United Rentals, Inc. last week reported third-quarter total revenues of $849.7 million, an increase of 5.5 percent compared with $805.1 million for the third quarter of 2003. Adjusted operating income for the third quarter of 2004 was $133.4 million, an increase of 6.6 percent compared with adjusted operating income of $125.1 million for the third quarter of 2003. Adjusted net income for the third quarter of 2004 was $57.5 million and adjusted diluted earnings per share was 58 cents compared with adjusted net income of $42 million and adjusted diluted earnings per share of 44 cents for the third quarter of 2003.
“The 32-percent growth in adjusted diluted earnings per share this quarter reflected continued strong performance in our general rentals business and lower interest expense due to the refinancing of our debt,” said Wayland Hicks, CEO. “We achieved this growth despite disappointing results in our traffic control business.”
Rental revenue for the third quarter was $655.2 million, up from $625.7 million in last year’s third quarter, a 4.7 percent increase. Rental revenue for the first nine months was $1.69 billion, up from $1.61 billion, a 4.5 percent increase, year over year.
Rental rates for the first nine months increased 7.5 percent and same-store rental revenues increased 10.2 percent from the first nine months of 2003. Rental rates for the third quarter increased 8.5 percent and same-store rental revenues increased 12 percent from the third quarter of 2003.
“A number of factors contributed to a rise in rental rates,” said Hicks. “The environment we’re operating in is improving. And a number of our competitors are raising their rates, so we’re not distancing ourselves in terms of what we’re charging our customers compared to what they’re being charged by other companies.”
Dollar utilization for the third quarter of 2004 was 67.4 percent, an increase of 2.3 percentage points from the third quarter of 2003. The size of the rental fleet, as measured by the original equipment cost, increased to $3.7 billion at the end of the third quarter of 2004 from $3.6 billion at the end of the third quarter of 2003. The age of the rental fleet was 39 months at the end of the third quarter compared with 38 months at the end of the third quarter last year.
For the first nine months of 2004, the company reported revenues of $2.3 billion, an increase of 6.8 percent compared with $2.1 billion for the first nine months of 2003. Adjusted operating income for the first nine months of 2004 was $280.4 million compared with adjusted operating income of $260 million for the first nine months of 2003. Adjusted net income for the first nine months of 2004 was $93.2 million and adjusted diluted earnings per share was 94 cents compared with adjusted net income of $56.7 million and adjusted diluted earnings per share of 60 cents for the first nine months of 2003.
For the first nine months of 2004, cash flow from operations was $564.2 million, including $118.1 million from working capital improvements, and proceeds from rental equipment sales were $159.3 million. After total capital expenditures of $524.1 million in the first nine months of 2004, compared with $347.1 million in the same period last year, free cash flow was $199.4 million for the first nine months of 2004 compared with $100.4 million in the same period last year.
The adjusted operating income and net income data for the third quarter of 2004 excludes a $139.3 million charge ($121.9 million, net of tax), for the impairment of goodwill relating to the traffic control segment. The adjusted operating income and net income data for the other periods discussed excludes certain charges described in the GAAP reconciliation that follows the financial schedules. After taking into account the excluded charges, GAAP results are as follows: (i) for the three months ended September 30, 2004, an operating loss of $5.9 million, a net loss of $64.4 million and a loss per share of 83 cents; (ii) for the nine months ended September 30, 2004, operating income of $134.1 million, a net loss of $136 million and a loss per share of $1.75; (iii) for the three months ended September 30, 2003, operating income of $113.4 million, net income of $31.9 million and diluted earnings per share of 34 cents; and (iv) for the nine months ended September 30, 2003, operating income of $248.3 million, net income of $46.6 million and diluted earnings per share of 50 cents.
The general rentals segment, represented 91 percent of total revenues in the third quarter of 2004.
Third-quarter 2004 revenues for the general rentals segment were $771.5 million, an increase of 10.7 percent compared with $696.9 million for the third quarter of 2003. Rental revenues generated by sharing equipment between branches were 12.6 percent of segment rental revenues for the third quarter of 2004, compared with 12.9 percent in the third quarter of 2003. Segment operating income was $142.5 million for the third quarter of 2004, an increase of 29.4 percent compared with $110.1 million for the third quarter of 2003.
"The 10.7-percent increase in general rentals total revenues included 12-percent growth in same-store rental revenues as well as contractor supplies sales growth of 25 percent,” Hicks said. “Same-store performance was driven primarily by an 8.5-percent rise in rental rates, our strongest quarterly rate improvement to date. The impact of the revenue growth on profitability was enhanced by our operating leverage, resulting in general rentals operating income growth of 29 percent, more than twice the rate of revenue growth.”
For the first nine months of 2004, revenues for the general rentals segment were $2.08 billion, an increase of 11.3 percent compared with $1.87 billion for the first nine months of 2003. Segment operating income was $314.5 million for the first nine months of 2004, an increase of 27.2 percent compared with $247.3 million for the first nine months of 2003.
Third quarter 2004 revenues for the traffic control segment were $78.1 million compared with $108.2 million for the third quarter of 2003, a decline of $30.1 million. Same-store rental revenues in the third quarter declined 29.5 percent from the third quarter of 2003. The segment operating loss for the third quarter was $148.4 million, including the $139.3 million charge for the impairment of goodwill. Excluding this charge, the segment adjusted operating loss was $9.1 million compared with segment operating income of $15 million for the third quarter of 2003, a decline of $24.1 million.
For the first nine months of 2004, revenues for the traffic control segment were $190.2 million compared with $255.3 million for the first nine months of 2003, a decline of $65.1 million. Same-store rental revenues for the first nine months declined 27.2 percent from the first nine months of 2003. The segment operating loss for the first nine months was $173.4 million, including the $139.3 million charge for the impairment of goodwill. Excluding this charge, the segment adjusted operating loss was $34.1 million compared with segment operating income of $12.7 million for the first nine months of 2003, a decline of $46.8 million.
“We expect a full-year loss at close in the traffic control segment of close to $45 million,” said president and chief financial officer John Milne. “We are looking to sell or close 13 of our traffic-control branches. We completed a sale of one of those branches earlier this week. The branches we have targeted to close or sell will collectively generate about $60 million of revenue in 2004 and are going to have a loss this year of $15 million to $20 million.” Milne said the branches would be sold or closed beginning in the fourth quarter and into 2005.
“We are maintaining our full year 2004 outlook for diluted earnings per share, excluding charges, of $1.20,” Hicks said. “Although we have not yet completed our operating plan for 2005, we are encouraged by the improving trends in private non-residential construction.”
“We expect to continue to see favorable conditions for general rental,” added Milne. “We expect to continue to benefit from better-than-expected interest-expense savings.” Milne added that United’s capital expenditures for the full year will total about $400 million to $425 million on replacement capex and about $150 million on growth capital expenditures.
Greenwich, Conn.-based United Rentals is No. 1 on the RER 100.
