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McGrath RentCorp Announces Results For Second Quarter 2012

Stocks in this article: MGRC

TRS-RenTelco, our electronic test equipment division, rental revenues for the quarter increased by $1.3 million, or 6% to $24.9 million from a year ago. Divisional income from operations increased by 6%, or $0.5 million to $8.4 million. Although gross profit on equipment sales was down by $0.8 million, due to $1.9 million lower equipment sales revenues, income from operations benefited from lower depreciation, laboratory and direct SG&A costs as a percentage of rental revenues from a year ago. TRS-RenTelco continues to leverage its highly skilled, efficiency-driven and tenured work force in producing strong operating metrics.

Adler Tank Rentals, our tank and box division, rental revenues increased 16% to $16.0 million for the quarter, from $13.8 million a year ago. Gross profit increased 10% to $12.7 million. The lower percentage increase in gross profit compared to rental revenues is primarily related to higher depreciation and inventory center costs as a percentage of rental revenues. However, divisional income from operations for the quarter decreased by 6% from a year ago to $7.4 million. The reduction in income from operations was due to 43% higher SG&A expenses for the quarter compared to the same period in 2011. The higher SG&A expenses are chiefly due to increased bad debt expense, a higher allocation of corporate overhead expense as Adler’s total revenues continue to grow at a faster rate than our other rental businesses, and employee and facility related expenses associated with growing our tank and box rental business.

Division-wide Adler rental equipment utilization declined to 68% at the end of the second quarter 2012; this was primarily related to continuing weakness in the production of dry gas in the Northeast. This is reflected in our 21,000 gallon (21K) frac tank utilization during the second quarter of 57% within the Marcellus shale region, as compared to 78% outside of the region. We have a significant number of off-rent 21K frac tanks in the Marcellus. To date, we have elected to move limited quantities of this equipment to other regions due to a favorable number of rental opportunities for this equipment within the greater Northeast region, coupled with our desire to minimize long-distance transportation expenses in the redeployment of these rental assets. As a result, we have continued to build new rental equipment to meet demand in our markets outside of the greater Northeast region, with that equipment being absorbed into a variety of end markets. With these current market dynamics, despite the significant reduction in division wide utilization over the past few quarters, rental revenues have remained relatively flat. This is further reflected in having approximately the same level of equipment on rent at the end of the second quarter of 2012 of $153 million, as compared to $157 million on rent at the end of the third quarter of 2011, our highest ending quarter utilization to date at 91%.

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