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United Rentals' (URI) Stock Up on Q4 Earnings & Revenue Beat

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United Rentals’ (URI - Free Report) shares gained 4.2% in the after-hour trading session on Jan 23, following the company’s fourth-quarter 2018 earnings release, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate and also improved on a year-over-year basis. The upside can be attributed to strong gains in volume, margins and rates. Solid integration of major acquisitions also aided the quarterly results. It further gained traction from investments in fleet and technology.

Adjusted earnings of $4.85 per share beat the consensus mark of $4.77 and also surged from the prior-year figure of $3.34.

United Rentals, Inc. Price, Consensus and EPS Surprise
 

Revenues

Total revenues of $2.31 billion surpassed the consensus mark of $2.21 billion. Moreover, revenues rose 20% year over year.

Rental revenues were also up 20.8% from the year-ago quarter to $1.99 billion. Volume of equipment on rent increased 16.8% and rental rates rose 2.2% year over year.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues increased 14.8% year over year to $1.57 billion. Segment equipment rentals’ gross profit rose 15.8% from a year ago to $695 million. Also, gross margin expanded 40 basis points (bps) year over year.

Trench, Power and Pump: Segmental equipment rentals revenues increased 50.7% year over year to $416 million. Equipment rentals gross profit rose 43.5% to $188 million, while gross margin declined 230 bps on a year-over-year basis. The downside was mainly due to the impact of the BakerCorp acquisition. Also, an increase in lower-margin fuel and re-rent revenues within the Power and HVAC region added to the woes.

Overall Margins

The company’s total equipment rentals gross margin remained flat year over year at 44.4% as higher margins from the General Rentals segment were offset by the weak performance of the Trench, Power and Fluid Solutions segment.

Adjusted EBITDA increased 18% from the prior-year quarter to a record of $1.12 billion. However, adjusted EBITDA margin contracted 90 bps to 48.4% in the quarter, owing to the impact of the completed acquisitions in 2018.

Time Utilization & Fleet Size

Time utilization was down 120 bps year over year to 68.8% due of the impact of BakerCorp and BlueLine acquisitions. On a pro-forma basis, the metric also decreased 60 bps year over year to 69%.

The size of the rental fleet was $14.18 billion of original equipment cost ("OEC") as of Dec 31, 2018 compared with $11.51 billion on Dec 31, 2017. The age of the rental fleet was 47.9 months on an OEC-weighted basis as of Dec 31, 2018 versus 47 months on Dec 31, 2017.

2018 Highlights

Adjusted earnings were $16.26 per share versus $10.59 a year ago. Total revenues came in at $8.05 billion, reflecting an increase of 21.2% from the 2017 level.

Rental revenues grew 21.4% from the year-ago quarter, with 18.8% gain in the volume of equipment on rent and 2.2% increase in rental rates.

Meanwhile, full-year gross margin expanded 10 bps to 41.8% and pre-tax margin increased 250 bps.

Balance Sheet

United Rentals’ cash and cash equivalents totaled $43 million as of Dec 31 compared with $352 million in the corresponding period of 2017.

In 2018, the company generated $2.85 billion as net cash from operating activities compared with $2.21 billion in the prior-year period.

Free cash flow was $735 million in the fourth quarter (up 126.2% year over year) and $1.27 billion in full-year 2018 (up 40.1% from the 2017 level).

Share Repurchase Program

In July, United Rentals initiated its $1.25-billion program to repurchase shares of its common stock. As of Dec 31, 2018, the company repurchased $420 million of common stock under the program that will likely end this year.

2019 Guidance

Total revenues are expected in the range of $9.15-$9.55 billion, reflecting an increase from $8.05 billion in 2018.

Adjusted EBITDA is projected between $4.35 billion and $4.55 billion compared with $3.86 billion in 2018.

Net rental capital expenditures after gross purchases are projected in the range of $1.4-$1.55 billion compared with $1.442 billion in 2018.

Net cash provided by operating activities is maintained in the range of $2.85-$3.2 billion versus 2.85 billion reported in 2018.

Free cash flow is expected in the range of $1.3-$1.5 billion compared with $1.33 billion in 2018.

Zacks Rank & Key Picks

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.

Some better-ranked stocks in the Zacks Construction sector are Gibraltar Industries, Inc. (ROCK - Free Report) , Gates Industrial Corporation PLC (GTES - Free Report) and Lennox International, Inc. (LII - Free Report) . While Gibraltar and Gates Industrial sport a Zacks Rank #1 (Strong Buy), Lennox carries a Zacks Rank #2 (Buy).

Gibraltar, Gates Industrial and Lennox’s earnings for 2019 are expected to increase 17.2%, 9.7% and 31.2%, respectively.

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