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Why Is United Rentals (URI) Down 4.8% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for United Rentals, Inc. (URI - Free Report) . Shares have lost about 4.8% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is URI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Second Quarter 2018 Results

United Rentals’ second-quarter 2018 earnings and revenues surpassed the Zacks Consensus Estimate and improved year over year. The upside can be attributed to strong gains in volume and rates along with robust demand across construction and industrial verticals in the United States as well as Canada.

Adjusted earnings of $3.85 per share beat the Zacks Consensus Estimate of $3.50 and surged 62.4% from the prior-year quarter’s tally.

Revenues

Total revenues of $1.89 billion surpassed the Zacks Consensus Estimate of $1.80 billion by 4.9%. Revenues rose 18.9% year over year.

Rental revenues were also up 19.3% from the year-ago quarter to $1.6 billion. Volume of equipment on rent increased 15.9% and rental rates rose 2.8%.

Margins

Total equipment rentals gross margin expanded 10 bps on a year-over-year basis to 42.2%. Adjusted EBITDA increased $160 million to $907 million. Adjusted EBITDA margin rallied 120 bps to 48% in the quarter.

Segment Discussion

General Rentals: Segment equipment rentals revenues increased 16.5% year over year to $1.3 billion. Segment equipment rentals’ gross profit rose 16.8% to $543 million. Also, gross margin expanded 10 bps year over year.

Trench, Power and Pump: Segmental equipment rentals revenues increased 33.5% year over year to $299 million. Equipment rentals gross profit rose 30.6% to $145 million, while gross margin declined 110 bps on a year-over-year basis.

Time Utilization & Fleet Size

Time utilization declined 20 bps to 69.2% from the year-ago quarter’s level, thanks to the adverse impact of Neff acquisitions.

The size of the rental fleet was $11.98 billion of original equipment cost (OEC) as of Jun 30, 2018 compared with $11.5 billion as of Dec 31, 2017. The age of the rental fleet was 46 months on an OEC-weighted basis as of Jun 30 compared with 47 months as of Dec 31, 2017.

Balance Sheet

United Rentals’ cash and cash equivalents totaled $278 million as of Mar 31 compared with $352 million as of Dec 31, 2017.

In the first six months of 2018, the company generated $1.6 billion of net cash from operating activities compared with $1.3 billion in the prior-year quarter.

Free cash flow was $703 million for the first six months of 2018 compared with $614 million in the year-ago quarter.

Share Repurchase Program

In the quarter under review, the company completed its $1-billion program to repurchase shares of its common stock. It initiated a $1.25-billion share repurchase program in July 2018, which the company intends to complete by the end of 2019.

Reiterated Guidance

Total revenues are expected in the range of $7.5-$7.7 billion, up from the prior projection of $7.3-$7.6 billion. This reflects an increase from $6.64 billion in 2017.

Adjusted EBITDA is projected between $3.675 billion and $3.775 billion, higher than the previous guidance of $3.6-$3.75 billion.

Net rental capital expenditures after gross purchases are projected in the range of $1.9-$2 billion compared with $1.8-$1.95 billion expected earlier.

Net cash provided by operating activities is estimated in the range of $2.675-$2.825 billion, higher than the previous expectation of $2.625 billion-$2.825 billion.

Free cash flow is expected in the range of $1.3-$1.4 billion, higher than $983 million in 2017.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter

United Rentals, Inc. Price and Consensus

 

United Rentals, Inc. Price and Consensus | United Rentals, Inc. Quote

VGM Scores

At this time, URI has a strong Growth Score of A, though it is lagging a bit on the momentum front with a B. The stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise URI has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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