Slight Revenue Drops Translate to Optimism for United

April 1, 2003
GREENWICH, Conn. United Rentals last month reported fourth quarter revenue of $694.2 million, down slightly from $704 million from the fourth quarter

GREENWICH, Conn. — United Rentals last month reported fourth quarter revenue of $694.2 million, down slightly from $704 million from the fourth quarter of 2001, with rental revenues dropping even more slightly, from $542.8 million to $541.3 million. For the year, United's total revenue dropped from $2.89 billion to $2.82 billion, about a 2 percent drop. Rental revenue for 2002 dropped slightly from 2001, from $2.21 billion to $2.15 billion.

Excluding charges relating to restructuring and refinancing costs, non-cash goodwill write-offs, and a generally accepted accounting principles-mandated change in accounting principles relating to goodwill, net income for 2002 was $107.6 million, or $1.11 per diluted share, compared to $147 million, or $1.56 per diluted share for 2001.

Equipment utilization in the fourth quarter of 2002 was 55.7 percent, compared to 58.9 percent in Q401, and sharing of equipment among branches accounted for 10.9 percent of rental revenue, compared with 10.3 percent in last year's fourth quarter.

Rental rates in the quarter were down 5.2 percent year-over-year and same-store rental revenues dropped 0.7 percent.

“We were able to hold our own during a very difficult time,” chairman and CEO Brad Jacobs said. “It's only a question of time before construction activity rebounds. When it does, the earnings capability of this company and the cash-flow generation of this company is a multiple of what it did last year.”

Jacobs added that during a period when non-residential construction activity, United's primary market, dropped more than 16 percent on an annual basis, the company added about 300,000 customers over the past year.

“The industry as a whole is more than holding its own,” Jacobs told RER. “People are still renting $25 billion worth of equipment. It's not a fad; there are compelling reasons. They can improve their productivity, convenience and safety. Even though non-residential construction is down 16 percent, rental is, essentially, staying flat. When the cycle goes back up, rental will increase significantly.”

United president John Milne added some words of optimism for 2003. “First of all, in 2003 we'll get the benefit of the rollover impact of the two acquisitions we did in 2002 [the trench shoring division of National Equipment Services and some locations of S&R Equipment]. That should add about $45 million of revenue and about $20 million of additional EBITDA to 2003. We also see the impact of the fleet size increase that occurred throughout 2002. That'll add approximately $30 million of additional rental revenues, which will flow through to the bottom line about $20 million to $25 million of additional EBITDA in 2003.

“Next, we see increased revenues and profitability from our new merchandise program. We've been actively rolling out that program and should have all the stores in place by the end of this quarter. That's targeted to add $35 million of additional revenue in 2003 and $10 million to $15 million of EBITDA and lastly, the impact of our fourth quarter restructuring will be very significant.”

Jacobs added that United's new merchandising program will offer construction convenience items at prices comparable to those offered by Home Depot and Lowe's and will enhance United's ability to serve as a one-stop shop for its contractor customers.

United Rentals is No. 1 on the RER 100.