United Rentals focuses on continued recovery, raises full-year guidance

Nov. 01, 2020

Despite reporting a 13.3 percent decrease in rental revenue in the third quarter to $1.86 billion, executives at United Rentals, Stamford, Conn., are seeing positive market activity and trends in line with normal seasonality as the company moves into the fourth quarter.

“What we saw in the third quarter was a continuing recovery, albeit at a moderate pace,” Matt Flannery, United Rentals president and CEO, said in a conference call with analysts on Oct. 29. “Near-term, we have good visibility. Longer term, we expect that future events, including a potential vaccine for COVID-19, are likely to have a significant impact on demand.”

As a result, the company issued new full-year guidance, projecting total revenue in 2020 to be between $8.35 billion to $8.45 billion compared to the prior outlook in July, which called for total revenue to range between $8.05 billion to $8.45 billion.

“I am pleased that we delivered strong results in this environment. We have our arms around the things we can control and we’re showing discipline and agility in our daily operations,” Flannery said.

“It is a different world out there right now. Every time our employees interact with each other or with customers or a supplier, their behavior is guided by our safety protocols. Those protocols helped the team turn in another safe quarter with a recordable rate below one. That was a hard-fought win, when you factor in the fires in California or the storm in the Gulf, or simply the daily challenges of COVID-19,” he said.

Flannery also cited a broad range of new projects starting up across the company’s operating landscape with increased activity that can positively impact equipment rentals.

“One side note worth mentioning is the possible shift to an onshoring strategy by North American manufacturers. This year highlighted the vulnerability of the supply chains and onshoring could be a way to reduce this risk. If that trend pans out, it could benefit two areas where our company often is the first call with customers, in industrial construction and plant maintenance,” he said.

He also said the specialty segment continues to be resilient with all of the company’s specialty offering poised to capture incremental demand. In addition, through September, United Rentals has opened 13 new specialty locations in 2020 and expects to add two more opening this year.

In addition, he said the company’s headcount, year over year, is down about 3 percent despite revenue volume for the quarter being down 13 percent.

“The reason we were able to do that, without having to sacrifice margin, is because we took some of our most expensive costs — like outside hauling and third-party repairs — and we insourced. This way, we are keeping our people busy and, frankly, employed during a very difficult time. This gives us the capacity to be able to respond quickly as projects and markets continue to heal and grow. That is something I think is a silver lining through this COVID-19 pandemic that we are going to utilize in the future,” Flannery said.

As for the Nov. 3 elections, he said the company is “not really watching that political environment from a macro perspective too much. We understand there may be winners and losers in certain sectors, but the impact on our business will be that we will ship the assets to the winning verticals. That is part of the resiliency of our model — that flexibility of very fungible assets. Personally, I think how we get through the pandemic will have a much bigger impact on how fast the economy recovers than the political environment. But once again, we have the time to wait and see and react,” he said.

Concerning capital expenditures this year, Flannery said United Rentals has reduced its spending significantly. For the third quarter, capital expenditures declined 49 percent to $432 million. Year to date, United Rentals reported it has spent $785 million in gross rental capital expenditures while earning $583 million in proceeds from used equipment sales, resulting in net capital expenditures of $202 million, down 85 percent compared to last year.

“We have not gone full stop on investing in the business. We are taking the long view, managing our capital to support our customers and to drive long-term returns for our investors. The ongoing expansion of our specialty network is one good example of that. Throughout all the disruption this year, we kept our eye on the big picture and we're making sound decisions with the benefit of a robust balance sheet,” Flannery said.

“All things we have been doing right this year, we’re still doing right. The plan is to execute well under all market conditions. With COVID-19, that means, first and foremost, protecting our people, serving our customers, running a tight shift and doing all of this without limiting our capacity for growth,” he said.

“I am proud of the way our team has stayed together and is working safely. I am glad that our operations have been able to remain open to serve our customers, because communities rely on these projects. I am pleased that we continue to be responsive to all of our stakeholders. And finally, I am confident that we have the right strategy in place to leverage our competitive advantages and convert our revenue into attractive returns,” Flannery said.

“Every economic environment, weak or strong, has its opportunities, and this one is no different. We know how to use our strengths to make the most of any market conditions. We did that on the downside of this pandemic, and we'll do it on the upside as well,” he said.