24.04.2019

Higher revenues lower profits at United

US-based rental company United Rentals has posted strong first quarter revenue growth, while profits have suffered.

Total revenues were $2.12 billion and increase of just over 22 percent, while rental revenues improved more than 23 percent compared to the same period last year. Much of the growth came from acquisitions, including Baker and Blueline which occurred in July and October respectively. Organic growth was closer to 7.2 percent.

Pre-tax profit however fell almost 14 percent to $220 million, due to a variety of factors, including higher rental costs, higher sales and administration and higher depreciation, but was still slightly ahead of last year at the operating level. An almost 40 percent increase in interest costs to $151 million – due to the higher debt level taken on to make the two big acquisitions.

The company is anticipating full year revenues in the range of $9.15 to $9.55 billion and expects to spend between $1.4 and $1.55 billion on capital expenditure - mostly for the fleet.

Chief executive Michael Kneeland said: “We are pleased with our solid start to 2019, and the broad based growth we realised across geographies and verticals. We’re entering our busy season with the strongest service offering in our history, given the strategic investments we’ve made across our business, including acquisitions, to best support our customers. I’m proud of our team for staying focused on our customers through multiple integrations and the recent weather headwinds.”

"By reaffirming our guidance, we’re emphasizing our confidence in the cycle. The year is unfolding as we expected - customer sentiment remains positive, and feedback from the field points to healthy end-market activity. Given our strong competitive advantages, we are in an ideal position to serve our customers and maximise shareholder value.”

Vertikal Comment

These results are no great surprise, even a company the size of United will show digestion issues when making large acquisitions like these. The problem though is that United has tended to rely on major acquisitions to keep ahead of the pack, at the same time the number of good quality substantial targets that would have an impact for United are declining. Whether these two are living up to expectations is not yet clear.

Having said this United has an enviable record of integrating big or multiple acquisitions. Some observers now expect it to finally start looking for candidates outside of North America. There are certainly some prime targets if it does, but then they pose a whole other level of complications, especially in these uncertain, but interesting times.