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United Rentals Comes in Flat in First Quarter Despite COVID-19 Impact in Mid-March

April 29, 2020
United Rentals posted first quarter 2020 revenue of $2.125 billion compared to $2.117 billion in the first quarter of 2019, up 0.4 percent year over year despite the shelter-in-place orders that took place in the last couple of weeks of the quarter.

United Rentals posted first quarter 2020 revenue of $2.125 billion compared to $2.117 billion in the first quarter of 2019, up 0.4 percent year over year despite the shelter-in-place orders that took place in the last couple of weeks of the quarter. Rental revenue was $1.783 billion, down 0.7 percent from $1.795 billion in the first quarter a year ago. Adjusted EBITDA decreased 0.7 percent to $915 million, while adjusted EBITDA margin tumbled 40 basis points to 43.1 percent.

COVID-19 began to impact the company’s operations in March. Through February, rental revenue was up slightly year over year. In March, rental revenue declined primarily because of COVID-19 impact. Fleet productivity decreased 1.2 percent year over year, primarily because of the COVI-19 impact in March, when rental volume declined in response to shelter-in-place orders and other end-market restrictions. Through February, fleet productivity was flat year over year and in line with expectations.

United’s general rentals segment slipped 2 percent in rental revenue. Rental gross margin declined 310 basis points to 32.1 percent, with 260 basis points caused by increased depreciation expense. Rental revenue dropped primarily because of COVID-19.

The company’s specialty rentals segment, or Trench, Power and Fluid Solutions, generated increased rental revenue of 4.6 percent year over year, including an organic increase of 2.8 percent. The segment’s increase in rental revenue reflected a 9.8 percent increase in average OEC, partially offset by COVID-19’s impact beginning in mid-March. Rental gross margin decreased by 60 basis points to 41.6 percent, primarily because of operating costs, largely caused by COVID-19, that increased as a percentage of revenue.

“I’m incredibly proud of the way our team has responded to the COVID-19 crisis, and I want to thank them for their extraordinary efforts during this challenging period,” said Matthew Flannery, United Rentals CEO. “Our highest priority is to ensure the safety of our employees and customers in our workplaces and at jobsites. The modifications we’ve made to our operating protocols preserve our ability to serve the needs of thousands of communities, while retaining critical capacity for the return of end-market demand. Our business tracked as we expected through early March, when the outlook for 2020 became far more uncertain due to the pandemic. While we’ve withdrawn our guidance at this time, we’re confident in our ability to leverage the resiliency inherent in our business model. We’re in the strongest position in our history to respond to this crisis and to prepare for the recovery to come. This includes the strength of our balance sheet and cash flow, as we remain focused on disciplined capital allocation and cost management. We expect our free cash flow to remain substantially positive in 2020, even in our worst-case scenarios.”

The company initiated contingency planning ahead of the impact of COVID-19 on its end markets, initiating a five-point plan:

·      Ensuring employee safety and well-being, including ensuring that branches sufficient personal protection equipment. The company has also implemented appropriate social distancing practices, and increased disinfecting of equipment and facilities.

·       Leveraging competitive advantages to support the needs of customers: All branches in the U.S. and Canada remain open to provide essential services, with seven of 11 European branches also operating. The company has made modifications to enhance safety measures in its operating processes and protocols that support the needs of customers. Also, digital capabilities allow customers to perform fully contactless transactions.

·       Disciplined capital expenditures: United has flexibility in managing its capital expenditures and fleet capacity. While the current environment remains fluid, the company expects its 2020 capex to decrease significantly.

·       Controlling core operating expenses: Since March, United has reduced overtime and temporary labor in response to the pandemic. The company also leverages its current capacity to reduce the need for third-party delivery and repair services and minimize discretionary expenses across general and administrative areas.

·       Manage the balance sheet with a focus on liquidity: United paused its share repurchase program in mid-March. On March 31, 2020, total liquidity was $3.083 billion, including $513 million in cash and cash equivalents. The company has no long-term debt maturities until 2025.

Based in Stamford, Conn., United Rentals is No. 1 on the RER 100.