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United Rentals (URI) Beats on Q1 Earnings, Raises 2021 View

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United Rentals, Inc. (URI - Free Report) reported impressive first-quarter 2021 results. Both earnings and revenues topped their respective Zacks Consensus Estimate as well as grew on a year-over-year basis. The company raised its previously announced 2021 guidance on the back of strong visibility into end-markets served.

Matthew Flannery, CEO of United Rentals, said, "The recovery that we’ve seen since the middle of last year remains evident across our business, and virtually all indicators point to these trends continuing. As such, we are raising our full-year guidance to reflect our expectations for stronger growth in our core rental business and increased used equipment sales. Most importantly, we are leveraging our significant competitive advantages to add value for both our customers and our investors."

On Apr 15, 2021, the company entered into an Agreement and Plan of Merger (the "GFN Merger Agreement") to acquire General Finance for $19 per share in cash, representing a total enterprise value of approximately $996 million, including the assumption of $400 million of net debt. General Finance — which operates as Pac-Van and Container King in the United States and Canada, and as Royal Wolf in Australia and New Zealand — is a leading provider of mobile storage as well as modular office space.

Inside the Headlines

Adjusted earnings of $3.45 per share topped the consensus estimate of $3.10 by 11.3%. Also, the reported figure increased 3% from the prior-year figure of $3.35 per share. Total revenues of $2.057 billion surpassed the consensus mark of $2.01 billion by 2.4% but fell 3.2% year over year.

United Rentals, Inc. Price, Consensus and EPS Surprise

United Rentals, Inc. Price, Consensus and EPS Surprise

United Rentals, Inc. price-consensus-eps-surprise-chart | United Rentals, Inc. Quote

Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) fell 6.5% from the year-ago quarter to $1.667 billion. Despite low year-over-year rental revenues, the company saw positive March reading.

While fleet productivity was down 0.5% year over year, it improved 330 basis points (bps) sequentially backed by better fleet absorption.

Used equipment sales generated $267 million of proceeds in the quarter compared with $208 million a year ago. Adjusted gross margin of 42.7% contracted 300 bps due to changes in pricing. Used equipment proceeds were 49% of original equipment cost or OEC compared with 53% in the year-ago period.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues fell 8.7% year over year to $1.273 billion. Rental gross margin expanded 20 bps year over year to 32.3%. Excluding the impact of a $24-million asset impairment charge, rental gross margin decreased 160 bps year over year, primarily due to higher bonus expense.

Trench, Power and Pump/Specialty: Segmental rental revenues increased 1.3% year over year to $394 million. However, rentals gross margin increased 50 bps on a year-over-year basis to 42.1% due to a decrease in temporary labor and fleet repair costs, partially offset by a higher proportion of revenues from certain lower-margin ancillary fees in 2021.

Margins

The company’s total equipment rentals gross margin rose 40 bps year over year to 34.6%.

Adjusted EBITDA also dropped 4.6% from the prior-year quarter to $873 million. Adjusted EBITDA margin contracted 70 bps to 42.4% for the quarter.

Balance Sheet

United Rentals had cash and cash equivalents of $278 million as of Mar 31, 2021 compared with $202 million at 2020-end. Total liquidity was $3.745 billion at quarter-end, up $672 million from the prior-year comparable period.

Net leverage ratio was 2.3 as of Mar 31, 2021 compared with 2.4 at 2020-end. Notably, it has reduced total net debt by $676 million year to date. The company has $8,497 million long-term debt maturities until 2025.

Cash from operating activities decreased 17.7% to $758 million and free cash flow rose 19.6% from the prior-year quarter to $725 million.

On Jan 28, 2020, the board of directors authorized a new $500-million share repurchase program. Until first-quarter 2021, it repurchased $257 million common stock under the repurchase program. The company is currently unable to estimate when it may restart the program.

Raised 2021 Guidance

Backed by solid first-quarter 2021 results, the company has lifted its full-year 2021 financial guidance.

Total revenues are now expected in the range of $9.05-$9.45 billion versus $8.625-$9.025 billion projected earlier. This indicates a solid increase from $8.530 billion reported in 2020.

Adjusted EBITDA is now projected between $4.1 billion and $4.3 billion compared with prior projection of $3.925-$4.125 billion. The current projection indicates a massive jump from the year-ago figure of $3.932 billion.

Net rental capital expenditures after gross purchases are now projected to be $1.25-$1.45 billion compared with $2-$2.3 billion expected earlier, indicating an increase from $961 million in 2020.

Net cash provided by operating activities is anticipated in the range of $3.1-$3.5 billion versus $2.95-$3.45 billion projected earlier, suggesting a rise from $2.658 billion in 2020.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $1.7-$1.9 billion compared with $1.65-$1.85 billion anticipated earlier. This suggests an increase from $2.454 billion reported in 2020.

Zacks Rank

United Rentals — which shares space with Masco Corporation (MAS - Free Report) , Owens Corning (OC - Free Report) and Installed Building Products, Inc. (IBP - Free Report) in the Zacks Building Products - Miscellaneous industry — currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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