03.08.2008

Revenues and profits down at United Rentals

United Rentals, the world’s largest equipment rental company with the world’s largest aerial lift fleet, has reported an almost 11 percent fall in first half revenues to $1.6 billion.

Rental revenues fared better falling just 2.8 percent to $1.2 billion, used sales were down 19 percent, new machines sales down 27 percent, service and other revenues down almost 11 percent.

The softening market gathered pace over the past three months with second quarter rental revenues down by 5.8 percent – total revenues in the second quarter were down by 13.6 percent.

Pre-Tax profits in the first half fell by 18.7 percent to $135 million although this does include a $14 million charge for costs involved with its SEC investigation. Putting this to one side and the like for like profits dropped 11 percent.

In the second quarter though the fall was 34.5 percent to $76 million (down 25% like for like).

Capital expenditure for the first half was almost 29 percent lower than the first half 2007 at $469 million.

Michael Kneeland, chief executive officer of United Rentals, said, "Our second quarter performance reflects the impact of expected market weakness on our core rental business, counteracted in part by the proactive implementation of our profit improvement strategy. Although our rental revenue declined, we drove our EBITDA margin higher through rigorous reductions of workforce and facility costs.”

“By the time the construction economy softened in the quarter, we had already adjusted our fleet plan to slow rental capex spending by $80 million. With the share repurchases complete, we expect the company's 2009 fully-diluted share count to decrease by approximately 39 percent to 70 million shares. As we stated in June, these repurchases have given us the opportunity to achieve significantly more EPS accretion, and to capture it more quickly, than through other means."

"Our full year outlook continues to balance our assessment of what we believe will be an increasingly challenging environment against the dramatic actions we have already taken. Our strategy is now well-established, and we will continue to use the many operating levers at our disposal, such as capex and labour adjustments, to optimise our performance and generate free cash flow."


Vertikal Comment

With its full range of equipment including tools and telehandlers, United has more exposure to the residential market than crane or aerial lift specialists. It was therefore surprising to see how well its rental revenues held up in the first quarter, the effects of slowdown in the housing market have though had an impact in the second quarter.

In spite of this the company is generating some serious amounts of cash and not only has it bought back its own shares, but it also retiring $125 million of debt, thus continuing to reduce its leverage and interest costs.

The company looks to be well placed to whether the storm with the average age of its fleet now at 38 months, although slightly older than its normal target levels, it can still run at its lower capital expenditure levels for at least a year or so before it starts to encounter problems.