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United Rentals (URI) Up 7.1% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is United Rentals due for a pullback? 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.
United Rentals Q1 Earnings & Revenues Top, Shares Up
United Rentals, Inc. reported impressive results in first-quarter 2020. Earnings and revenues topped the respective Zacks Consensus Estimate, and grew on a year-over-year basis. The company suspended its previously provided 2020 guidance and announced certain initiatives in response to the coronavirus outbreak.
Matthew Flannery, chief executive officer of United Rentals, said, “We’re in the strongest position in our history to respond to this crisis and to prepare for the recovery to come. This includes the strength of our balance sheet and cash flow, as we remain focused on disciplined capital allocation and cost management. We expect our free cash flow to remain substantially positive in 2020, even in our worst-case scenarios.”
Inside the Headlines
Adjusted earnings of $3.35 per share topped the consensus estimate of $2.34 by 43.2%. Also, the reported figure increased 1.2% from the prior-year figure. Total revenues of $2.125 billion surpassed the consensus mark of $2.051 billion by 3.6% and grew 0.4% year over year.
Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) fell 0.7% from the year-ago quarter. In February, the company’s revenues were slightly higher on a year-over-year basis. However, March sales declined primarily due to the impact of COVID-19.
Fleet productivity was also down 1.2% year over year in the quarter. Rental volume declined due to shelter-in-place orders and other end-market restrictions in March.
Used equipment sales generated $208 million of proceeds in the quarter compared with $192 million a year ago. Adjusted gross margin of 45.7% contracted 330 basis points (bps) due to changes in the mix of equipment sold, channel mix and pricing.
Segment Discussion
General Rentals: Segment equipment rentals’ revenues fell 2% year over year to $1.39 billion. Rental gross margin contracted 310 bps year over year to 32.1%, owing to increased depreciation expenses due to a $24 million non-cash asset impairment charge, and higher operating costs.
Trench, Power and Pump/Specialty: Segmental rental revenues increased 4.6% year over year to $389 million, driven by 2.8% organic growth. The upside was mainly driven by 9.8% increase in average original equipment cost, partially offset by the impact of COVID-19. However, rentals gross margin declined 60 bps on a year-over-year basis to 41.6% due to higher operating costs, largely associated with COVID-19.
Margins
The company’s total equipment rentals gross margin dropped 250 bps year over year to 34.2%. Adjusted EBITDA also dropped 0.7% from the prior-year quarter to $915 million. Adjusted EBITDA margin contracted 40 bps to 43.1% in the quarter.
Balance Sheet
United Rentals had cash and cash equivalents of $513 million as of Mar 31, 2020 compared with $52 million at 2019-end. Total liquidity was $3.083 billion at the quarter-end, up $940 million from the prior-year comparable period.
Net leverage ratio was 2.5 as of Mar 31, 2020 compared with 2.6 at 2019-end. Notably, it has reduced total net debt by $292 million year to date. The company has no long-term debt maturities until 2025.
Cash from operating activities decreased 3.4% to $644 million and free cash flow rose 5.4% from the prior-year quarter to $606 million.
On Jan 28, 2020, the board of directors authorized a new $500-million share repurchase program. Until Mar 18, it had repurchased $257 million common stock under the repurchase program. The company announced that it has paused further buyback for an indefinite period as of the same date.
2020 Guidance Revoked
Owing to uncertainty of the economic disruption caused by COVID-19, the company has withdrawn its full-year 2020 financial guidance.
Nonetheless, the company has undertaken various initiatives to mitigate the impact of COVID-19 on end-markets served. It currently focuses on five key work streams that include ensuring employee safety and well-being; leveraging competitive advantages to support the needs of customers; managing capital expenditures and fleet capacity; controlling core operating expenses; and maintaining ample liquidity to meet the business needs.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -37.97% due to these changes.
VGM Scores
Currently, United Rentals has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise United Rentals has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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United Rentals (URI) Up 7.1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have added about 7.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is United Rentals due for a pullback? 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.
United Rentals Q1 Earnings & Revenues Top, Shares Up
United Rentals, Inc. reported impressive results in first-quarter 2020. Earnings and revenues topped the respective Zacks Consensus Estimate, and grew on a year-over-year basis. The company suspended its previously provided 2020 guidance and announced certain initiatives in response to the coronavirus outbreak.
Matthew Flannery, chief executive officer of United Rentals, said, “We’re in the strongest position in our history to respond to this crisis and to prepare for the recovery to come. This includes the strength of our balance sheet and cash flow, as we remain focused on disciplined capital allocation and cost management. We expect our free cash flow to remain substantially positive in 2020, even in our worst-case scenarios.”
Inside the Headlines
Adjusted earnings of $3.35 per share topped the consensus estimate of $2.34 by 43.2%. Also, the reported figure increased 1.2% from the prior-year figure. Total revenues of $2.125 billion surpassed the consensus mark of $2.051 billion by 3.6% and grew 0.4% year over year.
Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) fell 0.7% from the year-ago quarter. In February, the company’s revenues were slightly higher on a year-over-year basis. However, March sales declined primarily due to the impact of COVID-19.
Fleet productivity was also down 1.2% year over year in the quarter. Rental volume declined due to shelter-in-place orders and other end-market restrictions in March.
Used equipment sales generated $208 million of proceeds in the quarter compared with $192 million a year ago. Adjusted gross margin of 45.7% contracted 330 basis points (bps) due to changes in the mix of equipment sold, channel mix and pricing.
Segment Discussion
General Rentals: Segment equipment rentals’ revenues fell 2% year over year to $1.39 billion. Rental gross margin contracted 310 bps year over year to 32.1%, owing to increased depreciation expenses due to a $24 million non-cash asset impairment charge, and higher operating costs.
Trench, Power and Pump/Specialty: Segmental rental revenues increased 4.6% year over year to $389 million, driven by 2.8% organic growth. The upside was mainly driven by 9.8% increase in average original equipment cost, partially offset by the impact of COVID-19. However, rentals gross margin declined 60 bps on a year-over-year basis to 41.6% due to higher operating costs, largely associated with COVID-19.
Margins
The company’s total equipment rentals gross margin dropped 250 bps year over year to 34.2%. Adjusted EBITDA also dropped 0.7% from the prior-year quarter to $915 million. Adjusted EBITDA margin contracted 40 bps to 43.1% in the quarter.
Balance Sheet
United Rentals had cash and cash equivalents of $513 million as of Mar 31, 2020 compared with $52 million at 2019-end. Total liquidity was $3.083 billion at the quarter-end, up $940 million from the prior-year comparable period.
Net leverage ratio was 2.5 as of Mar 31, 2020 compared with 2.6 at 2019-end. Notably, it has reduced total net debt by $292 million year to date. The company has no long-term debt maturities until 2025.
Cash from operating activities decreased 3.4% to $644 million and free cash flow rose 5.4% from the prior-year quarter to $606 million.
On Jan 28, 2020, the board of directors authorized a new $500-million share repurchase program. Until Mar 18, it had repurchased $257 million common stock under the repurchase program. The company announced that it has paused further buyback for an indefinite period as of the same date.
2020 Guidance Revoked
Owing to uncertainty of the economic disruption caused by COVID-19, the company has withdrawn its full-year 2020 financial guidance.
Nonetheless, the company has undertaken various initiatives to mitigate the impact of COVID-19 on end-markets served. It currently focuses on five key work streams that include ensuring employee safety and well-being; leveraging competitive advantages to support the needs of customers; managing capital expenditures and fleet capacity; controlling core operating expenses; and maintaining ample liquidity to meet the business needs.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -37.97% due to these changes.
VGM Scores
Currently, United Rentals has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise United Rentals has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.