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McGrath RentCorp Announces Results For Third Quarter 2012

Stocks in this article: MGRC

Modular division rental revenues for the quarter were down slightly to $20.0 million, or less than 1% from a year ago, however, rental revenues increased from $19.5 million or 2% from the second quarter of 2012. Rental revenues for the quarter grew by 9% year over year in our markets outside of California; however, they declined by 7% within the state. We had a 22% increase in first month’s rent bookings for modular buildings during the third quarter compared to a year ago with our markets outside of California increasing by 48%, while the California market was flat. Although the California market still has general economic and state budget headwinds, we believe there is a discernible recovery occurring in the state. The unemployment rate has declined to 10.2% from 10.7% in July, and from a Great Recession high of 12.6%. The housing market for new homes in the greater Bay Area has improved with a number of projects under construction and others in preliminary stages. There has also been an uptick in commercial construction activity. We are hopeful these trends continue and that we begin to see their impact in our California modular numbers.

Modular division year over year income from operations decreased by 24% to $4.6 million; however, modular rental operations gross profit declined only 4%. The higher percentage reduction in income from operations was due primarily to lower gross profit on modular equipment sales, which tends to be less predictable than for rentals. We also experienced higher inventory center equipment processing expenses for the quarter from a year ago related primarily to increased business activity in the Texas market. Finally, modular division utilization was down slightly to 66% from 67% a year ago, and was flat compared to the second quarter of 2012. It is important to point out that our division-wide modular quarterly average utilization over the past eight quarters has stayed within a narrow range of 66% to 68%. We believe this speaks to a modular business that has stabilized with greater upside opportunity than downside risk.

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