United Rentals Rises on Q4 Earnings Beat & Upbeat '15 View - Analyst Blog

Shares of United Rentals, Inc. (URI) went up nearly 3.7% and closed at $87.56 as the company reported a 38% year-over-year increase in its fourth-quarter 2014 adjusted earnings to $2.19 per share. Results also beat the Zacks Consensus Estimate of $2.06, resulting in an earnings surprise of 6.3%.

GAAP earnings (including RSC merger related costs, restructuring and asset impairment charges and loss on repurchase/redemption of debt securities) came in at $1.88 per share, compared with the prior-year quarter earnings of $1.31 per share.

United Rentals Inc. - Earnings Surprise | FindTheBest

Operational Update

Total revenue improved 17% year over year to $1.564 billion in the quarter, beating the Zacks Consensus Estimate of $1.512 billion. The year-over-year rise was mainly due to growth in equipment rentals (17%), sales of new equipment (47%), sales of rental equipment (16%), and services and other revenues (15%).

Cost of sales increased 11% to $857 million from $771 million in the year-ago quarter. Gross profit improved 25% year over year to $707 million. Consequently, gross margin expanded 280 basis points (bps) to 45.2% in the quarter.

Selling, general and administrative expenses went up 28% year over year to $209 million. Adjusted operating profit rose 23.3% to $498 million, while operating margin increased 200 bps to 32% in the quarter.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the reported quarter improved 19% to $775 million from $651 million in the year-ago quarter. Adjusted EBITDA margin was 49.6%, rising 90 bps from the year-ago quarter.

Time utilization increased 130 bps year over year to 70.6% in the fourth quarter. The size of the rental fleet was $8.44 billion as of the quarter-end, compared with $7.73 billion at 2013-end.

Segmental Performance

In the reported quarter, revenues in the General Rentals segment increased 9.4% year over year to $1,143 million. Gross profit for the segment increased 16% to $524 million from $451 million in the year-ago quarter.

The Trench Safety, Power & HVAC segment’s revenues surged 101% to $177 million from $88 million in the year-ago quarter. Gross profit for the segment improved significantly to $87 million from $39 million in the prior-year quarter.

2014 Performance

United Rentals posted adjusted earnings of $6.91 per share for 2014, which increased an impressive 41% from $4.91 a share in 2013. The bottom line beat the Zacks Consensus Estimate of $6.84 per share. Including special items, earnings were $5.15 per share for the year compared with $3.64 in 2013.

Revenues for the full year increased 14.7% year over year to $5.69 billion from $5 billion in 2013 due to increases in rates and utilization which helped to drive up rental revenue. Revenues topped the Zacks Consensus Estimate of $5.64 billion and also exceeded the company’s guided range of $5.55 billion to $5.65 billion.

Financial Update

United Rentals had cash and cash equivalents of $158 million at the end of 2014 compared with $175 million at 2013-end. The company generated cash flow from operations of $335 million in the reported quarter, down from $436 million in the prior-year quarter.

Long-term debt was $7.4 billion as of Dec 31, 2014 versus $6.6 billion as of Dec 31, 2013. For the quarter, free cash flow was $245 million, compared with $467 million in the prior-year quarter.

United Rentals repurchased common stock worth $491 million in 2014 in order to complete the $500 million share repurchase program declared in Oct 2013. Further, in Dec 2014, United Rentals’ board approved a new $750 million share repurchase program. In 2014, the company repurchased $102 million worth of common stock under this repurchase program. United Rentals plans to complete the program within 18 months of the authorization.

Outlook

United Rentals expects 2015 revenue in the range of $6.0 billion to $6.2 billion. Adjusted EBITDA guidance for the full year is projected in the range of $2.95–$3.05 billion. The company expects an increase of approximately 3.5% year over year in rental rates and time utilization of around 69%.
 
Net rental capital expenditures are expected at approximately $1.2 billion, after gross purchases of approximately $1.7 billion for 2015. The company anticipates free cash flow in the range of $725 million to $775 million for the full year.

Our Take

United Rentals will gain from the implementation of growth strategies, higher rental rates, free cash flow generation, returning cash to shareholders and integrating acquisitions. Notably, the company will continue to focus on reducing the cycle time for renting equipment, improving accuracy, service quality and efficiency and cost control, which will lead to an increase in gross margin. The company is also poised to benefit from the recent fall in oil prices.
 
Greenwich, CT.-based United Rentals is the largest equipment rental company in the world, with an integrated network of over 880 rentals. The company offers leases on about 3,100 classes of equipment with total original cost of almost $8 billion.

United Rentals currently carries a Zacks Rank #2 (Buy).

Other stocks worth considering in the sector include Armstrong World Industries, Inc. (AWI), Owens Corning (OC) and Masco Corporation (MAS). All these stocks carry a Zacks Rank #2.
 

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