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United Rentals: Slower Earnings Growth in Q1?

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Updated

Earnings expectations

United Rentals (URI) is scheduled to report its first-quarter results on April 17. The company has a strong history of beating analysts’ earnings estimates. The company beat analysts’ consensus estimates in 11 of the last 12 quarters with an average positive surprise of 6.6%.

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United Rentals has been reporting double-digit bottom-line growth for nine consecutive quarters. The company registered over a 45% YoY (year-over-year) increase in its adjusted EPS for all of the quarters in 2018.

However, United Rentals might not maintain the trend in the first quarter. Analysts expect United Rentals to report an adjusted EPS of $3.05—an increase of 6.2% YoY.

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What’s impacting the earnings?

Analysts think that increased operating expenses and higher taxes could weigh on United Rentals’ bottom-line results. Analysts expect the operating expenses to increase ~22% YoY to $1.51 billion from $1.24 billion in the first quarter of 2018. The effective tax rate for the quarter will likely to be at 24.4%, which is higher than 21.9% in the first quarter of 2018.

Analysts are optimistic about the company’s top-line growth. For the first quarter, United Rentals is expected to report revenues of $2.07 billion, which represents 19.2% YoY growth. The top-line growth rate prediction is the near revenue growth rates in the last three quarters.

Strong construction activities across the infrastructure, commercial, and industrial sectors will likely drive the double-digit revenue growth. Acquisitions and higher rental rates and volumes could help the company’s top-line growth.

United Rentals completed two significant acquisitions last year—BakerCorp International and BlueLine Rental. The acquisitions are expected to bring in incremental revenues. The improving US economy should continue to drive United Rentals’ rental rates and volume higher. The company witnessed rental rates and volume growth in all of the previous four quarters in 2018.

Peers’ expectations

Analysts expect slower earnings growth for most of United Rentals’ industrials (XLI) peers. Caterpillar (CAT) and Crane Company (CR) are expected to register 1% and 6.4% YoY growth in their respective first-quarter adjusted EPS. CIRCOR International (CIR) will likely report a 6.3% YoY decline in its EPS. All of these companies recorded strong double-digit bottom-line growth in the previous four quarters.

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