24.10.2016

Flat quarter for United

United Rentals has reported a flat third quarter in terms of revenues, with lower profitability, as rental rates slip.

Total revenue for the nine months to the end of September were down just over one percent $4.24 billion. Rental rates for the period have fallen 2.2 percent, while utilisation has improved 0.4 percent to 67.4 percent. Pre-tax profits year to date are marginally lower at $667 million, thanks mostly to substantially lower interest costs.

Looking at the third quarter revenues declined more than eight percent, with rental revenues falling marginally, due to a 1.7 percent reduction in rental rates offset by a 2.2 percent rise in equipment on rent. Utilisation was up slightly at 70.3 percent. Pre-tax profits for the quarter were $303 million, nearly 11 percent down on the same quarter last year.

Chief executive Michael Kneeland said: "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. 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 materialise."

Vertikal Comment

While this is not a wonderful set of results, they are not quite as bad as the third quarter might indicate. United has flexed its fleet a little and cut back on capital investment, whether this is reflected in the higher costs of rental (excluding depreciation) is a question to be asked. Probably unlikely but older equipment does tend to incur higher costs to keep it running.

In spite of all this the company is confident that it will end the year close to the top end of its forecasts, and reading between the lines it seems more optimistic for the new year. Kneeland is fairly cautious about raising expectations, so you can be fairly sure that he has good reason to be positive. Hopefully that will also have a knock on effect for equipment manufacturers.