Technology

Why Is United Rentals (URI) Up 14.1% Since Last Earnings Report?

It has been about a month since the last earnings report for United Rentals (URI). Shares have added about 14.1% 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 Q2 Earnings & Revenues Top, Down Y/Y

United Rentals, Inc. reported second-quarter 2020 results. Although earnings and revenues topped the respective Zacks Consensus Estimate, the metrics declined on a year-over-year basis, thanks to the COVID-19 pandemic.

Inside the Headlines

Adjusted earnings of $3.68 per share topped the consensus estimate of $1.93 by 90.7%. However, the reported figure decreased 22.4% from the prior-year figure. Total revenues of $1.94 billion surpassed the consensus mark of $1.81 billion by 7% but declined 15.3% year over year.

Rental revenues (including revenues from owned equipment rental, re-rent and ancillary) fell 16.2% from the year-ago quarter, mainly due to the pandemic’s impact. Quarterly fleet productivity was also down 13.6% year over year due to lower rental volumes.

Used equipment sales generated $176 million of proceeds compared with $197 million a year ago. Adjusted gross margin of 46% contracted 320 basis points (bps) due to changes in the mix of equipment sold and pricing.

Segment Discussion

General Rentals: Segment equipment rentals’ revenues fell 17.8% year over year to $1.26 billion. Rental gross margin contracted 540 bps year over year to 33.4%, owing to increased depreciation expenses, as well as the COVID-19 pandemic’s impact on revenues.

Trench, Power and Pump/Specialty: Segmental rental revenues decreased 10.6% year over year to $387 million due to an 11.7% organic sales decline. Rental gross margin contracted 80 bps on a year-over-year basis to 46.8% due to higher operating costs and increased depreciation expenses.

Margins

The company’s total equipment rentals gross margin dropped 390 bps year over year to 36.5%. Adjusted EBITDA also dropped 16.2% from the prior-year quarter to $899 million. Adjusted EBITDA margin contracted 50 bps to 46.4%.

Balance Sheet

United Rentals had cash and cash equivalents of $127 million as of Jun 30, 2020 compared with $52 million at 2019-end. Total liquidity was $3.82 billion at quarter-end.

Net leverage ratio was 2.5 as of Jun 30, 2020 compared with 2.6 at 2019-end. Notably, it has reduced total net debt by $1.1 billion year to date. The company has no long-term debt maturities until 2025. It has repurchased $257 million of shares under the current $500-million repurchase program so far in 2020.

2020 Guidance Reissued

Total revenues are expected in the range of $8.05-$8.45 billion, indicating a decrease from $9.35 billion in 2019. Adjusted EBITDA is projected between $3.6 billion and $3.8 billion, suggesting a decline from $4.36 billion in 2019. Net rental capital expenditures after gross purchases are projected in the range of $50-$150 million, implying a decline from $1.3 billion in 2019. Net cash provided by operating activities is expected in the range of $2.25-$2.55 billion, pointing to a decline from $3.02 billion reported in 2019.

Free cash flow (excluding the impact of merger and restructuring-related payments) is expected in the range of $2-$2.2 billion, which suggests an increase from $1.59 billion reported in 2019. Matthew Flannery, chief executive officer of United Rentals, said, “We saw a steady recovery in volume beginning in mid-April, which gave us good momentum into the start of our busy season. While visibility is still limited, near-term indicators suggest that the second half of 2020 may track to seasonal patterns in the majority of our markets.”

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 9.71% due to these changes.

VGM Scores

At this time, United Rentals has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise United Rentals has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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