares have added about 1.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is United Rentals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

United Rentals’ Q4 Earnings Beat, Margins Fall

United Rentals reported impressive fourth-quarter 2023 results. Its earnings and revenues beat the Zacks Consensus Estimate and increased on a year-over-year basis.

The upside was mainly driven by sustained growth across the business, profitability and returns, underpinned by broad-based activity.

Moreover, URI has provided strong guidance for 2024, given the strength of the present market condition and the multi-year tailwinds the company sees across infrastructure, manufacturing and energy and power.

Inside the Headlines

Adjusted earnings of $11.26 per share topped the Zacks Consensus Estimate of $10.85 by 3.8%. The reported figure increased by 15.6% from the prior-year figure of $9.74 per share.

Total revenues of $3.728 billion beat the consensus mark of $3.628 billion by 2.8% and grew 13.1% year over year.

Rental revenues increased 13.5% from the year-ago quarter to $3.12 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Also, Ahern Rentals' buyout contributed to the growth. Fleet productivity inched up 0.3% and average original equipment costs (“OEC”) increased 15.1% year over year.

On a pro forma basis, rental revenues grew 7.6% year over year, given a 6.9% increase in average OEC and a 2.4% increase in fleet productivity.

Used equipment sales rose 7.1% from a year ago. The Used equipment sales produced an adjusted gross margin of 55.3%, which contracted 630 basis points (bps). This decline stemmed from the anticipated normalization of the used equipment market and the impact of sales of equipment acquired from Ahern Rentals.

Segment Discussion

General Rentals: This segment registered 13.1% year-over-year growth in rental revenues to $2.289 billion. Rental gross margin fell 250 bps year over year to 39.1% due to the impact of higher depreciation expense related to the Ahern Rentals acquisition.

Specialty: Segmental rental revenues increased 14.6% year over year to $830 million. Rentals’ gross margin contracted 210 bps on a year-over-year basis to 47.2%. This was due to a higher proportion of certain lower-margin ancillary revenues and increases in certain operating expenses.

Margins

The company’s total equipment rentals’ gross margin declined 230 bps year over year to 41.3%.

Adjusted EBITDA for the reported period grew 9.8% year over year to $1.809 billion. However, the adjusted EBITDA margin decreased 150 bps to 48.5%.

2023 Highlights

For the full year, the company generated total revenues of $14.332 billion (up 23.1%) and adjusted earnings of $40.74 per share (up 25.4% from 2022).

Adjusted EBITDA rose 22.1%, but adjusted EBITDA margin contracted 50 bps to 47.8% year over year.

Balance Sheet

United Rentals had cash and cash equivalents of $363 million as of Dec 31, 2023, up from $106 million at 2022-end. Total liquidity was $3.33 billion at 2023-end. Long-term debt at the fourth quarter of 2023-end was $10.1 billion, down from $11.21 billion at 2022-end.

On Dec 31, 2023, the net leverage ratio was 1.6x compared with 2.0x on Dec 31, 2022. Return on invested capital increased 90 bps year over year to 13.6% for the trailing 12 months ended on Dec 31, 2023.

During 2023, cash from operating activities improved 6.1% year over year to $4.704 billion. Free cash flow grew 30.7% year over year to $2.306 billion for the said period.

2024 Guidance

Total revenues are expected to be in the range of $14.65-$15.15 billion. Adjusted EBITDA is projected to be between $6.9 billion and $7.15 billion, indicating an increase from $6.857 billion in 2023.

Net rental capital expenditure is projected to be in the range of $1.9-$2.2 billion after gross purchases of $3.4-$3.7 billion versus $1.934 billion after gross purchases of $3.508 billion in 2023.

Net cash provided by operating activities is anticipated to be in the range of $4.15-$4.75 billion.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2-$2.2 billion versus $2.314 billion in 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, United Rentals has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, United Rentals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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