United Rentals Reports 10.1% Y/Y Decline in Q4/20 Rental Revenue

United Rentals, an equipment rental company, reported financial results for Q4/20.

Q4/20 Financial Highlights

  • United Rentals reported total revenue of $2.279 billion, including rental revenue of $1.854 billion.
  • The company’s fleet productivity decreased 3.8% year over year, mainly due to lower rental volumes; fleet productivity improved 420 basis points sequentially, primarily due to better fleet absorption.
  • Net income reached $297 million, implying a net income margin of 13%. GAAP diluted earnings per share reached $4.09 and adjusted EPS reached $5.04.
  • Adjusted EBITDA reached $1.037 billion, implying an adjusted EBITDA marginof 45.5%.
  • Full year net cash from operating activities was $2.658 billion, while free cash flow was $2.44 billion, including gross rental capital spending of $961 million.
  • The company’s year-end net leverage ratio was 2.4x, with total liquidity of $3.073 billion.

“I want to thank our employees for safely supporting our customers in 2020 and delivering an exceptional performance despite unprecedented challenges. Results for the fourth quarter exceeded our expectations, driven by stronger rental volume and robust used equipment sales. We are encouraged by the momentum this gives us going into 2021,” Matthew Flannery, CEO of United Rentals, said. “Our guidance reflects an improvement in customer sentiment as the economy continues to heal and our own confidence in our ability to execute. After lapping a challenging comp in the first quarter, we expect to pivot back to growth through the remainder of the year, which, together with continued cost discipline, will deliver strong profitability. We anticipate another robust year of free cash flow generation after significantly increasing our capex to support growing demand.”

2021 Outlook

United Rentals provided the following outlook for 2021:

  2021 Outlook   2020 Actual  
Total revenue $8.625 billion to $9.025 billion   $8.53 billion  
Adjusted EBITDA $3.925 billion to $4.125 billion   $3.932 billion  
Net rental capital expenditures after gross purchases $1.15 billion to $1.45 billion, after gross purchases of $2 billion to $2.3 billion   $103 million net, $961 million gross  
Net cash provided by operating activities $2.95 billion to $3.45 billion   $2.658 billion  
Free cash flow (excluding merger and restructuring related payments, such payments were $14 million in 2020) $1.65 billion to $1.85 billion   $2.454 billion  


Summary of Q4/20 Financial Results

United Rentals’ rental revenue for the quarter was $1.854 billion, reflecting a decrease of 10.1% year over year.

The company’s used equipment sales in the quarter generated $275 million of proceeds at a GAAP gross margin of 37.1% and an adjusted gross margin of 42.5%; this compares with $244 million at a GAAP gross margin of 36.5% and an adjusted gross margin of 43.4% for the same period in 2019. Used equipment proceeds in the quarter were approximately 49.5% of original equipment cost (OEC) compared with 51.6% in the year-ago period.

United Rentals’ net income for the quarter decreased 12.1% year over year to $297 million, while the net income margin decreased 80 basis points to 13%. The rental gross margin decreased 120 basis points year over year, with 40 basis points of the margin decline due to depreciation expense, which decreased 8% year over year but increased as a percentage of revenue. According to the company, the decrease in rental gross margin excluding depreciation was primarily due to increased insurance costs, which included the impact of hurricane activity in Q4/20.

Selling, general and administrative (SG&A) expense and non-rental depreciation and amortization decreased slightly year over year but increased as a percentage of revenue. The fourth quarter of 2020 also included increased charges associated with the company’s restructuring program, which commenced in 2020. The net income margin impact of these items was partially offset by lower interest expense, reflecting decreases in both average debt and the average cost of debt, according to the company.

Adjusted EBITDA for the quarter decreased 10.1% year over year to $1.037 billion, while adjusted EBITDA margin decreased 150 basis points to 45.5%. The decrease in adjusted EBITDA margin included an 80-basis point reduction in rental margin (excluding depreciation). United Rentals said revenue mix, in particular an increase in the proportion of revenue from used equipment sales, also contributed to the adjusted EBITDA margin decline.

United Rentals’ general rentals segment had a decrease of 11.1% year over year in rental revenue to $1.432 billion for the quarter. Rental gross margin decreased by 190 basis points to 38%, with 40 basis points of the margin decline due to depreciation expense, which decreased 9% year over year but increased as a percentage of revenue. The remaining decrease in rental gross margin, excluding the depreciation impact, was primarily due to increased insurance costs, according to the company.

United Rentals’ specialty rentals segment (or trench, power and fluid solutions) rental revenue decreased 6.6% year over year to $422 million for the quarter. The rental gross margin increased by 70 basis points to 44.5%. United Rentals reported that this was mainly due to decreases in fleet repair costs and overtime labor, partially offset by increases in depreciation expense and certain other operating expenses as a percentage of revenue, as well as a higher proportion of revenue from certain lower margin ancillary fees in Q4/20.

Cash flow from operating activities decreased 12.1% to $2.658 billion for the full year, and free cash flow, including aggregated merger and restructuring payments, increased 55.8% to $2.44 billion. The increase in free cash flow was predominantly due to decreased net rental capital expenditures (purchases of rental equipment less proceeds from sales of rental equipment), according to the company, which noted that this was partially offset by lower net cash from operating activities. Net rental capital expenditures decreased $1.198 billion year over year, primarily reflecting reduced purchases of rental equipment.

Capital management includes the company’s targeted net leverage ratio range of 2x to 3x. The company’s net leverage ratio was 2.4x at Dec. 31, 2020, as compared with 2.6x at Dec. 31, 2019. In 2020, the company reduced its total net debt by $1.896 billion.

On Jan. 28, 2020, the company’s board of directors authorized a $500 million share repurchase program. Through March 18, 2020, when the program was paused due to the COVID-19 pandemic, the company repurchased $257 million of common stock, reducing the diluted share count by 2.8%. The company is currently unable to estimate when, or if, the program will be restarted.

United Rentals reported total liquidity of $3.073 billion as of Dec. 31, 2020, including $202 million of cash and cash equivalents, an increase of $930 million from Dec. 31, 2019. The company has no note maturities until 2026.

Return on invested capital (ROIC) was 8.9% for the year ended Dec. 31, 2020, compared with 10.4% for the year ended Dec. 31, 2019. The year-over-year decrease was primarily due to a decline in after-tax operating income, according to the company, which said ROIC exceeded its current weighted average cost of capital of approximately 7%.

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