United Rentals Specialty Companies Thrive During a Flat Third Quarter

Rental revenue was flat in the third quarter for United Rentals with $1.322 billion compared to $1.326 billion in the third quarter of 2015. Total revenue was $1.508 billion compared to $1.550 billion a year ago, about 2.7 percent down. Adjusted earnings per share for the quarter was $2.58 per diluted share, compared with $2.57 per diluted share last year.

Adjusted EBITDA was $747 billion and adjusted EBITDA margin was 49.5 percent, reflecting decreases of $33 million and 80 basis points respectively from the same period a year ago.

Rental revenue including owned equipment rental revenue, re-rent revenue and ancillary items decreased 0.3 percent year over year. Within rental revenue, owned equipment rental revenue dropped 0.8 percent year over year, reflecting a 1.7 percent slide in rental rates partially offset by an increase of 2.2 percent in the volume of equipment on rent.

Time utilization increased 30 basis points to 70.3 percent.

For the specialty branches however, the story was different. Rental revenue generated by the company’s Trench Safety and Power & HVAC specialty businesses, combined, increased by 10 percent year over year, primarily on a same-store basis. United Rentals’ Pump specialty unit’s rental revenue jumped 5 percent year over year, driven by strong gains in non-oil-and-gas markets and branch expansion.

The company generated $112 million of proceeds from used equipment sales at a GAAP gross margin of 39.3 percent and an adjusted gross margin of 46.4 percent, compared with $141 million at a GAAP gross margin of 39.7 percent and an adjusted gross margin of 44 percent for the same period last year.

“Our third quarter results played out largely as expected, as volumes benefited from continued growth on the East and West Coasts of the U.S. and the start of numerous large projects,” said United Rentals CEO Michael Kneeland. “We were also pleased by solid contributions from our specialty businesses and cross-selling initiatives, which helped offset ongoing headwinds in oil and gas markets and Canada.

“Based on what we saw through the third quarter, and what we hear from our customers, we remain optimistic about the cycle. We now expect our 2016 rental rates and adjusted EBITDA to track toward the upper end of prior guidance and free cash flow to exceed our prior expectations. This takes into account our plan to invest up to an additional $50 million in fleet to service specific large contract wins. Looking forward, we remain positive about our operating environment and remind investors of the substantial flexibility we have in managing our business for whatever market conditions materialize.”

For the first nine months of 2016, rental revenue generated by the Trench Safety and Power & HVAC specialty businesses combined increased by 12 percent year over year, primarily on a same-store basis.

Net income was $413 million, or $4.66 per diluted share, compared with $416 million or $4.27 per diluted share a year ago. Adjusted EBITDA was $2.010 billion and adjusted EBITDA margin was 47.4 percent, a $78 million year-over-year decline.