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United Rentals (URI) Q4 Earnings & Revenues Top, Margin Down

Zacks Equity Research

United Rentals, Inc. URI reported better-than-expected results in fourth-quarter 2019. Earnings and revenues beat the respective Zacks Consensus Estimate, and grew on a year-over-year basis. The company witnessed improved demand in construction end-markets served, partly offset by slower industrial growth.

Markedly, it provided strong full-year 2020 guidance. United Rentals remains upbeat about 2020 and expects higher free cash flow generation, considering these market dynamics. Shares of the company inched up in the after-hour trading session on Jan 29, post the earnings release.

Inside the Headlines

Adjusted earnings of $5.60 per share topped the consensus estimate of $5.32 by 5.3% and increased 15.5% from the prior-year figure of $4.85. Total revenues of $2.456 billion surpassed the consensus mark of $2.391 billion by 2.7%. Moreover, revenues rose 6.5% year over year.

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

Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) rose 3.7% (increasing 0.8% on a pro-forma basis) from the year-ago quarter to $2.062 billion. The upside was supported by solid impact of acquisitions and growth in construction end markets served by the company. However, the upside was partly offset by challenges in industrial verticals.

Fleet productivity was down 2.4% year over year in the quarter. On a pro-forma basis, fleet productivity declined 1.8% from the prior-year quarter, owing to lower time utilization.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues inched up 2.4% year over year to $1.61 billion. However, rental gross margin contracted 430 basis points (bps) year over year to 39.9%, owing to increased depreciation of rental equipment as a result of the BlueLine acquisition, and higher operating costs due to repair and maintenance works.

Trench, Power and Pump/Specialty: Segmental rental revenues increased 8.7% year over year to $452 million. However, rentals gross margin declined 140 bps on a year-over-year basis to 43.8% due to higher acquisition-related costs.

Margins

The company’s total equipment rentals gross margin dropped 760 bps year over year to 36.5%. Adjusted gross margin also contracted 770 bps to 43.4% due to changes in the mix of equipment sold, channel mix and pricing.

Nevertheless, adjusted EBITDA increased 3.3% from the prior-year quarter to $1.154 billion. However, adjusted EBITDA margin contracted 140 bps to 47% in the quarter, owing to absorption of higher rental operating costs in a slower-growth environment, including costs related to repair and maintenance of fleet in upstream oil and gas markets, and increase in lower-margin used equipment sales, partially offset by lower SG&A.

Balance Sheet

United Rentals had cash and cash equivalents of $52 million as of Dec 31, 2019 compared with $43 million at 2018-end.

In the quarter, the company generated $442 million as net cash from operating activities compared with the year-ago figure of $730 million. Free cash flow was $484 million in the quarter, up 34.1% year over year.

In 2019, net cash from operating activities came in at $3.02 billion (up 6%) and free cash flow was $1.566 billion (up 23.2%).

Share Repurchase Program

In December 2019, the firm completed the previously announced share repurchase program of $1.25 billion, through which it acquired approximately 9.5 million shares.

On Jan 28, 2020, the board of directors authorized a new $500-million share repurchase program, which will start in first-quarter 2020 and is likely to be completed within 12 months.

2019 Highlights

In full-year 2019, adjusted earnings came in at $19.52 per share, up 20% from the year-ago period. Total and rental revenues also increased 16.2% and 14.8% to $9.351 billion and $7.964 billion, respectively.

Adjusted EBITDA margin contracted 140 bps to 46.6%.

2020 Guidance

Total revenues are expected in the range of $9.4-$9.8 billion. The consensus estimate for 2020 revenues is currently pegged at $9.55 billion.

Adjusted EBITDA is projected between $4.35 billion and $4.55 billion. The metric came in at $4.355 billion in 2019.

Net rental capital expenditures are projected in the range of $1.05-$1.35 billion (after gross purchases of $1.9-$2.2 billion). The figure was recorded at $1.301 billion in 2019, considering the mid-point of the guided range.

Net cash provided by operating activities is expected in the range of $2.85-$3.35 billion, pointing to an improvement from 3.024 billion reported in 2019.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $1.6-$1.8 billion, indicating an increase from $1.592 billion reported in 2019.

Zacks Rank

United Rentals, which shares space with Arcosa, Inc. ACA, Armstrong World Industries, Inc. AWI and CRH plc CRH in the Zacks Building Products - Miscellaneous industry, currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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