05.02.2010

United bottoms out

United Rentals, the world’s largest rental company has reported its full year results which indicate that the worst of the downturn might be over.

Revenues fell 28 percent to $2.36 billion with rentals down 26 percent, but sales of contractor’s supplies and new equipment down 43 and 52 percent respectively.
Fourth quarter revenues were down by similar levels but utilisation edged up slightly and rate declines moderated.

Pre tax profits, or rather loss for the year was far better at $107 million compared to a loss of $813 million last year. However last years numbers included a goodwill write-off of $1.1 billion, so excluding this, the company saw a substantial fall in profitability, driven by the lower revenues and overhead absorption.

The company lost $49 million in the fourth quarter compared to $1.06 billion loss last year – reflecting the goodwill impairment.

Physical utilisation for the year as a whole was 61 percent and for the quarter 62 percent. Rates year on year were down 12 percent, while quarter on quarter they fell nine percent. The average age of the rental fleet increased to 42.4 months compared to 39.2 percent at the same time last year.

The company sold off $229 million of older rental equipment with an average age of 78 months and replacement value of $653 million. The replacement value of the fleet now stands at $3.8 billion, compared to $4.1 billion.

United cut its net debt during the year by $362 million and has no loans maturing before 2013.

Michael Kneeland, United’s chief executive said: "We can point to a number of significant contrasts between the strategic progress we made as a company in 2009 and our operating environment. Externally, the economic turmoil took a toll on our end markets, with the expected constraint on our revenues and margins. We responded with disciplined cost cutting and capital management, improving our free cash flow and SG&A reduction beyond projections.”

"At this time we are still seeing an environment that is very similar to the last half of 2009. Despite the challenges of a lingering downturn, we believe that the transformation of our customer service and sales operations, and our strong capital structure, put us in a unique position to gain share that will be accretive to earnings over time. We are becoming increasingly adept at balancing local market development with the pursuit of national accounts, industrial accounts and government business – the segments most closely aligned with our strategy for long-term profitable growth.”

Vertikal Comment

While the numbers here are clearly still negative, there are a number of positive points that emerge. It seems that the company, and hopefully the market, has bottomed out. United’s sales of used equipment from the fleet slowed significantly in the fourth quarter which combined with the marginal improvements in utilisation and yield compared to the last quarter of 2008 is certainly better than the constant declines that we have seen throughout the year.

United is now running the oldest average age fleet since it started and will be surely be looking to step up its new equipment purchases albeit on a very modest basis.

With a reduced debt load, and strong cash flow the business looks like it may have turned the corner and should see a slightly brighter 2010, and barring a further dip in demand should return to profitability during the year.

All in all a more positive and predictable outlook than 12 months ago.