Demand is the key word shaping United Rentals’ activities in 2022, president and CEO Matt Flannery told a conference call of investors after releasing its first quarter 2022 results.
“I want to frame my comments around one word: demand,” Flannery said. “2022 is shaping up to be a year of record demand for our services and this is the driving force behind the strong first quarter results we reported, and it underpins our decision to update our guidance. We now expect our total revenue, adjusted EBITDA and free cash flow to be above our original outlook. This reflects the positive impact of the new cycle we talked about in January, and we’re excited to continue that conversation today.”
Flannery said that the normal winter decline in activity was only about half of what occurs in a normal year. “As you may recall, we brought in more fleet than usual at the end of last year, and that capacity helped us to capitalize on demand and deliver strong results in key metrics,” Flannery said. “Our first quarter rental revenue and adjusted EBITDA both increased by 31 percent year over year to record levels, and we improved our adjusted EBITDA margin by 270 basis points to 45 percent. This gave us a strong flow-through of 57 percent for the quarter. And we also drove a 200-basis point improvement in return on invested capital to 10.9 percent.”
Flannery said it’s the drivers behind the numbers that should be focused on. “First, the underlying macroeconomic growth, which continues to move in the right direction. Also the sustained rebound in many of our end markets coming out of COVID. And lastly, rental penetration in the construction and industrial sectors. We expect all three tailwinds to continue for the foreseeable future.
“We’re also confident that we’re gaining market share with key customers as we leverage our ability to solve their problems. This is the best way to further differentiate United Rentals in the customer's eyes. And importantly, we see runway here as well.”
Flannery added that a future tailwind is emerging from the infrastructure legislation that was passed last year.
“We're starting to have conversations with customers about federal projects that should kick off in 2023,” Flannery said. “And it's a diverse mix with projects for road and bridge work, water control, harbors and ports, and also on the power grid.”
Flannery noted that the United Rentals team is good at managing growth.
“When demand ramps up in our business, it requires a tremendous amount of operating discipline, especially with customer service,” he said. “We're very fortunate to have a world-class team standing behind our strategy. As a result, we achieved a 13 percent year-over-year increase in fleet productivity, with strong incremental flow-through to the bottom line. The team also excelled at safety, keeping our recordable rate below one for the quarter while safely on-boarding and training over 1,400 new employees.”
Flannery is also pleased with the company’s headway on the environmental, social and governance area. “For example, in March, we added power bank systems to our fleet,” he said. “These lithium battery packs have zero emissions and replaced some of the diesel fuel used by generators. The OEMs are beginning to move faster with R&D, which should make hybrid and electrical solutions more viable on job sites, and we welcome that because we're firmly committed to a sustainable future that makes sense for our customers.”
Green lights in construction indicators
And, Flannery added, another positive sign is that the data on construction starts and backlogs, the ABI and the Dodge Momentum Index all remain positive. “In fact, it's hard to find a leading construction indicator that isn't flashing green right now,” he said. “We factored all of this into our guidance, along with some projected headwinds like inflation. We're not immune to the challenges in the macro, but we mitigated the impact of inflation in Q1, and we're confident that we'll continue to manage through any challenges successfully. So that's the big picture.
“And I'll round it out with some details at the market level. In the first quarter, our rental revenue from non-res construction was up 28 percent year-over-year, and infrastructure was up 17 percent. Industrial also trended up, with 13 percent year-over-year growth. And that 13 percent growth is encouraging because industrial was on its way to recovery before the pandemic hit. Once the supply chain is sorted out, we expect that industrial like infrastructure will be another sizable runway for us beyond 2022. Our Specialty segment had another excellent quarter led by our power business. Every specialty line delivered double-digit year-over-year growth in rental revenue, and the segment as a whole grew almost 48 percent, including the benefit from General Finance.”
For more details on United Rentals’ first quarter results, visit: https://www.rermag.com/home/article/21240350/united-rentals-jumps-rental-revenue-305-percent-in-record-first-quarter