28.01.2016

Softer quarter for United

United Rentals has ended the year with revenues up almost three percent, while profits were over 13 percent higher.

Looking at the year as a whole, total revenues ended 2.7 percent higher than 2014 at $5.82 billion, while pre-tax profits jumped almost 13.5 percent to $963 million. The results would have been stronger still had the strong dollar not diluted the value of Canadian revenues.

The fourth quarter was a slightly different story, with revenues declining 3.2 percent, half of which was due to exchange rates and half through a 1.8 percent fall in rental rates, on slightly better utilisation. Pre-tax profits fell six percent to $292 million.

The company expects 2016 to be roughly the same as 2015 with some downside risk but also upside potential. It expects rental rates to continue to fall by one to two percent, but utilisation to rise from 67.3 to 68 percent. As a result of the softer performance the company is reducing capital expenditure from $1.53 billion this year to $1.2 billion in 2016.

Chief executive Michael Kneeland said: "While 2015 proved to be challenging in many ways, it also showcased the resilience and flexibility of our business. Our full year adjusted EBITDA dollars and margin were both records for our company, as was our strong free cash flow after capex. This was a solid performance in light of the decline in upstream oil and gas and its knock-on effects, particularly in Canada."

"Although we agree with industry forecasters that there is further growth ahead, there is still market uncertainty. For 2016, our stance is to be cautious on capex and proactive about pursuing profitable growth opportunities in areas such as our speciality rental services. In the first quarter, we plan to spend less than half of the capex we spent in the first quarter last year, and we’ll adjust our full year spend up or down based on the level of demand we experience. We expect to use our nearly billion dollars of free cash flow this year to buy back shares and pay down debt."

Vertikal Comment

While United is seeing slightly tougher times, possibly as a result of a slow-down in the oil and gas sector, it is still trading at record levels and faces another relatively good year in 2016. If it can hold its nerve and maintain its rental rate discipline it could do even better and come in at the top end of its estimates for the year. Although the extreme weather we have just seen might result in a slower start?

We will of course have a clearer picture when the first quarter results are issued in April. We are after all still in January which, for various reasons provides almost no indication of how the year might go.

Overall this is an excellent result and one that the company should be delighted with.