United Rentals announces Q2 2010 results

July 22, 2010 – United Rentals has announced financial results for the second quarter 2010. Total revenue was $557 million and rental revenue was $450 million, compared with $615 million and $454 million, respectively, for the same period last year. Operating income was $59 million, compared with $5 million for the same period last year.

On a GAAP EPS basis, the company reported second quarter 2010 net income of $12 million, or $0.18 per diluted share, compared with a net loss of $17 million, or a loss of $0.28 per diluted share, for the same period in 2009. In the second quarter 2010, the company revised its estimate of full-year projected income (loss) and the resulting effective tax rate. As a result, the company’s net income for the quarter reflects an income tax benefit of $9 million. Adjusted EPS for the quarter, which excludes the impact of special items, was $0.25 per diluted share, compared with a loss of $0.24 per diluted share the prior year. Adjusted EBITDA margin, which also excludes the impact of special items, was 32.1% for the quarter, compared with 24.4% for the prior year.

Second Quarter 2010 Highlights

•    Time utilization increased 4.1 percentage points compared with last year to a second quarter record of 65.4%, reflecting an increase in demand and more effective management of a smaller fleet. Rental rates declined 2.0% compared with last year. Dollar utilization, which reflects the impact of time utilization and rental rates, increased 1.8 percentage points to 46.7%.
•    Free cash flow was $8 million, compared with $70 million last year. To meet increased demand, the company raised its outlook for net rental capital expenditures (defined as purchases of rental equipment less the proceeds from sales of rental equipment) to a range of $160 million to $180 million, from its previous estimate of $100 million to $120 million. The company also reaffirmed its outlook for full year free cash flow of a range of $200 million to $225 million.
•    SG&A expense decreased by $11 million, compared with last year. The company has reaffirmed its outlook for full year SG&A expense reduction within a range of $40 million to $50 million.
•    Cost of equipment rentals, excluding depreciation, decreased by $4 million compared with last year. The company has updated its outlook for full year expense reduction to a range of $30 million to $50 million, from its previous estimate of $70 million to $90 million.
•    The company sold $80 million of used fleet on an original equipment cost basis and generated a positive gross margin of 24.3%, compared with $271 million of used fleet sold at a negative gross margin of 9.5% for the same period last year.

CEO Comments

Michael Kneeland, chief executive officer of United Rentals, said, "This was a strong quarter with a number of positive trends in the underlying metrics. Our same-store rental revenues increased 2.7%, with year over year growth in six of our nine operating regions. We reported the highest time utilization of any second quarter in our company's history. Rental rates, while down year over year, improved sequentially each month. We are also running the business much more efficiently and spending capex where it counts, purchasing fleet that we are confident will be in demand by our target accounts.”

 
Kneeland continued, "While we continue to expect a choppy recovery, we believe that we are seeing the early stages of a cyclical upturn on top of the normal seasonal benefit. As contractors take on work with limited access to capital, they are choosing to rent rather than buy equipment. We find it encouraging that demand is coming from more than one source as we move into a recovery. Our branches are meeting these opportunities head-on with a powerful strategy focused on larger construction and industrial accounts, pricing discipline and customer service excellence.”

Six Months 2010 Results

For the first half 2010, the company reported total revenue of $1,035 million and rental revenue of $830 million, compared with $1,209 million and $902 million, respectively, for the same period last year. Operating income was $57 million for the first half 2010, compared with $23 million for the same period last year.

On a GAAP basis, the company reported a net loss of $28 million, or $0.46 per diluted share, for the first half 2010, compared with a net loss of $36 million, or $0.60 per diluted share, for the same period in 2009. Adjusted EPS, which excludes the impact of special items, was a loss of $0.28 per diluted share, compared with a loss of $0.56 per diluted share the prior year. Adjusted EBITDA margin, which also excludes the impact of special items, was 28.4% for the first half 2010, compared with 24.4% in 2009.

Free Cash Flow and Fleet Size

For the first half 2010, free cash flow was $107 million, including the receipt of a previously announced $55 million federal tax refund, and after total rental and non-rental capital expenditures of $186 million. By comparison, free cash flow for the first half 2009 was $199 million after total rental and non-rental capital expenditures of $164 million.

The size of the rental fleet was $3.765 billion of original equipment cost at June 30, 2010, compared with $3.794 billion at June 30, 2009, and $3.763 billion at December 31, 2009. The age of the rental fleet was 45.0 months on a unit-weighted basis at June 30, 2010, compared with 42.4 months at December 31, 2009. 

Return on Invested Capital (ROIC)   

Return on invested capital was 2.0% for the 12 months ended June 30, 2010, a decrease of 3.0 percentage points from the same period last year. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by the averages of stockholders’ equity (deficit), debt and deferred taxes, net of average cash.