23.07.2015

United cuts forecasts

United Rentals has issued its half year results and reduced its full year estimates
First half revenues increased almost seven percent to $2.74 billion, while pre-tax profits jumped more than 40 percent to $331 million.

Looking at the second quarter revenue growth slowed substantially, increasing just over two percent to $1.43 million. Pre-tax profits increased almost five percent to $149 million. Physical utilisation in the quarter was up marginally to 66.6 percent, while rates increased 1.5 percent, taking the year to date increase to 2.2 percent.

With the oil&gas sector having an increasing impact, the company has downgraded its full year estimates and spending. Revenues are now expected to come in at between $5.8 and $5.9 billion rather than the $6 to $6.1 billion originally forecast. Utilisation expectations have been reduced from 69 to 67 percent, while rental rate growth is now expected to be in the region of half a percent, rather than three percent. As a result the company is cutting its capital expenditure by $100 million to $1.6 billion.

Chief executive Michael Kneeland said: "We solidly improved our profitability in the second quarter year-over-year, with record results for second quarter EBITDA margin and adjusted Earnings Per Share. The adverse impacts from the drop in oil and gas activity as well as industry fleeting were greater than we anticipated and, as a result, we've updated our outlook on our 2015 targets."

"Demand for our equipment is clearly there, and our industry is expected to benefit from solid growth in the years ahead as oil drilling stabilises and rental fleet is absorbed. Industry experts are projecting years of growth ahead, led by the ongoing rebound in non-residential construction. Given this outlook, and our ability to drive profitable growth and returns, we are accelerating our current $750 million share repurchase program and announcing an additional $1 billion repurchase program. These decisions underscore our commitment to return capital and deliver value to our stockholders."

Vertikal Comment

United is wise to temper expectations for the year at this stage, especially given the slow growth seen in the second quarter – although rental revenues still increased around 3.5 percent. The level of revenue and profitability growth that the company is achieving is quite remarkable for such a large business.

While the company no longer expects to break the $6 billion revenue barrier this year, I would bank on it coming in closer than it is currently forecasting.

No matter which way you look at it this is a very good set of numbers.