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Ahern Acquisition, Strong Demand Add Momentum for United Rentals Going into 2023

Jan. 30, 2023
New investments in zero-emission vehicles and fleet and customer adaptation of new emissions tracking tool add to 2022 highlights.

The fourth quarter and full year 2022 kept United Rentals on a solid trajectory, CEO Matthew Flannery told a conference call of investors.

“We delivered $1.76 billion of free cash flow,” Flannery said. “And that’s after investing over $3.4 billion in fleet.”

Flannery noted the company also delivered another first-class recordable rate in 2022.

“We also reported a record return on invested capital of 12.7 percent at year end,” Flannery said. “And on the ESG front, we made good progress with sustainability, including new investments in zero-emission vehicles and fleet. And the customer adaptation of our new emissions tracking tool has been excellent. This is the technology we launched on our total control platform and it’s an industry first.”

Flannery also spoke about the acquisition of Ahern Rentals, another highlight of the fourth quarter.

“The integration is going very well,” Flannery said. “We closed the deal on December 7. And then by the 16th, our team members were already operating with the rest of the company on the same technology system. And this means our branches are sharing fleet and customer information seamlessly. One of the main reasons we like M&A is the capacity we gain. And that comes in three forms – people, fleet and facilities. And we always focus on the people first, because it’s critical to get that right. And we’re really bullish about the talent we onboarded in this acquisition. We had over 100 of the Ahern managers at our annual meeting earlier this month, and they fit like a hand in glove. And they’re excited to be part of United and they’re raring to go. Now we’re focused on optimizing the fleet and facilities. We’re running on schedule, and it’s boosting our resources at an ideal time to capture share.”

Flannery said the diversity of demand turned out to be a major tailwind.

“Demand in our key verticals was broad-based with total construction up 19 percent year over year and non-res up 22 percent; and industrial up 11 percent,” Flannery said. "We grew rental revenue by solid double digits in all of our gen rent regions as well as all of our specialty businesses. Our specialty segment delivered another strong performance with an 18-percent increase in rental revenue year-over-year. And it’s notable that every line of business in that segment reported solid gain led by our mobile storage business.”

Flannery said the company’s greenfield investments are highly strategic and they’re targeted by geography and line of business to generate attractive returns. “We opened 35 of these locations in the past 12 months, and our plan calls for at least another 40 cold starts in 2023,” he said. “We have terrific internal and external momentum with good visibility into revenue. And the team’s done a great job of driving strong fleet productivity to help offset the cost inflation we’ve experienced.

“Contractor backlogs are growing, and not surprisingly, the employment reports indicate that U.S. contractors continue to be in expansion mode. Industry indicators like Dodge Momentum Index show healthy growth trends in commercial construction, and this includes the planning trends for future projects. There’s also a strong institutional component to the trends which we see in our business. And a number of our multi-year projects are in sectors like healthcare and education.”

Industrial indicators still have room for improvement, Flannery added. “We’re winning business on a wide range of new plant construction including automotive and batteries, semiconductors and petrochem. And importantly, our own survey shows that customer sentiment remains strong with the majority of our customers point to growth over the next 12 months.”

Strong CapEx spend for 2023

Flannery said United plans to invest more than $3.4 billion in gross CapEx this year.

“And at the same time, we’ll continue to take advantage of a strong used equipment market to optimize our fleet,” he said. “Longer-term outlook for our industry continues to be very favorable driven by several tailwinds that we believe are largely independent of macro conditions. And we’ve talked about these before, things like infrastructure spending, the Inflation Reduction Act and the return of manufacturing to North America as well as investments in both energy and power.”

Flannery concluded by saying United is reactivating its $1.25 billion share repurchase program. “We plan to buy back $1 billion of stock this year. And we’ll also be instituting quarterly dividends for our shareholders, totaling $5.92 per share this year. These two decisions underscore our confidence in the durability of our cash generation and the strength of our balance sheet. And together, they’ll return $1.4 billion of capital to our shareholders in 2023.”