United Rentals Q1 profit falls 4% but beats estimates

United Rentals (NYSE: URI) reported a 4% decline in earnings for the first quarter of 2019 due to higher interest expense associated with debt issued to fund the BakerCorp and BlueLine acquisitions. However, strong volume growth and improvements in rental rates drove revenue higher by 22%. The results exceeded analysts’ expectations. The company reaffirmed its 2019 revenue and adjusted EBITDA outlook.

Net income decreased 4.4% to $175 million while earnings rose 2% to $2.19 per share helped by lower weighted average shares outstanding. Adjusted earnings increased by 15.3% to $3.31 per share.

Revenue grew 22.1% to $2.12 billion helped by strong volume growth and improvements in rental rates. Rental revenues climbed 23% to $1.8 billion. The company realized broad-based growth across its geographic markets and vertical end-markets on both an actual and pro forma basis.

Looking ahead into fiscal 2019, the company reaffirmed its total revenue guidance in the range of $9.15 billion to $9.55 billion and adjusted EBITDA outlook in the range of $4.35 billion to $4.55 billion. Net cash provided by operating activities are still predicted to be in the range of $2.85 billion to $3.2 billion and free cash flow, excluding merger-related charges, is projected to be in the $1.3 billion to $1.5 billion range.

For the first quarter, fleet productivity within rental revenue decreased by 1.3% year-over-year, primarily due to the impact of the BakerCorp and BlueLine acquisitions. Rental revenue for the company’s specialty segment, Trench, Power, and Fluid Solutions, increased by 44.2% year-over-year, including a 9.5% increase on a same-store basis.

The company generated $192 million of proceeds from used equipment sales at a GAAP gross margin of 34.9%. This compared with $181 million at a GAAP gross margin of 40.9% for the same period last year. The decline in gross margin was primarily due to lower-margin sales of fleet acquired with BlueLine.

During the first quarter, the company reduced net debt by $150 million relative to year-end 2018 levels, repurchased $210 million of common stock and lowered its average diluted share count by 6.1% year-over-year. As of March 31, 2019, the company has repurchased $630 million of common stock under its current $1.25 billion repurchase program.

Shares of United Rentals ended Wednesday’s regular session down 0.23% at $125.76 on the NYSE. Following the earnings release, the stock inched up over 6% in the after-market session.

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