30.01.2020

Solid finish from United

United Rentals has posted full year results, with higher revenues but slower profit growth.

Total revenues for the year were 16 percent higher than in 2018 at $9.35 billion, thanks largely to the BlueLine and BakerCorp acquisitions. All revenue streams showed strong growth. However the effect of the acquisitions on profitability was less positive, with pre-tax profits up just 2.5 percent to $1.51 billion, almost all of the growth due to the existing United Rentals operations. Capital expenditure on rental equipment was $2.13 billion just over two percent higher than in 2018. Fleet disposals however increased more than 25 percent to $831 million.

Looking at the fourth quarter revenues improved by a more modest seven percent to $2.5 billion, with rental growth of only four percent to just over $2 billion. Pre-tax profits were just over two percent higher at $433 million. Capital expenditure in the quarter was $158 million up 10 percent on last year, while sales of used equipment from the fleet increased almost 32 percent to $244 million.

The company is forecasting total sales for 2020 in the region of $9.4 billion – roughly flat - to $9.8 billion an increase of around five percent. With gross capital expenditure of $1.9 to $2.2 billion which would represent a range of between a 10 percent reduction to an increase of around three percent – so.. perhaps roughly the same as the past two years. Sales of used machines from the fleet however are expected to be $850 million – 2.5 percent higher than this year.

Chief executive Matthew Flannery said, "Our fourth quarter contributed to a solid year of profitable growth and returns. Results were driven by growth in our core construction end markets, while challenges in our industrial verticals impacted both revenue and margins in the quarter. For the year, we grew pro forma rental revenue and adjusted EBITDA by over four percent, while integrating our acquisitions, and generated free cash flow of almost $1.6 billion."

"Our 2020 outlook reflects the profitable growth we expect to deliver in what is forecasted to be a slower growth phase of this continuing upcycle. We are well positioned to support our customers across the end-markets we serve, while remaining disciplined in our approach to capex. We expect to generate higher free cash flow this year, which is earmarked to pay down debt and buy back shares."

Vertikal Comment

The challenge for United is how to maintain previous growth levels, given that all but the very largest acquisitions will hardly make a dent. Given the huge acquisitions of recent years, you might think that potential now exists to maximise the ‘synergies’ with cross selling and greater exposure/distribution for the acquired operations.

However in reality the company will need to focus hard on maintaining the goodwill and enthusiasm within he acquired businesses. So you might think that it ought be more than capable of breaching the $10 billion dollar level in 2020? Although a greater focus on efficiencies and profitability is probably not a bad thing, the business could probably do with a year or two of consolidation before launching another acquisition spree – although there are likely to be some interesting opportunities over the next year or so.