By running what Matt Flannery calls “a lean ship,” the United Rentals president and CEO is confident that the company has weathered the worst part of the COVID-19 pandemic, he told a recent conference call for investors.
“I'm happy to report that rental volumes in all of our geographic regions finished the quarter above the trough they had in April,” Flannery said. “And for the company as a whole, that low point came on April 9th. From that date through June 30th, fleet on rent showed fairly steady improvement, rebounding by almost 14 percent. This translates to over $1 billion of incremental fleet on rent.”
Flannery said that while visibility is somewhat limited, “near-term indicators suggest that activity in the second half of 2020 may continue to track with seasonal patterns, which is something that we saw in June and July.”
Flannery added that United flexed its operating expenses to mitigate the revenue loss, “resulting in a decline of just 50 basis points in adjusted EBITDA margin.” He added that the company is guiding to a range of $800 million to $900 million in capex for 2020.
“Our primary focus this year is to serve customers with the fleet that we already owned,” he said. “And when we do make selective investments, we're targeted to specific opportunities. And as a result of this cost and capital discipline, our free cash flow generation in the quarter was a very strong $817 million. This is a year-over-year increase of almost 300 percent. I'm particularly pleased we achieve these numbers without compromising our capacity for the future. This means no branch closures, no COVID-related layoffs.”
United Rentals management, said Flannery, seriously considered the possibility of a steep downturn for years and how the company would react. “It came together quickly in March,” he said. “We’re taking a measured response that serves the near and long-term interest of the company. It was a huge ask them to provide essential services during such a difficult time and they're doing a great job. Not only did the team embrace the health and safety protocols in our COVID plan, but they did it safely with another recordable rate below 1.”
Taking a look at customer demand, Flannery noted that as people stayed at home more, the decline in demand for gasoline and jet fuel significantly impacted the company’s petrochemical customers.
“On the construction side, non-res is a very broad category that covers a lot of different market dynamics and some of the verticals have stayed busy throughout the pandemic, like power and data center builds and others are obviously more challenged, like retail and hospitality,” Flannery said. "We're also seeing demand continue for our Specialty segment, which is holding up very well. Our strategic investments in specialty are making helpful contributions to the segment revenue this year. Another positive has been the strength of the used equipment market. So far, retail demand has remained solid. And we view this as a leading indicator, meaning contractors expect to need equipment for their upcoming projects and we've been able to leverage that demand to recover more than half of our original investment on equipment which is over seven years old.
“Big picture, we know that our end markets will recover at different speeds in different areas, fluctuations like this allow us to leverage our strength, our flexibility, diversification and scale. We have a deep fleet of fungible assets that we can shift between construction and industrial sectors and across geographies and verticals. Even in this environment, our flexibility helps to mitigate the pressure on revenue. We can also pivot to new opportunities that may arise from COVID. For example, the idea of repurposing large commercial properties has been floated by some construction analysts. This could create some incremental demand in the construction space.”
For United Rentals’ second quarter results, click on: https://www.rermag.com/rental-news/article/21137930/hit-by-covid19-united-rentals-drops-162-percent-in-second-quarter-rental-revenue
