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United Rentals (URI) Q3 Earnings Beat, Revenues Lag, View Up

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United Rentals, Inc.’s (URI - Free Report) shares dropped 0.9% in the after-hours trading session on Oct 27, following third-quarter 2022 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. The company has been gaining from the sustained demand in its end markets and the strength of its core rental business.

URI also lifted its full-year guidance for total revenues and adjusted EBITDA, given broad-based end-market activity, contractor backlogs, customer sentiment and solid visibility.

Looking forward, Matthew Flannery, CEO of United Rentals, said, “While there are clearly cross-currents in the economy, virtually all key non-residential construction indicators remain encouraging, including customer sentiment. In addition, we see substantial opportunities next year across federally funded infrastructure projects, industrial manufacturing, energy and power. We expect to deliver another year of profitable growth, strong cash flow, and attractive returns for our shareholders.”

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 $9.27 per share topped the Zacks Consensus Estimate of $9 by 3%. The reported figure also increased 40.9% from the prior-year figure of $6.58 per share.

Total revenues of $3.05 billion missed the consensus mark of $3.09 billion by 1.2% but grew 17.5% year over year. Rental revenues increased 20% from the year-ago quarter to $2.73 billion. This marks the record third-quarter results. This upside was mainly attributable to a broad-based recovery of activity across end markets served by the company. Fleet productivity was up 8.9% and average original equipment at cost grew 10.6% year over year.

Yet, used equipment sales decreased 1.1% from a year ago. Adjusted gross margin of 64.6% expanded 1,430 basis points (bps) due to higher pricing, given higher pricing on used equipment sales.

Segment Discussion

General Rentals: This segment registered 18.7% year-over-year growth in rental revenues to $1.94 billion. Rental gross margin expanded 130 bps year over year to 41%, courtesy of improved fixed cost absorption due to higher revenues.

Specialty (earlier known as Trench, Power and Pump): Segmental rental revenues increased 23.2% year over year to $790 million. Rentals gross margin expanded 70 bps on a year-over-year basis to 52.2%.

Margins

The company’s total equipment rentals gross margin rose 130 bps year over year to 44.3%.

Adjusted EBITDA also grew 23.4% from the prior-year quarter to $1,521 million. Adjusted EBITDA margin expanded 240 bps to 49.9% for the quarter, owing to higher margins from rental revenues and used equipment sales.

Balance Sheet

United Rentals had cash and cash equivalents of $76 million as of Sep 30, 2022, down from $144 million at 2021-end. Total liquidity was $2.843 billion at September-end.

Long-term debt as of Sep 30, 2022, was $9.75 billion, up from $8.78 billion at 2021-end.

Cash from operating activities increased 5.1% year over year to $1,142 million for the quarter. Free cash flow grew 91.3% year over year to $176 million for the third quarter of 2022.

2022 Guidance Updated

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

Adjusted EBITDA is projected between $5.5 billion and $5.6 billion compared with the prior projection of $5.4-$5.55 billion. The current projection indicates a jump from the year-ago figure of $4.41 billion.

Net rental capital expenditure after gross purchases is now projected within $2.25 billion-$2.45 billion (versus prior expectation of $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 $4.05-$4.4 billion (compared with $3.85-$4.25 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 $1.6-$1.8 billion compared with $1.85-$2.05 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.

A Few Recent Construction Releases

Otis Worldwide Corporation (OTIS - Free Report) reported mixed results in third-quarter 2022. Its earnings surpassed the Zacks Consensus Estimate and rose on a year-over-year basis. However, sales declined from the year-ago quarter’s figure and lagged the consensus mark.

For 2022, OTIS expects adjusted net sales to be within $13.4-$13.5 billion, lower than the $13.6-$13.8 billion projected earlier. Adjusted earnings per share are anticipated to be $3.11-$3.15, suggesting 5-7% year-over-year growth. This is down from the prior projection of $3.17-$3.21 per share.

PulteGroup Inc. (PHM - Free Report) reported unimpressive results in third-quarter 2022. Quarterly earnings and revenues missed their respective Zacks Consensus Estimate thanks to prevailing industry headwinds. Nonetheless, the metrics increased on a year-over-year basis.

For fourth-quarter 2022, PHM expects ASP within $560,000-$570,000, indicating an increase from $490,000 registered a year ago. It expects home deliveries to be 8,000, indicating a decline from 8,611 homes delivered a year ago. The decrease reflects the challenging sales environment, higher cancelation rates and the ongoing impact of Hurricane Ian on Florida operations.

Watsco, Inc. (WSO - Free Report) reported third-quarter 2022 results, wherein the company’s earnings missed the Zacks Consensus Estimate, but sales beat the same.

Nonetheless, WSO achieved higher sales and profitability, reflecting normalized residential HVAC equipment volumes, effective price realization, a continued shift toward higher-efficiency HVAC equipment and expansion in sales of other higher-margin HVAC products.

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