United Rentals, Inc. has released its financial results for the first quarter 2017.
Total revenue was $1.356 billion and rental revenue was $1.166 billion for the quarter, compared with $1.310 billion and $1.117 billion, respectively, for the same period last year. On a GAAP basis, the company reported first quarter net income of $109 million, or $1.27 per diluted share, compared with $92 million, or $1.01 per diluted share, for the same period last year.
Adjusted EPS1 for the quarter was $1.63 per diluted share, compared with $1.40 per diluted share for the same period last year. Adjusted EBITDA was $591 million and adjusted EBITDA margin was 43.6%, reflecting an increase of $7 million and a decrease of 100 basis points, respectively, from the same period last year.
First Quarter 2017 Highlights
• Rental revenue (which includes owned equipment rental revenue, re-rent revenue and ancillary items) increased 4.4% year-over-year. Within rental revenue, owned equipment rental revenue increased 3.8% year-over-year, reflecting an increase of 7.0% in the volume of equipment on rent partially offset by a 1.4% decrease in rental rates.
• Time utilization increased 190 basis points year-over-year to 66.0%, a first quarter record for the company.
• The company’s Trench, Power and Pump specialty segment's rental revenue increased by almost 17% year-over-year, primarily on a same store basis, while the segment’s rental gross margin improved by 240 basis points to 44.4%.
• The company generated $106 million of proceeds from used equipment sales at a GAAP gross margin of 43.4% and an adjusted gross margin of 50.9%, compared with $115 million at a GAAP gross margin of 40.9% and an adjusted gross margin of 48.7% for the same period last year.2
• The company generated $623 million of net cash provided by operating activities and $490 million of free cash flow3, compared with $604 million and $627 million, respectively, for the same period last year. Net rental capital expenditures were $113 million, compared with net proceeds of $15 million for the same period last year.
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Adjusted EPS (earnings per share) and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) are non-GAAP measures that exclude the impact of the items noted in the tables below. See the tables below for amounts and reconciliations to the most comparable GAAP measures. Adjusted EBITDA margin represents adjusted EBITDA divided by total revenue.
Used equipment sales adjusted gross margin excludes the impact of the fair value mark-up of acquired RSC fleet that was sold.
Free cash flow is a non-GAAP measure. See the table below for amounts and a reconciliation to the most comparable GAAP measure.
CEO Comments
Michael Kneeland, chief executive officer of United Rentals, said, "We were pleased with our momentum in the first quarter, particularly our 7% growth in volume and record time utilization driven by strength in our core construction markets. It was also encouraging to see positive trends in our upstream oil and gas business after the headwinds faced over the last several years. While our rental rates remained under some pressure, they continue to support our reaffirmed standalone 2017 guidance for total revenue, adjusted EBITDA and capital spending, and our increased guidance for free cash flow."
Kneeland continued, "As we enter the critical part of the construction season, we’re very encouraged by the continued strength of key leading indicators, the tone of conversations with our customers and the industry’s disciplined response in adding fleet. Our focus remains on implementation of Project XL and other initiatives that should enhance our long-term value. With the integration of NES now underway, our updated guidance reflects the combined operations across the remainder of 2017, as well as our sustained confidence in the cycle."
Free Cash Flow and Fleet Size
For the first three months of 2017 and 2016, net cash provided by operating activities was $623 million and $604 million, respectively. For the first three months of 2017, free cash flow was $490 million, after total rental and non-rental gross capital expenditures of $241 million. By comparison, free cash flow for the first three months of 2016 was $627 million after total rental and non-rental gross capital expenditures of $123 million.
The size of the rental fleet was $8.92 billion of original equipment cost at March 31, 2017, compared with $8.99 billion at December 31, 2016. The age of the rental fleet was 45.9 months on an OEC-weighted basis at March 31, 2017, compared with 45.2 months at December 31, 2016.
Return on Invested Capital (ROIC)
Return on invested capital was 8.4% for the 12 months ended March 31, 2017, a decrease of 30 basis points from the 12 months ended March 31, 2016. The company’s ROIC metric uses after-tax operating income for the trailing 12 months divided by average stockholders’ equity, debt and deferred taxes, net of average cash. To mitigate the volatility related to fluctuations in the company’s tax rate from period to period, the federal statutory tax rate of 35% is used to calculate after-tax operating income.5
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