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United Rentals Gains 4% on Strong Q4 Earnings and 2019 Outlook


Nov. 20 2020, Updated 4:05 p.m. ET

Strong earnings growth

United Rentals (URI) stock gained 4.3% during after-hours trade yesterday after the company announced strong fourth-quarter results wherein its top and bottom lines both improved significantly YoY. For the quarter, the equipment rental company reported adjusted EPS of $4.85, which was 45.2% higher than the year-ago quarter’s adjusted EPS of $3.34.

The robust earnings growth was mainly driven by higher revenues, increased rental rates, and lower taxes. Nonetheless, United Rentals’ adjusted EPS fell short of analysts’ consensus estimate of $4.90.

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The company’s total revenues of $2.31 billion surpassed the Wall Street estimate of $2.22 billion and marked a YoY increase of ~20%, primarily driven by the robust performance of its Equipment Rentals segment. The Equipment Rentals division accounted for 86% of United Rentals’ fourth-quarter revenues. The segment’s sales grew 20.8% YoY to ~$2.0 billion, mainly driven by a 16.8% increase in volume and a 2.2% rise in rental rates.

Fourth-quarter total gross margin expanded 30 basis points to 43.3%. An improved gross margin along with lower expenses as a percentage of revenues led to a 90 basis-point increase in the pre-tax margin, which reached 18.4%.

Adjusted EBITDA for the quarter grew 18% YoY and touched a record level of $1.12 billion. Nonetheless, the adjusted EBITDA margin contracted 90 basis points to 48.4% due to a slightly negative impact from acquisitions made in 2018.

Furthermore, the enactment of the Tax Cuts and Jobs Act led to a massive decline in the effective tax rate. It fell to 25.7% from 38.6% in the year-ago quarter, which resulted in a benefit of $0.86 to United Rentals’ fourth-quarter adjusted EPS.

2019 outlook

United Rentals expects the strong business momentum to continue in 2019 and believes it will continue outperforming its peers. The heavy equipment rental services provider reiterated its forecast for the current year. The company continues to expect revenues in the range of $9.15 billion–$9.55 billion, a YoY growth range of 14%–19%. Adjusted EBITDA for the year is anticipated to come in between $4.35 billion and $4.55 billion, signifying YoY growth of 13%–18%.

United Rentals’ major competitors (XLI) including Caterpillar (CAT), Crane Company (CR), and Gates Industrial’s (GTES) are yet to report their fourth-quarter results. Analysts expect their fourth-quarter EPS will increase 38.4%, 29.7%, 18.2%, respectively, on a YoY basis.


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