22.04.2016

United profit drop on flat revenues

US based United Rentals has reported flat first quarter revenues while profits plunged almost 20 percent.

Total revenues for the quarter were $1.31 billion marginally lower than last year, with rental revenues falling around one percent. Utilisation and fleet size were both higher, but rental rates slipped back 2.8 percent in the quarter. Pre-tax profits for the period were $147 million, 19 percent lower than last year.

As a result of the slower start to the year, the company has slightly lowered its full year projections to $5.6 to $5.8 billion, but remains optimistic for the year.

Chief executive Michael Kneeland said: "During the first quarter we saw broad-based, improving demand in many of our core markets, which was most apparent in accelerating volume. On the other hand, we continue to face significant headwinds from oil and gas and from our Canadian business, pressuring rental rates. We are encouraged, however, by industry data that shows that fleet supply-demand dynamics are moving towards equilibrium in the U.S."

"Based on what we see and hear in the marketplace, we continue to expect our business to improve both seasonally and cyclically, with our updated guidance reflecting the net impact of weaker rental rates due primarily to what we believe are temporary factors. Our business is larger, more diverse and more operationally effective than it has ever been, and we have the tools to maintain our industry leadership and financial strength, including significant flexibility to manage both our costs and capital plans in any environment. We remain confident in our ability to generate at least $900 million of free cash flow and then to redeploy this capital in an optimal manner."

Vertikal Comment

The fall in rental rates is interesting in that United has made much of its yield management systems and rate management. While it cites Canada and the Oil & gas markets as the main cause it is surprising that it had such an impact, especially given that volumes increased in the period. There were a few other factors in last year’s numbers so all in all this is not a bad result and most likely more taking a breath than any downward trend.

Expect the rest of the year to gradually improve – but what the company does with capital expenditure will be interesting to see. With such a large fleet cut backs can quickly shift from flexing the average age a little, to becoming a substantial problem that requires substantial catch-up spending sometime in the not so distant future, not to mention rising fleet maintenance costs.