RSC Holdings Inc. last week announced third-quarter 2008 rental revenues of $419 million, up 1.7 percent from $412 million in last year's third quarter and representing 90 percent of total revenues. Total revenues were $467 million, up 1.1 percent over the comparable year-ago period.
Same-store rental revenue growth was 1.8 percent and the company’s industrial revenue growth continued to outpace that achieved in construction markets. Rental rates were essentially flat on a sequential basis from the second quarter and down 1.0 percent on a year-over-year basis. Improved yield on pickup and delivery charges, combined with fuel surcharges implemented early in the third quarter, added $6 million to ancillary revenues. While changes in ancillary revenues have many of the same characteristics as a rate increase, they are not included in the determination of rental rates.
Utilization of fleet increased sequentially to 72.3 percent from 71.6 percent in the second quarter of 2008. Sales of used equipment were $29 million compared with $30 million in 2007, and net capital expenditures were $37 million, down 76 percent from $154 million a year ago. For the first nine months, net capital expenditures of $152 million were down 63 percent from $415 million in the same period of 2007.
Free cash flow was $94 million for the quarter compared to $58 million in the comparable prior-year period. On a year-to-date basis, free cash flow was $143 million compared with $81 million in the same period of 2007. Total debt was reduced by $67 million during the quarter, $107 million year-to-date, to $2.6 billion.
“While fleet on rent grew during the quarter, we chose to substantially reduce capex to support rate stability and maintain high utilization,” said Erik Olsson, president and CEO. “In line with this strategy, we delivered an impressive free cash flow for the quarter. Our priorities and business model remain the same in all marketplace conditions — sustain rental rates, keep utilization high, maintain high profit margins and deliver strong cash flows.”
Third-quarter operating income was $110 million, or 23.6 percent of total revenues, compared with $136 million last year or 29.5 percent of total revenues in the prior-year period. In order to drive efficiencies and improve returns from its rental fleet, the company consolidated or closed 19 stores in the third quarter. Profit contribution from slightly higher equipment rental and ancillary revenues and productivity gains were more than offset by items such as lower rental rates, increased depreciation on a larger fleet, rising fuel costs, higher public company costs and costs related to the store closure and opening activities. Adjusted EBITDA was $206 million in the third quarter compared to $225 million in the prior year, and adjusted EBITDA margin was 44.1 percent compared to 48.8 percent in the same quarter of 2007.
“In tough market conditions, our employees remained disciplined and delivered strong results against tough comparisons,” Olsson said. “I am particularly proud that we excelled in virtually every measure critical to our customers: 97 percent on-time delivery of equipment, 98 percent current on manufacturers’ suggested preventative maintenance and customer net promoter scores above 60 percent. Finally, our utilization of fleet was over 72 percent and, as expected, strengthened as the quarter progressed.”
Industrial revenues surpassed 35 percent of rental revenues again in the third quarter as a result of the company’s sustained efforts to grow the company’s business in non-construction markets such as petrochemical, mining, food processing and entertainment. Such efforts have included the hiring of industrial sales people, expansion of the company’s product offering to meet the needs of industrial customers and the transfer of fleet from primarily construction to industrial locations. The company opened 14 new stores in the third quarter in locations where growth opportunities were apparent, with a strong bias toward industrial locations. Industrial markets provide a less cyclical rental base than construction markets, as the equipment is used mainly for maintenance and repair programs, the company said.
RSC is reaffirming full-year earnings projections offered in July, with minor modification of the revenue range. The company will continue to prioritize rate stability over volume, resulting in slightly lower rental revenues than otherwise achievable. By lowering capital expenditures, the company is realizing free cash flows at greater levels than previously forecasted.
Rental revenue growth is expected to be about 4 percent from a previous outlook of 3 to 5 percent. The outlook on diluted earnings per share remains unchanged at $1.27 to $1.39. Adjust EBITDA also remains unchanged at $790 - $810 million.
“We are clearly in the midst of a downturn in our non-residential construction market and we have been positioning our company to face it with the strongest possible team and the strongest array of locations serving a balance of diverse end markets,” said Olsson. “We have closed non-performing locations, filled key positions on our management team with seasoned professionals, opened new locations, completed a strategic acquisition and continued to fund growth in the key industrial markets. We believe the aggressive steps we have taken, together with the disciplines of our proactive and highly flexible RSC business model and best-in-class levels of customer service, will enable us to continue to gain market share and outperform the competition in these tough and uncertain market conditions.”
Based in Scottsdale, Ariz., RSC Holdings Inc. is the holding company for the operating entity, RSC Equipment Rental, No. 2 on the RER 100.
