United Rentals Inc. (URI)

Q2 2010 Earnings Call

July 21, 2010, 11:00 am ET


Michael J. Kneeland − President and Chief Executive Officer

William B. Plummer − Executive Vice President and Chief Financial Officer


Henry Kirn with UBS

Scott Schneeberger with Oppenheimer & Co

Seth Weber with RBC Capital markets

David Wells with Thompson Research

Chris Doherty with Oppenheimer

Emily E. Shanks Barclays Capital Inc.

Philip Volpicelli- Deutsche Bank



Good morning. And welcome to the United Rentals Second Quarter Investor Conference Call. Please the advised that this call is being recorded.

Compare to:
Previous Statements by URI
» United Rentals, Inc. Q1 2010 Earnings Call Transcript
» United Rentals Inc. Q4 2009 Earnings Call Transcript
» United Rentals Inc. Q3 2009 Earnings Call Transcript

Before we begin, note that the company

s press release, comments made on today

s call 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 subsequent filings with the SEC. You can access these filings on the company

s website at www.ur.com.

Please note the United Rentals has no obligation and makes no commitment to update or public release any revisions of 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

Thank you operator, good morning everyone and welcome. On the call with me today is Bill Plummer our Chief Financial Officer, and other members of our senior management team.

I want to start with a quick overview of the results we reported last night and then focus on the metrics that indicate changes that are starting to take effect on our markets and in our company, I will talk about the drivers of change and the seasonal cyclical and our strategy in particular and share some insights into what kind of demand we expect to see over the next 6 to 12 months It’s still too early speaking absolute but the second quarter did shed some light on the cycle, as you saw on our press release we have a strong quarter and the environment is better Our strategy is taking hold the more optimistic than we have been for some time and we appear to be seeing early stages of an upturn and while we continue to bear down on cost our focus is now on growing the business so let’s start with the results.

We made money in the second quarter, last year revenues were slightly higher in the period but gross profit was lower and earnings per share was negative so it’s clear that we have improved the business from top to bottom. EBITDA is up, we reported a significant increase in adjusted EBITDA margin for the quarter from 24.4% last year to 32.1% this year. There is a lot of discipline behind those numbers starting with the revenue line our rental revenues outperformed the operating environment in the second quarter total non-residential construction spending which includes both private and public construction was down 16.1% in April year-over-year and down 15.2% in May, when you compare that to our rental revenues which were down less than 1% for the quarter, at the same time our same store rental revenues were actually up 2.7% so going hard after the business that’s out there implementing our market strategy, identifying and going after the right types of customers and winning more profitable jobs but we are staying very aware of the quality of our $11 million of SG&A expense out of the business compared to the second quarter last year, we also brought down our costs of equipment rentals ex-depreciation by $4 million, Bill will talk in just a moment about where we are in these initiatives and what we see for the balance of the year, with CAPEX we have a lot of bandwidth how to react to the market conditions.

We bought a $125 millions of new fleet in the second quarter, we also sold $80 million of used OEC a 24.3% margin, and at the end of the quarter a $3.8 billion of fleet with an average age of 45 months We are very disciplined about the use of our capital in CAPEX, at the same time managing our liquidity very carefully despite buying more fleet than we originally planned we still generated positive free cash flow of $8 million in the quarter, now I’ll spend a few minutes to talk about the two dynamics that drive our numbers rental aids and utilization, as you saw rates were down 2% in the quarter year-over-year still a lot of pressure on pricing out there, but if you dissect the quarter the sequential trends are promising.

We continue to focus very intensely on rates, there is huge priority for our business, I would say for the industry as well, we estimate that every point of rate is worth about $18 million of annual EBITDA to us so I can assure you we do everything in our power to reverse the year-over-year trend on rates, our approach is very informed and very disciplined, we are working to achieve an optimal price on every contract, we are also walking away from unprofitable deals and we are implementing the price optimization software which we call Chor, but if you recall this is about dynamic pricing a pricing each price subject to that type of customer and Chor is currently rolled out to 75% of our branches and will complete by the end of August Right now short term transactional business is trending upwards as it always does in the Spring and Summer Smaller construction projects are coming online they typically are daily or weekly rentals and they involve less price negotiation better rates 70% of our business was monthly, monthly rents always going to be recovered last because if it stays out for longer periods of time at fixed rate. Monthly rates are still a good long term strategy for us and a more profitable overtime but they also recover last.

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