United Rentals, Inc. (



Q3 2010 Earnings Conference Call

October 20, 2010 11 AM ET


Michael Kneeland – CEO and President

William Plummer – EVP and CFO


Henry Kirn – UBS

Manish Somaiya – Citi

Seth Weber – RBC Capital Markets

Scott Schneeberger – Oppenheimer

David Wells – Thompson Research Group

Philip Volpicelli – Deutsche Bank

Emily Shanks – Barclays Capital



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» United Rentals Q2 2010 Earnings Call Transcript
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» United Rentals Inc. Q4 2009 Earnings Call Transcript
» United Rentals Inc. Q3 2009 Earnings Call Transcript

Good morning, and welcome to the United Rentals Third Quarter Earnings Investor Conference Call. Please be advised this call is being recorded. Before we begin, note that the company’s press release, comments by presenters and responses to your questions contain forward-looking statements. The company’s business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the Safe Harbor statement contained in the release.

For a more complete description of these and other possible risks, please refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2009, as well as to subsequent filings with the SEC. You can access these filings on the company’s website at www.ur.com.

Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that today’s call will include references to free cash flow, adjusted EPS, EBITDA and adjusted EBITDA, each of which is a non-GAAP term.

Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; and William Plummer, Chief Financial Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin.

Michael Kneeland

Thanks operator and good morning everyone and welcome. On the call as the operator stated is Bill Plummer, our Chief Financial Officer and other members of our senior management team.

I’m going to start this morning by summarizing the quarter for you particularly those metrics that relate to our strategy. I want to focus our discussion on the tie end between our strategy, our actions and our results. And I’ll also talk to you about the operating environment and where we see the recovery going next. And then Bill later in the call will discuss – will cover all these in detail, all the results in detail and then after that, we’ll take all of your questions.

And so we’ll start with the numbers. As you saw from our press release, we had a strong third quarter. We got some help from the environment in terms of demand, but for the most part we generally got a performance from the inside out by paying close attention to our strategy. As I shared with you in the past, that strategy is to transform the company for long-term profitability by defining on rentals according to our core business of rental, achieving customer service leadership in our industry, continuously improving our cost structure in fleet management, and leveraging our size by pivoting our customer base towards large construction in industrial accounts that we service to a single point of contract.

And we’re being very disciplined about how we target these accounts while at the same time, pursuing more profitable rentals from our customer base at large. So as a result, we had positive net income of $23 million, and an EPS of $0.33 per share. When you compare that with the third quarter of last year, when we had a net income and earnings of zero. The change is even more dramatic on the adjusted basis with an EPS of $0.40 compared with $0.01 in last year’s third quarter.

And we’ve repeatedly said that we’re only interested in profitable growth and here is the evidence. We increased our adjusted EBITDA dollars by 17% even though rental – total revenues increased by only 2%. Overall gross margin was up 1.9 percentage points for the quarter versus last year. In short, the numbers clearly show that we are delivering on our strategic priorities and we’re doing it within the context of a sharper recovery.

It’s true, the cycle is turning but it’s a slow turn. And I’m happy to say that our performance has outpaced the construction environment for two straight quarters now. We know the construction spending in the US actually took a step backwards in July and August compared to last year. So I’m happy to report that with ABI numbers that came in last night were actually up the first time since 2008. And we take that as a piece of positive news.

With our rental revenues were up 6%, with that includes a same-store growth of 9.7%. Now these are all good indicators of how well positioned we are to leverage this recovery. We also continued to be diligent about cost. We took an additional $4 million of SG&A expense out of the business compared to last year. That’s a sustainable improvement and it puts us solidly on target with our projects. But the cost of rentals ex depreciation which is a metric influence by demand, volume increased by $12 million. And some of the demand is seasonal, some of its cyclical and some of it we believe is coming from our end markets opting to rent equipment rather than to purchase it.

And when you take these external factors into account combining with the impact of our strategy, it helps explain the record time utilization we reported last night. Given these market opportunities, we’ve increased our strategic spend on fleet in the quarter by a $113 million. We also sold $74 million of used equipment at more than four times than margin we got last year. Again, another sign that things are stabilizing. We have a lot of discipline invested in both cost control and fleet management which is why we feel very comfortable reaffirming our free cash flow estimate for the year even with the projected increase in net rental CapEx.

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