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United Rentals (URI) Stock Rises on Q2 Earnings Beat, View Up

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United Rentals, Inc.’s (URI - Free Report) shares gained 3.5% in the after-hours trading session on Jul 27, following better-than-expected second-quarter 2022 results. Better fleet productivity on broad-based rental demand in construction and industrial verticals, higher total and rental revenues along with stronger pricing helped the company to boost profit.

URI also lifted its full-year guidance for total revenues, adjusted EBITDA and free cash flow, given broad-based end-market activity, contractor backlogs, customer sentiment and our visibility through the balance of the year.

Matthew Flannery, CEO of United Rentals, said, "Our record second quarter results reflect our strong execution in a robust demand environment. We've entered our busiest season with excellent momentum and the benefit of an effective capital allocation strategy, including seven bolt-on acquisitions and 24 Specialty cold-starts through June. We’re also on track to invest $3 billion in fleet this year and complete our share repurchase program this quarter, all supported by our cash generation and balance sheet."

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

Inside the Headlines

Adjusted earnings of $7.86 per share topped the Zacks Consensus Estimate of $6.57 by 19.6%. The reported figure also increased 68.7% from the prior-year figure of $4.66 per share.

Total revenues of $2.77 billion surpassed the consensus mark of $2.69 billion by 2.8% and grew 21.2% year over year. Rental revenues increased 26.2% from the year-ago quarter to $2.46 billion. This marks a record second quarter, given a broad-based recovery of activity across end markets served by the company. Fleet productivity was up 11.3% year over year, backed by better fleet absorption.

Yet, used equipment sales decreased 15.5% from a year ago. Adjusted gross margin of 62.2% expanded 1,430 basis points (bps) due to higher pricing, given higher pricing on used equipment sales, which rose sequentially for the seventh consecutive quarter.

Segment Discussion

General Rentals: This segment registered 21.9% year-over-year growth in rental revenues to $1.79 billion. Rental gross margin expanded 280 bps year over year to 38.7%, courtesy of improved fixed cost absorption due to higher revenues.

Specialty (earlier known as Trench, Power and Pump): Segmental rental revenues increased 39.2% year over year to $675 million. Rentals gross margin, however, contracted 20 bps on a year-over-year basis to 46.2%. This was mainly due to a depreciation adjustment related to the General Finance acquisition.

Margins

The company’s total equipment rentals gross margin rose 220 bps year over year to 40.7%.

Adjusted EBITDA also grew 31.2% from the prior-year quarter to $1,311 million. Adjusted EBITDA margin expanded 360 bps to 47.3% for the quarter, owing to higher margins from rental revenues and used equipment sales.

Balance Sheet

United Rentals had cash and cash equivalents of $68 million as of Jun 30, 2022, down from $144 million at 2021-end. Total liquidity was $2.83 billion at June-end.

Long-term debt as of Jun 30, 2022, was $9.76 billion, up from $8.78 billion at 2021-end.

Cash from operating activities decreased 1.9% year over year to $1,154 million for the quarter. Free cash flow fell 10.3% year over year to $392 million for the second quarter of 2022. This downside was mainly due to higher net rental capital expenditure.

2022 Guidance Updated

Total revenues are expected in the range of $11.4-$11.7 billion versus $11.1-$11.5 billion projected earlier. This indicates an increase from $9.72 billion reported in 2021.

Adjusted EBITDA is projected between $5.4 billion and $5.55 billion compared with the prior projection of $5.2-$5.4 billion. The current projection indicates a jump from the year-ago figure of $4.41 billion.

Net rental capital expenditure after gross purchases is still projected within $1.85-$2.05 billion, indicating an increase from $2.03 billion in 2021.

Net cash provided by operating activities is anticipated in the range of $3.85-$4.25 billion (compared with $3.7-$4.1 billion expected earlier), suggesting a rise from $3.69 billion in 2021.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $1.85-$2.05 billion compared with $1.7-$1.9 billion anticipated earlier. This suggests an increase from $1.53 billion reported in 2021.

Zacks Rank

United Rentals currently carries a Zacks Rank #3 (Hold).

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

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