Despite last night’s second quarter beat and guidance raise,
shares of equipment rental company United Rentals (URI 155.20, +0.29) are
mostly flat, up about 0.2% as the Street calls into question the company’s
gross margin performance and the Baker acquisition.
All told, both sales and earnings came in ahead of market expectations in the second quarter. The company reported an 18.4% increase in revenues to $1.89 bln with earnings handily beating market expectations at $3.85/ share. Additionally, adjusted EBITDA was $907 mln and adjusted EBITDA margin was 48.0%, reflecting increases of $160 mln and 120 basis points, respectively, from the same period last year.
The second quarter 2018 includes a net income benefit associated with the Tax Cuts and Jobs Act that was enacted in December 2017. The Tax Act reduced the U.S. federal corporate statutory tax rate from 35% to 21%, which contributed an estimated $0.70 to adjusted EPS for the second quarter 2018.
Within rental revenue, owned equipment rental revenue increased 19.3%, reflecting increases of 15.9% in the volume of equipment on rent and 2.8% in rental rates. Time utilization decreased 20 basis points year/year to 69.2%, primarily reflecting the impact of the company’s Neff acquisition. On a pro forma basis, time utilization was flat year/year.
United’s largest segment, Equipment Rentals (86% of overall sales), saw sales increase 19.3% in the quarter to $1.63 bln. Management noted demand remained robust across its construction and industrial verticals in both the U.S. and Canada. Additionally, the company’s integration of its Neff acquisition is largely complete.
Management highlighted that internal and external points show a durable cycle and continued industry discipline in managing fleet growth. Given this backdrop, United raised its 2018 guidance for total revenue, adjusted EBITDA, and capex.
The company now sees 2018 revenue between $7.5-7.7 bln, up from $7.3-7.6 bln. Adjusted EBITDA is now expected in the range of $3.675-3.775 bln, up from $3.6-3.75 bln, and capex is expected between $1.25-1.35 bln, up from $1.2-1.35 bln.
United also gave comments on the previously announced acquisition of BakerCorp International Holdings. Earlier in July, United bought the rental solutions company for $715 mln in cash. The deal is expected to close early in the third quarter and to contribute about $140 mln of revenue and $40 mln of adjusted EBITDA to full-year 2018 results, while adding around $50 mln to the 2018 capital spending plan.
Despite the solid quarter and raised guidance, the stock has remained mostly flat throughout the trading day, as investors were perhaps eyeing an even bigger beat. What's clear is that the Baker deal could provide further upside revisions to guidance in the future, and given the muted reaction to last night's raised guidance, this could be a welcome raise for investors. URI still holds losses of about 10% on the year, but it has been mostly flat since the start of May. Even so, shares still sit below both the 50-day and 200-day simple moving averages -- 159.44 and 163.53, respectively.
- OUR VIEW
- LEARNING CENTER