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RSC's Rental Revenues Grow 13 Percent in Q2

SCOTTSDALE, Ariz. — RSC Holdings last month announced second-quarter rental revenue growth of 13.1 percent, along with adjusted EBITDA margin increases of 46.6 percent, and a record utilization rate of 73.9 percent.

Total revenues for the quarter were $442.8 million, with net income of $17.4 million or $0.18 per diluted share. Excluding fees related to the termination of the monitoring agreement and debt prepayment costs in connection with the recent initial public offering, net income would have been $35.5 million, or $0.36 per diluted share.

Rental revenues, which made up 87 percent of total revenues, grew 13.1 percent to $384.6 million in the second quarter, compared to $340.1 million in the same period last year. Same-store rental revenue growth was 10.9 percent in the quarter, during which RSC added eight new locations. Sales of used equipment decreased $12.4 million and sales of merchandise decreased $3.1 million in the second quarter, drops that were in line with the company's strategic direction, officials said.

Adjusted EBITDA increased to $206.3 million in the second quarter compared to $182.9 million in the same period last year, a 12.8-percent increase.

“This represents our 16th consecutive quarter of rental revenue growth,” said Erik Olsson, president and CEO of RSC. “We are executing our strategy of emphasizing our core rental operations through customer service, same-store growth and investment in local markets, and have further strengthened our market position with year-to-date additions of 12 locations and 55 sales people.”

Through the end of the quarter — June 30 — RSC reduced total debt by $270 million to $2.74 billion. Free cash flow for the second quarter was $32.5 million compared to $6.4 million in the prior period. Total revenues for Q2 grew 7 percent from $413.8 million a year ago to $442.8 million in this year's second quarter.

Olsson added that RSC's fleet value has grown to $2.5 billion.

The company says near-term demand from the non-residential and industrial sectors is expected to continue at high levels. RSC anticipates full-year 2008 results for total revenues to be between $1.78 billion and $1.81 billion, net income per diluted share of $1.18 to $1.32 and adjusted EBITDA of $810 million to $830 million.

In other financial news, several investment banks initiated coverage of RSC Holdings Corp. last month with high ratings.

Robert A. Baird Co.'s Michael Schneider started coverage with an “outperform” rating and a $28 per share price target.

“RSC is poised to benefit from the secular trend to rent equipment rather than buy and the continued strength of the non-residential market,” wrote Schneider.

“The equipment rental industry is growing at a 10.5 CAGR as more construction companies are choosing to rent equipment versus buy. The United States rental market is significantly under-penetrated with just 35 percent of the total equipment fleet rented versus 80 percent in the U.K. and Japan. RSC derives 69 percent of its revenue from the non-residential construction market, which is expected to grow 7 to 9 percent annually through 2011. RSC's scale should drive higher utilization levels, lower capital spending needs, greater fleet flexibility and better customer service. RSC's 43.9-percent EBITDA margin and 18.9-percent same-store sales growth well exceed the peer averages.

CIBC World Markets Corp. initiated coverage with a “sector outperformer” rating and a $24 price target.

Morgan Stanley's Christina Woo initiated coverage with an “overweight” rating and a $25 price target, calling RSC a top pick, while Joel Tiss of Lehman Brothers launched coverage with an “equal weight” rating and a $25 price target.

No. 3 on the RER 100, Scottsdale, Ariz.-based RSC has 465 branches in 39 U.S. states and four Canadian provinces.

TAGS: Ar Mag
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