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United Rentals (URI) Down 4.9% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is United Rentals due for a breakout? 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 Beat Estimates
United Rentals released mixed second-quarter 2024 results. The company’s earnings per share (EPS) surpassed the Zacks Consensus Estimate, but revenues missed the same. Nonetheless, both metrics registered improvement on a year-over-year basis.
The company showcased robust second-quarter results for 2024, achieving record highs in revenues, adjusted EBITDA, and EPS. The company's performance aligns with its expectations for the year, driven by the successful integration of Yak. This acquisition enhances URI's strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
The company's unwavering commitment to safety, operational excellence, and innovation underpins its unique value proposition, positioning it for long-term shareholder value.
CEO Flannery expressed confidence as URI moves into the second half of 2024, with the company's consistent execution expected to meet updated guidance targets for revenues and adjusted EBITDA. URI's capex and free cash flow projections remain unchanged, reflecting a particular strength in large projects.
The company believes it is well-positioned to capitalize on these opportunities and other long-term growth avenues, ensuring sustained success and value creation for its shareholders.
Inside the Headlines
Adjusted EPS of $10.70 topped the Zacks Consensus Estimate of $10.48 by 2.1%. The reported figure increased 8.3% from the prior-year figure of $9.88 per share.
Total revenues were $3.773 billion in the quarter, marginally missing the consensus mark of $3.774 billion. On a year-over-year basis, the top line grew 6.2% year over year.
Equipment Rentals revenues increased 7.8% from the year-ago quarter to $3.22 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Fleet productivity inched up 4.6%, and the same increased 3%, excluding the impact of the Yak acquisition. Average original equipment at cost increased 2.7% year over year.
Used equipment sales dropped 4.5% from a year ago. The Used equipment sales produced an adjusted gross margin of 51.8%, which contracted 550 basis points (bps). The decrease in the year-over-year adjusted gross margin primarily resulted from the ongoing normalization of the used equipment market, which includes pricing adjustments.
Segment Discussion
General Rentals: This segment registered 0.9% year-over-year growth in rental revenues to a second-quarter record of $2.21 billion. Rental gross margin expanded 30 bps year over year at 36.3%.
Specialty: Segmental rental revenues improved 27% year over year to a second-quarter record of $1.01 billion. Excluding the impact of the Yak acquisition, rental revenues grew 18.1% year over year. Rental gross margin, however, contracted 60 bps year over year to 48%, reflecting higher increased depreciation expense.
Margins
The company’s total equipment rentals’ gross margin expanded 70 bps year over year to 40%. Adjusted EBITDA for the reported period grew 4.4% year over year to $1.77 billion. However, the adjusted EBITDA margin contracted 80 bps to 46.9%. The decline in the adjusted EBITDA margin primarily stemmed from a decrease in the adjusted gross margin related to sales of used equipment.
Balance Sheet
United Rentals had cash and cash equivalents of $467 million as of Jun 30, 2024, up from $363 million at 2023-end. Total liquidity was $3.27 billion at the second-quarter end. Long-term debt at the second quarter of 2024-end was $11.52 billion, up from $10.05 billion at 2023-end.
On Jun 30, 2024, the net leverage ratio was 1.8x compared with 1.6x on Dec 31, 2023. Return on invested capital was 15% for the trailing 12 months ended on Jun 30, 2024.
During the first six months of 2024, cash from operating activities improved 3% year over year to $2.29 billion. Free cash flow grew 30.2% year over year to $1.07 billion for the said period.
2024 Guidance Narrowed
Total revenues are now expected to be in the range of $15.05-$15.35 billion compared with $14.95-$15.45 billion expected earlier. The new expectation reflects quite an improvement from $14.332 billion reported in 2023.
Adjusted EBITDA is now projected to be between $7.09 billion and $7.24 billion versus $7.04 billion and $7.29 billion projected earlier. The guidance reflects an increase from $6.857 billion reported in 2023.
Net rental capital expenditure is still projected to be in the range of $2-$2.3 billion after gross purchases of $3.5-$3.8 billion versus $1.934 billion after gross purchases of $3.508 billion in 2023.
Net cash provided by operating activities is still anticipated to be in the range of $4.3-$4.9 billion, depicting an increase from the prior expectation of $4.15-$4.75 billion.
Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2.05-$2.25 billion (versus $2.314 billion reported in 2023).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, United Rentals has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second 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 broadly 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) Down 4.9% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for United Rentals (URI - Free Report) . Shares have lost about 4.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is United Rentals due for a breakout? 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 Beat Estimates
United Rentals released mixed second-quarter 2024 results. The company’s earnings per share (EPS) surpassed the Zacks Consensus Estimate, but revenues missed the same. Nonetheless, both metrics registered improvement on a year-over-year basis.
The company showcased robust second-quarter results for 2024, achieving record highs in revenues, adjusted EBITDA, and EPS. The company's performance aligns with its expectations for the year, driven by the successful integration of Yak. This acquisition enhances URI's strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
The company's unwavering commitment to safety, operational excellence, and innovation underpins its unique value proposition, positioning it for long-term shareholder value.
CEO Flannery expressed confidence as URI moves into the second half of 2024, with the company's consistent execution expected to meet updated guidance targets for revenues and adjusted EBITDA. URI's capex and free cash flow projections remain unchanged, reflecting a particular strength in large projects.
The company believes it is well-positioned to capitalize on these opportunities and other long-term growth avenues, ensuring sustained success and value creation for its shareholders.
Inside the Headlines
Adjusted EPS of $10.70 topped the Zacks Consensus Estimate of $10.48 by 2.1%. The reported figure increased 8.3% from the prior-year figure of $9.88 per share.
Total revenues were $3.773 billion in the quarter, marginally missing the consensus mark of $3.774 billion. On a year-over-year basis, the top line grew 6.2% year over year.
Equipment Rentals revenues increased 7.8% from the year-ago quarter to $3.22 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Fleet productivity inched up 4.6%, and the same increased 3%, excluding the impact of the Yak acquisition. Average original equipment at cost increased 2.7% year over year.
Used equipment sales dropped 4.5% from a year ago. The Used equipment sales produced an adjusted gross margin of 51.8%, which contracted 550 basis points (bps). The decrease in the year-over-year adjusted gross margin primarily resulted from the ongoing normalization of the used equipment market, which includes pricing adjustments.
Segment Discussion
General Rentals: This segment registered 0.9% year-over-year growth in rental revenues to a second-quarter record of $2.21 billion. Rental gross margin expanded 30 bps year over year at 36.3%.
Specialty: Segmental rental revenues improved 27% year over year to a second-quarter record of $1.01 billion. Excluding the impact of the Yak acquisition, rental revenues grew 18.1% year over year. Rental gross margin, however, contracted 60 bps year over year to 48%, reflecting higher increased depreciation expense.
Margins
The company’s total equipment rentals’ gross margin expanded 70 bps year over year to 40%. Adjusted EBITDA for the reported period grew 4.4% year over year to $1.77 billion. However, the adjusted EBITDA margin contracted 80 bps to 46.9%. The decline in the adjusted EBITDA margin primarily stemmed from a decrease in the adjusted gross margin related to sales of used equipment.
Balance Sheet
United Rentals had cash and cash equivalents of $467 million as of Jun 30, 2024, up from $363 million at 2023-end. Total liquidity was $3.27 billion at the second-quarter end. Long-term debt at the second quarter of 2024-end was $11.52 billion, up from $10.05 billion at 2023-end.
On Jun 30, 2024, the net leverage ratio was 1.8x compared with 1.6x on Dec 31, 2023. Return on invested capital was 15% for the trailing 12 months ended on Jun 30, 2024.
During the first six months of 2024, cash from operating activities improved 3% year over year to $2.29 billion. Free cash flow grew 30.2% year over year to $1.07 billion for the said period.
2024 Guidance Narrowed
Total revenues are now expected to be in the range of $15.05-$15.35 billion compared with $14.95-$15.45 billion expected earlier. The new expectation reflects quite an improvement from $14.332 billion reported in 2023.
Adjusted EBITDA is now projected to be between $7.09 billion and $7.24 billion versus $7.04 billion and $7.29 billion projected earlier. The guidance reflects an increase from $6.857 billion reported in 2023.
Net rental capital expenditure is still projected to be in the range of $2-$2.3 billion after gross purchases of $3.5-$3.8 billion versus $1.934 billion after gross purchases of $3.508 billion in 2023.
Net cash provided by operating activities is still anticipated to be in the range of $4.3-$4.9 billion, depicting an increase from the prior expectation of $4.15-$4.75 billion.
Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2.05-$2.25 billion (versus $2.314 billion reported in 2023).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, United Rentals has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second 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 broadly 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.