25.01.2012

United ends the year on a high

US based United Rentals has reported a strong fourth quarter pushing the total year revenues to $2.61 billion, 17 percent higher than for 2010.

Rental revenues for the year climbed slightly higher, up 17.5 percent to $2.15 billion. Pre-tax profits for the year were $164 million, compared to a loss last year of $63 million.

In the fourth quarter overall revenues were up 25 percent to $746 million. With rental revenues climbing 18.5 percent to $589 million. Pre-Tax profits for the quarter were $56 million, compared to a loss in the same quarter last year of $40 million.

Looking at the fourth quarter rental revenue, the increase reflected an improvement in rental rates of 6.7 percent over the same quarter last year, while physical utilisation increased 1.5 percent to 70.8 percent, a fourth quarter record for the company.

For the full year, rental rates increased 6.1 percent, while utilisation was up 3.5 percent to 69.1 percent also a new full year record.

The size of the rental fleet in terms of original equipment cost, was $4.29 billion at December 31st compared with $3.79 billion at the same time last year. The average age of the rental fleet was 46.4 months, compared with 47.7 months at the end of 2010.

Free cash flow plummeted form $227 million in 2010 to $23 million in 2011, reflecting much higher capital expenditures at $854 million compared with $346 million in 2010.

The capital expenditure was partially offset by sales of $208 million of used equipment at a gross margin of 31.7 percent, compared with $144 million at 28.5 percent in 2010.

Chief executive Michael Kneeland said: "The fourth quarter marked a strong end to a stellar year for our company, particularly in light of the sluggish economy. Once again, we drove rental revenue ahead of the construction recovery through a combination of rate improvement and record time utilisation on a larger fleet. The fundamentals of our growth are rock solid, our strategic focus on customer service excellence, rigorous efficiency and rental rate expansion. I’m very proud of the way our employees have delivered in all of these areas. Through their efforts, we are in an excellent position to capitalize on the emerging up-cycle as well as the broader secular shift toward equipment rental.”

"We are tremendously excited about the opportunities of 2012, which we expect will be a transformative year for United Rentals. We’re making good progress on all fronts towards our intended acquisition of RSC and the integration planning. With our markets in recovery, the timing is ideal to combine these two companies into a best-in-class United Rentals with a wealth of best practices for value creation.”

Vertikal Comment

This is an excellent and encouraging set of results to kick off the year end stream of financial reports. United has made great progress with improving rental rates without sacrificing utilisation and all with a larger overall fleet. The company appears to have momentum, something that such large corporations often find difficult to achieve.

One has to wonder if it really needs to add RSC to this recipe, given that it is on course to gain market share, as well as improve margins. An acquisiton of this size could easily sap the current momentum out of the business, creating opportunities for competitors such as Ashtead/Sunbelt and others.

Bigger is not always better.