United Rentals shows solid second quarter and raises 2018 guidance
United Rentals, Inc. announced financial results for the second quarter 2018. Total revenue was $1.891 billion and rental revenue was $1.631 billion for the second quarter, compared with $1.597 billion and $1.367 billion, respectively, for the same period last year. On a GAAP basis, the company reported second quarter net income of $270 million, or $3.20 per diluted share, compared with $141 million, or $1.65 per diluted share, for the same period last year. The second quarter 2018 includes a net income benefit associated with the Tax Cuts and Jobs Act that was enacted in December 2017. The Tax Act reduced the U.S. federal corporate statutory tax rate from 35% to 21%, which contributed an estimated $0.58 to earnings per diluted share for the second quarter 20182.
Adjusted EPS for the quarter was $3.85 per diluted share, compared with $2.37 per diluted share for the same period last year. The reduction in the tax rate discussed above contributed an estimated $0.70 to adjusted EPS for the second quarter 20182. Adjusted EBITDA was $907 million and adjusted EBITDA margin was 48.0%, reflecting increases of $160 million and 120 basis points, respectively, from the same period last year.
Second Quarter 2018 Highlights
- Rental revenue increased 19.3% year-over-year. Within rental revenue, owned equipment rental revenue increased 19.3%, reflecting increases of 15.9% in the volume of equipment on rent and 2.8% in rental rates.
- Pro forma rental revenue increased 11.4% year-over-year, reflecting growth of 7.1% in the volume of equipment on rent and a 2.8% increase in rental rates.
- Time utilization decreased 20 basis points year-over-year to 69.2%, primarily reflecting the impact of the Neff acquisition. On a pro forma basis, time utilization was flat year-over-year.
- The company's Trench, Power and Pump specialty segment's rental revenue increased by 33.5% year-over-year, including a 21.9% increase on a same store basis. The segment's rental gross margin decreased by 110 basis points to 48.5%.
The company generated $157 million of proceeds from used equipment sales at a GAAP gross margin of 41.4% and an adjusted gross margin of 51.6%, compared with $133 million at a GAAP gross margin of 39.1% and an adjusted gross margin of 52.6% for the same period last year. The year-over-year increase in used equipment sales primarily reflects increased volume, driven by a significantly larger fleet size, in a strong used equipment market.
On July 2, 2018, the company announced that it has entered into a definitive agreement to acquire BakerCorp International Holdings, Inc. ("BakerCorp") for approximately $715 million in cash. BakerCorp is a leading provider of rental solutions for fluid storage, transfer and treatment, with approximately $295 million in annual revenue and 950 employees. BakerCorp's operations are primarily concentrated in the United States and Canada, where it has 46 locations, with another 11 locations in France, Germany, the United Kingdom and the Netherlands. The transaction is expected to close early in the third quarter and contribute approximately $140 million of revenue and $40 million of adjusted EBITDA to full-year 2018 results, while adding approximately $50 million to the 2018 capital spending plan.
Michael Kneeland, chief executive officer of United Rentals, said, "We were very pleased with the momentum of our business in the second quarter, as strong gains in volume and rates helped drive better than 11% growth in pro forma rental revenue. Importantly, demand remained robust across our construction and industrial verticals in both the U.S. and Canada. The Neff integration is largely complete, and we look forward to getting the process started with Baker this quarter." Kneeland continued, "Everything we see internally and externally points to a durable cycle and continued industry discipline in managing fleet growth. Given this backdrop, we've raised our 2018 guidance for total revenue, adjusted EBITDA and capex. We remain focused on executing a balanced strategy of growth and returns to maximize long-term value."
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