United Rentals Earnings Fall, Shares Sink

Oct. 28, 2002
Greenwich, Conn.-based United Rentals last week said quarterly earnings fell as a slowdown in nonresidential and highway construction spending pressured

Greenwich, Conn.-based United Rentals last week said quarterly earnings fell as a slowdown in nonresidential and highway construction spending pressured rental rates.

Third-quarter net income declined to $40.8 million, or 43 cents a share, from $62.1 million, or 63 cents a share, in the same period a year ago. The results disappointed analysts and brought its shares to all-time lows.

Salomon Smith Barney analyst David Rasco cut his earnings estimates for United Rentals, changing his price target to $5 from $8 and increased his risk rating to "underperform, speculative" from "underperform, high risk."

United reported revenues of $783.1 million, compared to $795.5 million for the third quarter of 2001. Rental revenues were 79 percent of total revenues, sales of rental equipment were 5 percent and sales of equipment and merchandise and other revenues were 16 percent. Same-store rental revenues decreased 2.8 percent year over year. United said its third-quarter rental rates were off 6.1 percent from a year ago, which helped drive overall sales down 1.6 percent to $783.1 million, with revenue at locations open at least one year declining 2.8 percent. It was the third straight quarter of year-over-year declines for same-store sales.

The company also rented less of its total equipment as the utilization rate fell to 64.1 percent from 66.4 percent. Sharing of equipment among branches accounted for 11.8 percent of rental revenues compared with 10.5 percent a year ago.

“While we were solidly profitable during the quarter, our results were constrained by the continued slowdown in non-residential and highway construction and the consequent pressure on rental rates,” said United chairman Brad Jacobs. “According to the Department of Commerce data, spending on non-residential building for July and August decreased approximately 19 percent year over year. Nevertheless, our same-store rental revenues during the third quarter decreased just 2.8 percent. In addition, we continued to capture market share from competitors as reflected in the more than 3 percent increase in our rental volume. During the quarter, we repaid approximately $56 million of debt, and at September 30th, we had $202 million outstanding under our revolving credit facility, and $457 million of borrowing capacity after taking into account letters of credit.” Ranked No. 1 on the RER 100, United Rentals stock closed at $6.45 Friday.