Greenwich, Conn.-based United Rentals last week announced financial results for its third quarter 2008. Rental revenue was $677 million and total revenue was $873 million for the third quarter 2008, compared with $718 million and $990 million, respectively, for the same period last year, indications that the company is feeling the effects of the construction downturn.
Income from continuing operations was $74 million for third quarter 2008, compared with $111 million for third quarter 2007. The 33 percent decline in income primarily reflects the impact of continued softness in the company’s end markets, as well as increased interest expense of $26 million pre-tax following the company’s preferred and common share repurchases earlier in the year.
Third-quarter 2008 continuing operations earnings per share of $0.98, based on a diluted share count of 77.4 million shares, includes a non-cash charge of $2 million after-tax, or $0.03 per share, related to the retirement of $125 million of HoldCo Notes in September. In 2007, third-quarter continuing operations earnings per share was $0.97 and the diluted share count was 115.1 million shares.
EBITDA, a non-GAAP measure, was $318 million for third quarter 2008, compared with $342 million for the same period last year. EBITDA margin improved 1.9 percentage points to 36.4 percent.
Time utilization of 68 percent was flat year-over-year, while rental rates declined 3.4 percent.
Contractor supplies gross margin improved 5.3 percentage points to 24.1 percent, and SG&A expense decreased by $17 million, resulting in a flat SG&A margin of 15.2 percent.
The company revised its full-year 2008 outlook for pro-forma earnings per share to a range of $2.55 to $2.65, from a previous range of $3.15 to $3.25, reflecting the acceleration of softness in the company’s end markets. The guidance also includes the impact of an anticipated fourth-quarter charge of approximately $0.13 per share principally related to the planned closing of approximately 30 branches. The revised outlook anticipates total revenue of $3.3 billion to $3.4 billion and pro-forma EBITDA of $1.07 billion to $1.10 billion. The company’s expectations for free cash flow remain unchanged at $350 million to $400 million after total capital expenditures of about $715 million.
"We are continuing to manage the business through the current environment with a steadfast strategy that drove our EBITDA margin higher for the third straight quarter, brought down our SG&A costs by $17 million, and improved our fleet management practices,” said Michael Kneeland, United Rentals CEO. “At the same time we are taking the right actions to set the stage for long-term, profitable growth, such as our recent acquisition of a Texas-based rental company, which expanded our presence in the under-penetrated industrial sector.
“We are prepared for our operating environment to become steadily more challenging as economic pressures and the credit crisis combine to suppress construction spending. As we move through the fourth quarter and into 2009, we will continue to pull the many levers at our disposal, including fleet transfers, used equipment sales and the closing of approximately 30 more branches. Our 2008 outlook reflects both the reality of the current construction cycle and our ability to navigate through it by adjusting our operations and fleet.”
For the first nine months, the company reported income from continuing operations of $149 million, compared with $210 million for the first nine months 2007, a 29-percent drop. The decline in profitability primarily reflects lower gross profit in a softening construction environment as well as the previously announced second quarter $14 million after-tax charge in anticipation of the September SEC settlement, partially offset by the company’s successful cost-cutting initiatives, including a pre-tax reduction of $56 million in SG&A expense.
EBITDA was $796 million for the first nine months 2008, compared with $850 million for the same period last year. EBITDA margin was 32.1 percent for the first nine months 2008. Excluding the impact of the SEC charge, the company’s pro-forma EBITDA margin was 32.7 percent, an improvement of 2.2 percentage points from the 30.5 percent margin in the same period last year, reflecting the beneficial impact of the company’s cost reductions and strategic focus on its core rental business.
On a GAAP basis, for the first nine months 2008 the company reported a continuing operations loss per share of $1.12 compared with continuing operations earnings per share of $1.87 for the same period last year.
United also announced that it recently upsized its five-year $1.250 billion asset-based revolving credit facility to $1.285 billion, further increasing its liquidity.
For the first nine months 2008, free cash flow was $136 million after total rental and non-rental capital expenditures of $631 million, compared with free cash usage of $91 million after total rental and non-rental capital expenditures of $866 million for the same period last year. The year-over-year improvement in free cash flow was largely the result of a $235 million reduction in capital purchases.
The size of the rental fleet, as measured by the original equipment cost, was $4.3 billion and the age of the rental fleet was 38 months at Sept. 30, compared with $4.3 billion and 37 months at the same point last year.
Return on invested capital was 12 percent for the 12 months ended Sept. 30, a decrease of 2 percentage points from the same period last year.
With an integrated network of more than 665 rental locations in 48 states, 10 Canadian provinces and Mexico, United Rentals is No. 1 on the RER 100.