Yahoo Finance United Rentals (URI) Down 3.5% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for United Rentals (URI). Shares have lost about 3.5% 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 its most recent earnings report in order to get a better handle on the important catalysts.
United Rentals’ Q1 Earnings & Revenue Beat
United Rentals reported impressive first-quarter 2024 results. The company surpassed the Zacks Consensus Estimate for both earnings and revenues, with notable year-over-year growth.
The company demonstrated significant revenue growth, particularly in its Equipment Rentals segment, which is its primary revenue source. This segment experienced a robust 6.9% growth, reflecting a high level of demand in the market. United Rentals' strategic acquisitions and extensive fleet have further strengthened its position as a market leader. Despite facing competition, the company's financial performance underscores its solid footing for future expansion and growth.
Moreover, this leading equipment rental company has increased its guidance for 2024, given the contribution from the Yak acquisition, the strength of the present market condition and the multi-year tailwinds the company sees across infrastructure, manufacturing and energy and power. In March 2024, United Rentals acquired Yak, showcasing its strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
Inside the Headlines
Adjusted earnings per share of $9.15 topped the Zacks Consensus Estimate of $8.35 by 9.6%. The reported figure increased 15.1% from the prior-year figure of $7.95 per share.
Total revenues of $3.5 billion beat the consensus mark of $3.4 billion by 2.1% and grew 6.1% year over year.
Rental revenues increased 6.9% from the year-ago quarter to a first-quarter record of $2.93 billion. This upside was mainly attributable to broad-based demand growth across end markets served by the company. Fleet productivity inched up 4% and average original equipment costs increased 3.6% year over year.
Used equipment sales dropped 1.3% from a year ago. The Used equipment sales produced an adjusted gross margin of 53.3%, which contracted 620 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 2.6% year-over-year growth in rental revenues to $2.07 billion. Rental gross margin remained flat year over year at 32.9%.
Specialty: Segmental rental revenues increased 19% year over year to $859 million. Rental gross margin increased 200 bps year over year to reach 49.1%. This improvement was attributed to strong cost management and the absorption of fixed costs resulting from higher revenues.
Margins
The company’s total equipment rentals’ gross margin expanded 110 bps year over year to 37.7%.
Adjusted EBITDA for the reported period grew 5.6% year over year to $1.59 billion. However, the adjusted EBITDA margin contracted 30 bps to 45.5%. 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 $429 million as of Mar 31, 2024, up from $363 million at 2023-end. Total liquidity was $3.56 billion at the first-quarter end. Long-term debt at the first quarter of 2024-end was $11.32 billion, up from $10.1 billion at 2023-end.
On Mar 31, 2024, the net leverage ratio was 1.7x compared with 1.6x on Dec 31, 2023. Return on invested capital increased 50 bps year over year to 13.2% for the trailing 12 months ended on Mar 31, 2024.
During the first quarter of 2024, cash from operating activities improved 9.6% year over year to $1.03 billion. Free cash flow grew 81.8% year over year to $869 million for the said period.
2024 Guidance Raised
Total revenues are now expected to be in the range of $14.950-$15.450 billion compared with $14.65-$15.15 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 $7.04 billion and $7.29 billion versus $6.9 billion and $7.15 billion projected earlier. The guidance reflects an increase from $6.857 billion reported in 2023.
Net rental capital expenditure is projected to be in the range of $2-$2.3 billion (versus $1.9-$2.2 billion of earlier expectation) 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 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), an increase from the earlier guidance of $2-$2.2 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
Currently, United Rentals has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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
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, Inc. (URI) : Free Stock Analysis Report
