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Why Is United Rentals (URI) Up 14.8% Since Last Earnings Report?
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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 14.8% 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 catalysts.
United Rentals Q3 Earnings & Revenues Beat Estimates
United Rentals, Inc.’s third-quarter 2023 earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, earnings and revenues increased courtesy of sustained growth across the business, profitability and returns, underpinned by broad-based activity.
Moreover, URI has maintained its guidance for 2023, given the strength of the present market condition and the multi-year tailwinds the company sees across infrastructure, manufacturing, and energy and power.
Also, it unveiled a quarterly dividend of $1.48 per share. The company also repurchased $750 million of stock year to date under its existing $1.25 billion share repurchase program. It also paid $305 million worth of dividends.
Inside the Headlines
Adjusted earnings per share (EPS) of $11.73 surpassed the Zacks Consensus Estimate of $11.32 by 3.6%. The reported figure increased 26.5% from the prior-year figure of $9.27 per share.
Total revenues of $3.77 billion surpassed the consensus mark of $3.68 billion by 2.3% and grew 23.4% year over year.
Rental revenues increased 18% from the year-ago quarter to $3.22 billion. Our model had predicted Equipment rentals revenues to be $3.12 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Also, Ahern Rentals buyout contributed to the growth. However, fleet productivity was down 2.2%, but average original equipment costs (OEC) increased 22.2% year over year. On a pro forma basis, rental revenues grew 9.8% year over year, given a 10.2% increase in average OEC and a 1.5% increase in fleet productivity.
Used equipment sales rose 102.2% from a year ago. The Used equipment sales produced an adjusted gross margin of 55.2%, which contracted 940 basis points (bps). This decline has stemmed from the anticipated adjustment in the channel mix, which involved a broader utilization of wholesale channels, as well as the effects of selling equipment obtained through the Ahern Rentals acquisition.
Segment Discussion
General Rentals: This segment registered 18.8% year-over-year growth in rental revenues to $2.31 billion, below our expectation of $2.72 billion. Rental gross margin contracted 320 bps year over year to 37.8% due to the impact of the Ahern Rentals acquisition.
Specialty: Segmental rental revenues increased 16.1% year over year to $917 million, lower than our expectation of $942.2 million. Rentals gross margin remained almost flat on a year-over-year basis at 52.1%. This was backed by better cost performance and fixed cost absorption on higher revenues.
Margins
The company’s total equipment rentals’ gross margin contracted 240 bps year over year to 41.9% on a pro forma basis. Adjusted EBITDA for the reported period grew 21.6% year over year to $1.85 billion. Adjusted EBITDA margin decreased 80 bps to 49.1%, ahead of our expectation of 46.4% for the quarter.
Balance Sheet
United Rentals had cash and cash equivalents of $284 million as of Sep 30, 2023, up from $106 million at 2022-end. Total liquidity was $2.69 billion at September-end. Long-term debt at the third-quarter end was $10.58 billion, down from $11.21 billion at 2022-end.
On Sep 30, 2023, the net leverage ratio was 1.8x compared with 2.0x on Dec 31, 2022. Return on invested capital increased 150 bps year over year and 30 bps sequentially to a record 13.7% for the trailing 12 months that ended on Sep 30, 2023.
During the first nine months of 2023, cash from operating activities improved 3.4% year over year to $3.29 million. Free cash flow grew 1.5% year over year to $1.16 billion for the said period.
2023 Guidance Maintained
Total revenues are expected to be in the range of $14-$14.3 billion, suggesting a rise from $11.642 billion in 2022. Adjusted EBITDA is projected to be between $6.775 billion and $6.875 billion, indicating an increase from $5.618 billion in 2022. Net rental capital expenditure after gross purchases is projected to be in the range of $1.9-$2.05 billion, indicating a decrease from $2.471 billion in 2022.
Net cash provided by operating activities is anticipated to be in the range of $4.5-$4.8 billion, suggesting a rise from $4.433 billion in 2022. Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2.3-$2.5 billion. This suggests an increase from $1.768 billion reported in 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, United Rentals has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 looks promising. Notably, United Rentals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is United Rentals (URI) Up 14.8% Since Last Earnings Report?
It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have added about 14.8% 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 catalysts.
United Rentals Q3 Earnings & Revenues Beat Estimates
United Rentals, Inc.’s third-quarter 2023 earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, earnings and revenues increased courtesy of sustained growth across the business, profitability and returns, underpinned by broad-based activity.
Moreover, URI has maintained its guidance for 2023, given the strength of the present market condition and the multi-year tailwinds the company sees across infrastructure, manufacturing, and energy and power.
Also, it unveiled a quarterly dividend of $1.48 per share. The company also repurchased $750 million of stock year to date under its existing $1.25 billion share repurchase program. It also paid $305 million worth of dividends.
Inside the Headlines
Adjusted earnings per share (EPS) of $11.73 surpassed the Zacks Consensus Estimate of $11.32 by 3.6%. The reported figure increased 26.5% from the prior-year figure of $9.27 per share.
Total revenues of $3.77 billion surpassed the consensus mark of $3.68 billion by 2.3% and grew 23.4% year over year.
Rental revenues increased 18% from the year-ago quarter to $3.22 billion. Our model had predicted Equipment rentals revenues to be $3.12 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Also, Ahern Rentals buyout contributed to the growth. However, fleet productivity was down 2.2%, but average original equipment costs (OEC) increased 22.2% year over year. On a pro forma basis, rental revenues grew 9.8% year over year, given a 10.2% increase in average OEC and a 1.5% increase in fleet productivity.
Used equipment sales rose 102.2% from a year ago. The Used equipment sales produced an adjusted gross margin of 55.2%, which contracted 940 basis points (bps). This decline has stemmed from the anticipated adjustment in the channel mix, which involved a broader utilization of wholesale channels, as well as the effects of selling equipment obtained through the Ahern Rentals acquisition.
Segment Discussion
General Rentals: This segment registered 18.8% year-over-year growth in rental revenues to $2.31 billion, below our expectation of $2.72 billion. Rental gross margin contracted 320 bps year over year to 37.8% due to the impact of the Ahern Rentals acquisition.
Specialty: Segmental rental revenues increased 16.1% year over year to $917 million, lower than our expectation of $942.2 million. Rentals gross margin remained almost flat on a year-over-year basis at 52.1%. This was backed by better cost performance and fixed cost absorption on higher revenues.
Margins
The company’s total equipment rentals’ gross margin contracted 240 bps year over year to 41.9% on a pro forma basis. Adjusted EBITDA for the reported period grew 21.6% year over year to $1.85 billion. Adjusted EBITDA margin decreased 80 bps to 49.1%, ahead of our expectation of 46.4% for the quarter.
Balance Sheet
United Rentals had cash and cash equivalents of $284 million as of Sep 30, 2023, up from $106 million at 2022-end. Total liquidity was $2.69 billion at September-end. Long-term debt at the third-quarter end was $10.58 billion, down from $11.21 billion at 2022-end.
On Sep 30, 2023, the net leverage ratio was 1.8x compared with 2.0x on Dec 31, 2022. Return on invested capital increased 150 bps year over year and 30 bps sequentially to a record 13.7% for the trailing 12 months that ended on Sep 30, 2023.
During the first nine months of 2023, cash from operating activities improved 3.4% year over year to $3.29 million. Free cash flow grew 1.5% year over year to $1.16 billion for the said period.
2023 Guidance Maintained
Total revenues are expected to be in the range of $14-$14.3 billion, suggesting a rise from $11.642 billion in 2022. Adjusted EBITDA is projected to be between $6.775 billion and $6.875 billion, indicating an increase from $5.618 billion in 2022. Net rental capital expenditure after gross purchases is projected to be in the range of $1.9-$2.05 billion, indicating a decrease from $2.471 billion in 2022.
Net cash provided by operating activities is anticipated to be in the range of $4.5-$4.8 billion, suggesting a rise from $4.433 billion in 2022. Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2.3-$2.5 billion. This suggests an increase from $1.768 billion reported in 2022.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
At this time, United Rentals has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 looks promising. Notably, United Rentals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.