United Rentals, Inc. URI witnessed a surge of 5.5% in its stock on Apr 25 trading session, following the release of its favorable first-quarter 2024 reports on Apr 24, 2024. This increase occurred despite broader indexes experiencing declines attributed to slower-than-expected GDP growth and increasing consumer prices.
This largest equipment rental company reported first-quarter adjusted earnings per share of $9.15, ahead of the consensus mark by 9.6%, and total revenues were also modestly ahead of the mark by 2.1%. Earnings grew 15.1% year over year on 6.1% higher revenues in the quarter. EBITDA margin compressed 30 basis points (bps) year over year, mostly reflecting lower gross margin on used equipment sales. Nonetheless, margins in the core business remain healthy and Specialty gross margin, in particular, improved 200 bps from a year ago due to strong fixed cost absorption on higher revenues.
(Read more: United Rentals Stock Up on Q1 Earnings & Revenue Beat)
Equipment Rentals Continues to Support Growth
Equipment Rentals segment revenues, which is its primary revenue source accounting for 84% of first-quarter revenues, experienced a robust 6.9% growth, which is well ahead of our expectation of 4.6% growth. This upside reflects broad-based demand, improved fleet productivity, higher original equipment costs or OEC, and Yak’s contribution despite weather disruptions in January. United Rentals’ strategic acquisitions and extensive fleet have further strengthened its position as a market leader.
Fleet productivity inched up 4% and average OEC increased 3.6% year over year. The company’s total equipment rentals’ gross margin expanded 110 bps year over year to 37.7% in the first quarter.
Meanwhile, URI reported a 1.3% decrease (below our expectation of a 3.4% decline) in used equipment sales and a 9.1% increase (below our projection of 17.8% growth) in new equipment sales. The Used equipment sales produced an adjusted gross margin of 53.3%, which contracted 620 basis points (bps). The decrease in the year-over-year adjusted gross margin primarily resulted from the ongoing normalization of the used equipment market, which includes pricing adjustments.
United Rentals, Inc. Price, Consensus and EPS Surprise
United Rentals, Inc. price-consensus-eps-surprise-chart | United Rentals, Inc. Quote
Yak Acquisition & Upbeat Guidance
United Rentals updated its 2024 financial outlook to incorporate Yak’s financials from the company’s acquisition on Mar 15, 2024. Adjusted EBITDA guidance for 2024 assumes $140 million from Yak and is now $7.04 billion–$7.29 billion (47.1% margin at the midpoint), up from its previous guidance of $6.9 billion–$7.15 billion (47.1% margin at the midpoint).
Gross rental capex for 2024 now assumes a $100 million contribution from Yak and is expected to be $3.5 billion–$3.8 billion (previously, it was $3.4 billion–$3.7 billion).
Revenue expectations for 2024 were raised $300 million on Yak to $14.95 billion-$15.45 billion (previously $14.65 billion-$15.15 billion). The free cash flow guidance, excluding merger and restructuring-related expenses, was raised to $2.050 billion-$2.250 billion (previously $2 billion – $2.2 billion) with a $50 million contribution from Yak.
Yak acquisition showcased its strategy to expand its specialty rental business, enhance its one-stop-shop offerings, and leverage opportunities for both secular growth and cross-selling.
Zacks Rank
With a Zacks Rank #2 (Buy) and a consistent track record of surpassing earnings estimates, United Rentals demonstrates resilience and holds significant potential for growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A Few Recent Construction Releases
Masco Corporation MAS reported mixed results for first-quarter 2024, wherein earnings surpassed the Zacks Consensus Estimate but net sales lagged the same.
On a year-over-year basis, Masco’s earnings increased despite lower net sales. Strong operational efficiency helped it deliver solid earnings. Masco’s focus on a balanced capital deployment strategy helped it return $212 million to shareholders via dividends and share repurchases.
PulteGroup Inc. PHM reported stellar results in first-quarter 2024, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Also, both metrics increased year over year on favorable demand conditions and its balanced operating model, which allows the company to more effectively meet the individual needs of first-time, move-up and active-adult consumers.
The number of homes closed increased 11% to 7,095 units from the year-ago level. The average selling price of homes delivered was $538,000, down 1.3% year over year. New home orders gained 14% year over year to 8,379 units for the quarter, benefiting from higher gross orders and a lower cancelation rate. The value of new orders also rose 24% from a year ago to $4.7 billion.
D.R. Horton, Inc. DHI reported second-quarter fiscal 2024 (ended Mar 31, 2024) results, with earnings and revenues surpassing Zacks Consensus Estimate. On a year-over-year basis, both the top and bottom lines increased.
The upside was backed by the supply of new and existing homes as affordable price points remain limited and robust housing demand is supported by favorable demographics amid elevated inflation and mortgage/interest rates. Home closings rose 15% from the year-ago quarter to 22,548 homes. Net sales orders were up 14% year over year to 26,456 homes. The cancelation rate (on gross sales orders) was 15%, down from 18% a year ago.
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