RSC Holdings last week posted a 22.8-percent first-quarter rental revenue decline to $287 million from $372 million in the year-ago quarter. Rental revenue accounted for 82 percent of total revenues. Total revenues were $351 million, down 16.8 percent from $422 million reported in the year-ago quarter.
Rental volume, including the impact of currency, declined 18.7 percent from the prior year’s first quarter following a very sharp drop in non-residential construction business levels, as well as lower industrial activity. Rental rates declined by 4.1 percent compared to the year-ago quarter.
Fleet utilization averaged 57.8 percent versus 68.6 percent in the first quarter of 2008. The company continues to benefit from a well-maintained and relatively young fleet and, despite reducing the purchase of new equipment, the average fleet age was 34 months at March 31.
Sales of used equipment were $50 million, increasing from $31 million in last year’s first quarter and $39 million in the fourth quarter of 2008. Gross profit margin on sales of used equipment was 8.2 percent as the company increased auction sales as a proportion of total used equipment sales and, to a lesser extent, experienced moderately lower retail margins. Net capital expenditures yielded a cash inflow of $46 million, compared with a cash outflow of $52 million in last year’s first quarter.
“We delivered an impressive $112 million of free cash flow in the first quarter of 2009, clearly demonstrating the counter-cyclicality of our business model,” said Erik Olsson, president and CEO. “In a difficult economic environment, our focus remains on maximizing cash flow generation. We now expect to deliver free cash flow of $340 to $370 million for the full year, which is $20 million above our previous estimate.”
For the second quarter of 2009, RSC expects rental revenues to decline by 35 to 40 percent from the prior-year level, with margins on the sale of used equipment likely remaining near first-quarter 2009 levels due to the continued high supply of equipment for sale. The company is increasing previously provided free cash flow guidance by $20 million to $340 to $370 million for the full year 2009 and expects to apply available cash to further debt reduction.
RSC continued to aggressively manage its cost structure, including consolidating or closing 14 locations and reducing headcount by 422 employees during the first quarter. Cost of rental and SG&A expenses, excluding $9 million of first quarter location closure and severance costs, were $26 million lower than a year ago. During the 12 months ended March 2009, the company closed 57, or 12 percent, of its locations and reduced headcount by 905 or 17 percent. The company opened seven locations in the first quarter, primarily in locations that presented industrial growth opportunities and opened 29 locations in the past 12 months. Industrial/non-construction revenues increased to 55 percent of total rental revenues.
Operating income was $19 million, or 5.5 percent of total revenues, compared with $91 million or 21.6 percent of total revenues in the prior-year period. The decline in rental revenues, combined with costs related to location closures and severance, exceeded the benefits of cost reductions. First-quarter adjusted EBITDA was $108 million or 30.6 percent of total revenues, compared to $183 million or 43.3 percent of total revenues last year.
Interest expense was $40 million, a decrease of $15 million from first quarter 2008, because of reduced debt levels and lower interest rates. A first-quarter net loss of $14 million or $0.13 per diluted share was realized, compared with net income of $22 million or $0.22 per diluted share in the first quarter of 2008.
Free cash flow of $112 million compares with an outlay of $42 million in the prior year first quarter, an improvement of $154 million. Total debt was reduced by $112 million during the first quarter, to $2.46 billion. The company had $434 million of borrowing availability under its ABL revolver on March 31.
Business activity in the company’s served markets was down sharply on a year-over-year basis in the first quarter and has been declining moderately since the beginning of the year. New project startups have been insufficient to offset project completions and the company has not experienced the usual seasonal increase in business activity. Further, industry-wide rental rates have declined significantly in recent quarters. Management expects these trends to continue into the second quarter and, as a result, year-over-year comparisons will continue to worsen.
“The actions we took in the past 12 months to address our cost structure and optimize free cash flow are delivering the expected results and more,” Olsson said. “For the full-year 2009, we are targeting a reduction in our cost of rental and SG&A expenses by $150 million or more. At the same time we will continue our focus on the industrial markets and serving our existing customers. Our proven ability to execute on cost savings initiatives, while providing unmatched customer service, positions us to deliver $340 - $370 million of free cash flow and further reduce debt in 2009.”
Based in Scottsdale, Ariz., RSC Holdings is the holding company for RSC Equipment Rental, which is No. 2 on the new RER 100.
