The underlying foundation of the recovery remains positive, United Rentals CEO Michael Kneeland told an investor conference call last week after the company posted record EBITDA in the fourth quarter and the full year even though Q4 revenue dropped slightly year over year.
“And our free cash flow came in at $919 million after CapEx, which was also a record,” Kneeland said.
Kneeland acknowledged that looking to 2016, “the headwinds are still with us. There are also some evident macro constraints such as pressure on industrial activity, the Canadian economy as well as some unknowns. But underneath these dynamics, the non-residential construction markets are continuing to recover. And that’s a key point.”
Kneeland said the rental market will continue to grow, as all industry forecasts project solid rental industry increases in the coming years. Still, with some looming uncertainties, he said the company will begin the 2016 with a cautious approach towards spending.
“We’re going to be very careful about the rollout of our CapEx,” he noted. “In the first quarter, we expect to spend less than half of the CapEx we spent in last year's first quarter. The CapEx we do spend will be focused on growth sectors and key customers. And from there we will test the waters. Full year plan is for approximately $1.2 billion of gross CapEx and we have the flexibility to move that number up or down based on the data that we see from our operations. Beyond the current market uncertainty, we agree with the industry forecasters that there are multiple years of growth ahead for rental in North America.”
Kneeland discussed some regional high points.
“Our Southeast region had a strong finish to the year. The activity is coming from mix of sectors, including automotive plants, infrastructure and amusement parks. On the West Coast, commercial construction is going strong along with renewable. Our Pacific West region has launched some business on a number of solar projects. And more universally, we’re on large multiyear construction projects in industries ranging from ag business to biotech, to hotels and to sports arenas.
“The real standouts continue to be our specialty services of Trench Safety and Power & HVAC. For the full year combined these services increased our rental revenue by 21 percent and a healthy 16 percent of that revenue increase came from same store. We will continue to invest in fleet and coal storage for the specialty operations as well as our pump business. We’ve been expanding our pump footprint in new geographies and diversifying our customer base beyond upstream oil and gas, and we expect to realize some benefits from these actions in 2016.”
Kneeland was particularly bullish about United Rentals’ liquidity. “We generated over $900 million of free cash flow in 2015, and we do expect to create about the same or more in 2016,” he said. “We plan to utilize this cash flow to buy back shares and pay down debt this year. And these are the most prudent uses of our cash at this time.”
Based in Stamford, Conn., United Rentals is No. 1 on the RER 100.
To read more about United Rentals fourth quarter and full year 2015 results, visit: http://rermag.com/headline-news/united-rentals-q4-volume-totals-slow-ebitda-remains-strong
