25.07.2010

United returns to profit

United Rental, the world’s largest equipment rental company posted a small profit in the second quarter as revenues stabilised and utilisation improved.

Total revenues for the first half were down 14 percent to $1.04 billion; - rental income declined eight percent with the largest fall being in sales of used equipment from the fleet.

In the second quarter revenues were down just over nine percent to $558 million, with rental revenues coming in within a percentage point of last year.

As a result of the improving trend in the second quarter the company posted a pre-tax profit of $3 million, compared to a loss of $29 million last year. For the half year United reported a loss of $61 million slightly better than the $62 million loss last year.

Capital expenditure on the rental fleet climbed to 174 million, most of which was spent in the second quarter, compared to $138 million in the first half of 2009.

The average age of the rental fleet – which United traditionally likes to keep under 36 months - increased to 45 months from last year’s 42.4 months.

Physical utilisation improved by four percent in the second quarter to 65.4 percent, while rates declined by two percent, thus limiting the improvement in financial utilisation to 1.8 percent or 46.7 percent.

United’s chief executive Michael Kneeland said: "This was a strong quarter with a number of positive trends in the underlying metrics. Our same-store rental revenues increased 2.7 percent, with year over year growth in six of our nine operating regions. We reported the highest time utilisation of any second quarter in our company's history.”

“Rental rates, while down year over year, improved sequentially each month. We are also running the business much more efficiently and spending capex where it counts, purchasing fleet that we are confident will be in demand by our target accounts.”

"While we continue to expect a choppy recovery, we believe that we are seeing the early stages of a cyclical upturn on top of the normal seasonal benefit. As contractors take on work with limited access to capital, they are choosing to rent rather than buy equipment.”

“We find it encouraging that demand is coming from more than one source as we move into a recovery. Our branches are meeting these opportunities head-on with a powerful strategy focused on larger construction and industrial accounts, pricing discipline and customer service excellence.”

Vertikal Comment

An encouraging set of numbers from the world’s largest rental company, It seems to show that the situation is improving, albeit gradually and tentatively.

This will have a knock-on effect on suppliers while the lead that United appears to be showing on rental rates will help the industry as a whole.

Kneeland makes a good point in that with finance remaining difficult to obtain and the economic upturn still very shaky, contractors are likely to be renting more equipment and buying less thus speeding up the underlying transition from owning to renting in many markets.

Those rental companies that have access to sensible funding will be the ones that are likely to benefit from the most from this effect.