United Rentals’ flexibility and fluidity will see it through the economic slowdown caused by COVID-19, CEO Matt Flannery told an investor’s conference call after the company shared its quarterly results this week. Assessing a multitude of scenarios for how this year might play out, with each one using different assumptions about timing, magnitude and duration, the company’s analysis confirms its liquidity is more than sufficient for even the most challenging end market scenarios.
Flannery said United Rentals’ leadership thinks about its COVID defense strategy as five work streams: employee safety, taking care of its customers, CapEx, OpEx and its capital structure, particularly liquidity.
The company remains open at all branches in North America and seven of its 11 European branches. It is working on projects that are firsts for the company, such as a COVID screening area at a Children’s Medical Center in Dallas, and temporary hospitals in New York, Seattle, Calgary and others.
United Rentals has taken many actions to keep employees and customers safe, Flannery explained. “They include guidelines for social distancing, and disinfecting facilities and equipment as well as providing millions of dollars of additional protective gear,” Flannery said. “We've also implemented a contactless drive-through option for customers, who want to pick up or drop off equipment at our locations. And our online ordering platform has been a big differentiator here for us. The customer reserves the equipment online, and then drive through a special lane at the local branch. We load the equipment, while they sit in their truck. And if we're bringing the fleet to the job site, our drivers follow a new safety protocol we call ‘last touch,’ when the driver disinfects the commonly touched surfaces before leaving, like control panels, door handles and seatbelts.”
Flannery said the company had a relatively small number of branches where an employee tested positive for the virus. “When that happens, we have the branch professionally disinfected to make sure it’s all safe, and then we follow the CDC guidelines on when and how we can resume operations,” he said.
Flannery said that while COVID-19 is impacting many parts of the construction and industrial vertical markets the company serves, its markets do remain broadly active, and this holds true across nonresidential and residential construction, infrastructure and industrial production.
“And there’s only a handful of U.S. states and two Canadian provinces, both Ontario and Québec, that have put meaningful construction restrictions in place,” Flannery noted. "And most of those make exceptions for essential projects like infrastructure or emergency medical capacity. And many of these restrictions that are in place expected lift in early May.”
Flannery said overall its construction markets are holding up better than its industrial markets, particularly oil and gas, which could be challenged for a while.
“We’ve also seen industrial customers put off some plant maintenance and planned turnarounds for now,” Flannery added. “Eventually this work will come off pause, and we think that could happen as early as the back half of this year. We're also partnering with our larger accounts to help them get the full benefit of our total control technology. As you've heard us say before, total control improves fleet productivity and reduces costs, whether the equipment is owned by our customer or rent it from us. And it's always been a major differentiator, but today, its value stands out more than ever.”
Flannery emphasized that part of the flexibility he mentioned has to do with the ability to reduce capital expenditure and, if necessary, age the fleet a bit.
“For the first quarter, gross rental CapEx was down $50 million year-over-year, and net rental CapEx was at zero for the quarter, reflecting our focus on improving time utilization,” he said. “And what this doesn't reflect are any changes we instituted in mid-March to address COVID-19's impact on demand. The effect of those actions will be evident in Q2, with dramatic reductions in the inflow of fleet and the outflow of cash. And while our CapEx level will, ultimately, depend on how our markets track over the balance of the year, I could say that our total spend on rental fleet will be down substantially for 2020.”
Like all organizations at this time, United Rentals is also reducing costs. “For example, in our specialty segment, our power and HVAC business has historically outsourced all their deliveries,” Flannery said. “We pivoted to in-source using trucks and drivers from our general rental operations to get this work done and it’s working really well.”
Flannery also talked about the experience of the company’s leadership team, with most of its field and corporate leaders having been with the company during the recession in the late 2000s.
“We were able to come through that crisis intact, and the experience from that helped inform our strategy and our business model,” he said. “Twelve years later, our company has been reshaped by that experience. We're dramatically stronger today, more diverse, more efficient and more resilient as an organization. Our revenue diversity is particularly important, because our end markets, customers and the geographies we serve don't all have equal constraints. We can target pockets of demand and help mitigate the drag for more challenged areas, and that's a real strength in this environment.”
For a complete look at United Rentals’ first quarter results, click on: https://www.rermag.com/rental-news/article/21130107/united-rentals-comes-in-flat-in-first-quarter-despite-covid19-impact-in-midmarch
