04.08.2008

RSC - rentals up 6%

RSC one of the largest rental companies in the USA has reported first half rental revenues up 6.1 percent to $777 million. Total revenues increased by just 2.6 percent to $871 million.

Pre-tax profits jumped by 66 percent to $102 million, however the 2007 numbers included a final management fee of $23 million, following its buy out from Atlas Copco by Ripplewood Holdings and Oak Hill Capital Management private equity firms. If this is removed the like-for-like comparison is a more modest increase of three percent.

IN the second quarter rental rates were up by just under one percent from the first quarter but half a percent down on a year ago. Utilisation increased to 71.6 percent in the second quarter from 68.6 percent in the first quarter. The company says that it is deliberately slowing sales of used equipment to reduce capital expenditures and take advantage of its young fleet.

Capital expenditure for the first half was $115 million 56 percent lower than in the first half of 2007.

Erik Olsson, president and chief executive officer said: "Our strong performance is a direct result of proactively managing the operating levers of our business by focusing on sustained rental rates and high utilisation through reduced capex and fleet redeployment. Thereby we support profit margins and generate free cash flow, which is precisely what the business should be focusing on now."

"We could have grown even faster in the second quarter, but it would have come at the expense of higher capex and lower rates and margins. Instead we have chosen to reduce capex and drive free cash flow. At the same time we are investing in the growth of our business, as evidenced by the recent acquisition of American Equipment Rental and the creation and filling of two key executive management positions in the areas of strategic development and sales."

Vertikal Comment

RSC has done well to turn in this performance, particularly as it has held up in the second quarter while United Rentals has seen a significant reduction in rental revenues. It is clearly following the strategy of aging its fleet and is taking a more aggressive approach to this than United, how long it can do so before it starts to build up other problems remains to be seen.