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United Rentals (URI) Up 1% Since Last Earnings Report: Can It Continue?
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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 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 the most recent earnings report in order to get a better handle on the important drivers.
United Rentals’ Q2 Earnings & Revenues Top, '23 View Up
United Rentals second-quarter 2023 earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, earnings and revenues increased courtesy of sustained demand in its end markets and the strength of its core rental business.
Moreover, URI has lifted 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, with an annualized yield of approximately 1.3%. The company also repurchased $500 million of stock year to date under its existing $1.25 billion share repurchase program.
Inside the Headlines
Adjusted earnings of 9.88 per share surpassed the Zacks Consensus Estimate of $9.23 by 7%. The reported figure increased by 25.7% from the prior-year figure of $7.86 per share.
Total revenues of $3.55 billion surpassed the consensus mark of $3.43 billion by 3.5% and grew 28.3% year over year.
Rental revenues increased 21.1% from the year-ago quarter to $2.98 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%, but average original equipment costs increased by 25.5% year over year.
Used equipment sales rose 132.9% from a year ago. The Used equipment sales produced an adjusted gross margin of 57.3%, which contracted 490 basis points (bps). This downside was due to the expected normalization of channel mix, including the expanded use of wholesale channels, and the impact of sales of equipment acquired in the Ahern Rentals acquisition.
Segment Discussion
General Rentals: This segment registered 22.5% year-over-year growth in rental revenues to $2.19 billion. Rental gross margin contracted 270 bps year over year to 36% due to the impact of the Ahern Rentals acquisition.
Specialty: Segmental rental revenues increased 17.3% year over year to $792 million. Rentals’ gross margin expanded 240 bps on a year-over-year basis to 48.6%. This was backed by better cost performance and fixed cost absorption on higher revenues.
Margins
The company’s total equipment rentals’ gross margin grew 20 bps year over year to 39.3% on a pro forma basis. Adjusted EBITDA for the reported period grew 29.3% year over year to $1.7 billion. Adjusted EBITDA margin also increased 40 bps to 47.7%.
Balance Sheet
United Rentals had cash and cash equivalents of $227 million as of Jun 30, 2023, up from $106 million at 2022-end. Total liquidity was $2.706 billion at June-end. Long-term debt at the second-quarter end was $10.49 billion, down from $11.21 billion at 2022-end.
On Jun 30, 2023, the net leverage ratio was 1.8x compared to 2.0x on Dec 31, 2022. Return on invested capital increased 190 bps year over year and 30 bps sequentially to a record 13.4% for the trailing 12 months that ended Jun 30, 2023.
Cash from operating activities improved 11.7% year over year to $1.29 million in the second quarter. Free cash flow, including merger and restructuring-related payments, dropped 13.3% year over year to $340 million for the quarter due to higher net rental capital expenditures.
2023 Guidance Raised
Total revenues are expected to be in the range of $14-$14.3 billion versus $13.7-$14.2 billion projected earlier. Adjusted EBITDA is projected to be between $6.75 billion and $6.9 billion compared with the prior projection of $6.6-$6.85 billion.
Net rental capital expenditure after gross purchases is projected within $1.9-$2.1 billion (versus the prior expectation of $2-$2.25 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 (compared with $4.4-$4.8 billion expected earlier), 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 compared with $2.1-$2.35 billion anticipated earlier. This suggests an increase from $1.768 billion reported in 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, United Rentals has a strong Growth Score of A, though it is lagging a lot 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 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 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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United Rentals (URI) Up 1% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have added about 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 the most recent earnings report in order to get a better handle on the important drivers.
United Rentals’ Q2 Earnings & Revenues Top, '23 View Up
United Rentals second-quarter 2023 earnings and revenues surpassed the Zacks Consensus Estimate. On a year-over-year basis, earnings and revenues increased courtesy of sustained demand in its end markets and the strength of its core rental business.
Moreover, URI has lifted 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, with an annualized yield of approximately 1.3%. The company also repurchased $500 million of stock year to date under its existing $1.25 billion share repurchase program.
Inside the Headlines
Adjusted earnings of 9.88 per share surpassed the Zacks Consensus Estimate of $9.23 by 7%. The reported figure increased by 25.7% from the prior-year figure of $7.86 per share.
Total revenues of $3.55 billion surpassed the consensus mark of $3.43 billion by 3.5% and grew 28.3% year over year.
Rental revenues increased 21.1% from the year-ago quarter to $2.98 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%, but average original equipment costs increased by 25.5% year over year.
Used equipment sales rose 132.9% from a year ago. The Used equipment sales produced an adjusted gross margin of 57.3%, which contracted 490 basis points (bps). This downside was due to the expected normalization of channel mix, including the expanded use of wholesale channels, and the impact of sales of equipment acquired in the Ahern Rentals acquisition.
Segment Discussion
General Rentals: This segment registered 22.5% year-over-year growth in rental revenues to $2.19 billion. Rental gross margin contracted 270 bps year over year to 36% due to the impact of the Ahern Rentals acquisition.
Specialty: Segmental rental revenues increased 17.3% year over year to $792 million. Rentals’ gross margin expanded 240 bps on a year-over-year basis to 48.6%. This was backed by better cost performance and fixed cost absorption on higher revenues.
Margins
The company’s total equipment rentals’ gross margin grew 20 bps year over year to 39.3% on a pro forma basis. Adjusted EBITDA for the reported period grew 29.3% year over year to $1.7 billion. Adjusted EBITDA margin also increased 40 bps to 47.7%.
Balance Sheet
United Rentals had cash and cash equivalents of $227 million as of Jun 30, 2023, up from $106 million at 2022-end. Total liquidity was $2.706 billion at June-end. Long-term debt at the second-quarter end was $10.49 billion, down from $11.21 billion at 2022-end.
On Jun 30, 2023, the net leverage ratio was 1.8x compared to 2.0x on Dec 31, 2022. Return on invested capital increased 190 bps year over year and 30 bps sequentially to a record 13.4% for the trailing 12 months that ended Jun 30, 2023.
Cash from operating activities improved 11.7% year over year to $1.29 million in the second quarter. Free cash flow, including merger and restructuring-related payments, dropped 13.3% year over year to $340 million for the quarter due to higher net rental capital expenditures.
2023 Guidance Raised
Total revenues are expected to be in the range of $14-$14.3 billion versus $13.7-$14.2 billion projected earlier. Adjusted EBITDA is projected to be between $6.75 billion and $6.9 billion compared with the prior projection of $6.6-$6.85 billion.
Net rental capital expenditure after gross purchases is projected within $1.9-$2.1 billion (versus the prior expectation of $2-$2.25 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 (compared with $4.4-$4.8 billion expected earlier), 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 compared with $2.1-$2.35 billion anticipated earlier. This suggests an increase from $1.768 billion reported in 2022.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, United Rentals has a strong Growth Score of A, though it is lagging a lot 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 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 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.