Q3 2024 United Rentals Inc Earnings Call
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Speaker Change: Civil risk.
Speaker Change: Please refer to the company's annual report on Form 10-K for the year ended December 31, 2023, as well as to subsequent filings with the SEC.
Speaker Change: You can access these filings on the company's website at Www dot United Rentals Dot com.
Speaker Change: 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.
Speaker Change: You should also note that the company's press release and today's call include references to non-GAAP terms, such as free cash flow.
Speaker Change: Adjusted EPS EBITDA and adjusted EBITDA.
Speaker Change: Please refer to the back of the company's recent investor presentations to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure.
Speaker Change: Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace Chief Financial Officer.
Speaker Change: I will now turn the call over to Mr. Flannery, Mr. Flannery you may begin.
Matt Flannery: Thank you operator, and good morning, everyone. Thanks for joining our call.
Matt Flannery: As you saw yesterday afternoon, 2024 continues to play out as we expected.
Matt Flannery: We were pleased with our third quarter results, which continued to reflect growth across both our construction and industrial end markets.
Matt Flannery: Our updated guidance reaffirms our expectations for another year of profitable growth, which we were able to deliver thanks to our more than 27000 team members.
Matt Flannery: Their hard work enables us to support our customers with World Class service and innovative solutions, all while keeping safety as priority number one.
Matt Flannery: As you've heard me talk about before we continue to double down on being the partner of choice for our customers.
Matt Flannery: We're helping them solve for their goals across safety productivity and sustainability through our compelling value proposition.
Matt Flannery: Importantly.
Matt Flannery: Not only does our business model enable us to best serve our customers, but will also generate strong shareholder value.
Matt Flannery: Today, I'll discuss our third quarter results our expectations for the rest of this year.
Matt Flannery: Pre manufacturing to name a few.
Matt Flannery: Now turning to the us market, which remains healthy.
Matt Flannery: As Ted will elaborate on we sold a third quarter record amount of always see which speaks to the strength of demand while our margins primarily reflected the ongoing normalization of the market.
Matt Flannery: And as we replace equipment by additional fleet to meet our customer needs. We spent almost $1 $3 billion on capex in the third quarter.
Matt Flannery: We continue to see opportunity to put fleet on rent and our full year guidance reflects a tightened capex range with the midpoint unchanged.
Matt Flannery: Year to date free cash flow is over $1.2 billion.
Matt Flannery: We're on track to hit our full year goal, which translates to a free cash flow margin in the mid teens.
Matt Flannery: For industry, leading profit margins focus on capital efficiency and flexible business model translates to strong free cash generation and ultimately provide us the ability to create long term value for our shareholders.
Matt Flannery: And finally capital allocation.
Matt Flannery: We returned nearly $500 million to shareholders in the quarter via share buybacks and our dividend.
Matt Flannery: Our balance sheet is in excellent shape.
Matt Flannery: And we're on track to return nearly $2 billion this year.
Matt Flannery: And as we wrap up 2024, we're focused on continued execution and delivering another year of records across revenue adjusted.
Matt Flannery: Adjusted EBITDA and earnings.
Matt Flannery: Our updated guidance, which maintains the midpoint for revenue EBITDA and rental Capex reflects just that.
Matt Flannery: We have good momentum heading into 2025, which is setting up to be another year of growth based on what we see in sense today.
Matt Flannery: The <unk> for a multitude of large complex projects are still in the early innings and we believe we're uniquely positioned as the partner of choice for our customers.
Matt Flannery: To support these initiatives.
Matt Flannery: As expected with third quarter Records achieved in total revenue rental revenue EBITDA and EPS.
Matt Flannery: Looking ahead, our reaffirmed guidance at the mid points across all metrics reflects our continued confidence in delivering another year of solid growth strong profitability healthy returns and significant free cash flow.
Matt Flannery: As importantly, we remain focused on prudently allocating capital to help maximize shareholder value.
Matt Flannery: So with that said, let's jump into the numbers third quarter rental revenue was a record $3 $4 six 3 billion.
Matt Flannery: That's a year on year increase of $239 million or seven 4% supported again by growth from large projects and key verticals.
Matt Flannery: Within rental revenue increased by $153 million or five 8%.
Matt Flannery: And our average fleet size contributor contributed three 8% to <unk>, while fleet productivity at a three 5% partially upset by simply inflation of one 5%.
Matt Flannery: Also within rental ancillary and re rent revenues were higher by $86 million or 15%.
Matt Flannery: Primarily from strong growth in our specialty businesses.
Matt Flannery: Turning to our used results, we sold a record amount of fleet in the third quarter generating proceeds of $321 million and a strong demand environment.
Matt Flannery: We continued to see a normalization of used pricing, our adjusted margin and recovery rate. Both remained high by historical standards at 49, five and 54% respectively.
Matt Flannery: It's also worth noting that our recovery rate was impacted by the age of fleet was sold in the quarter, which increased roughly four months year on year to <unk> 95 months on average.
Matt Flannery: Moving to EBITDA adjusted EBITDA was a third quarter record at just over $1 9 billion.
Matt Flannery: Translating to an increase of $54 million or two 9%.
Matt Flannery: Within this rental contributed $132 million year on year.
Matt Flannery: Outside of rental used sales were a $43 million headwind to adjusted EBITDA driven by the ongoing normalization of the used market.
Matt Flannery: $5 billion.
Matt Flannery: Our range for gross Capex was narrowed to $3 55 to $3 75 billion.
Matt Flannery: And our net Capex is narrowed to two 5% to $2 $25 billion.
Matt Flannery: We're still on pace to return a record $1 9 billion to shareholders. This year, which translates to almost $30 per share or a current return of capital yield of about three 6%.
Matt Flannery: So with that let me turn the call over to the operator for Q&A operator, Please open the line.
Speaker Change: Thank you at this time, if you'd like to ask a question. Please press the star and one keys on your telephone keypad.
Speaker Change: And mind, you may remove yourself from the question queue at any time by pressing star and two.
Speaker Change: We'll take our first question from David Raso with Evercore ISI. Please go ahead. Your line is open.
David Raso: Hi, good morning, Thanks for the time.
David Raso: Made the comment Matt about good momentum into 25, another year of growth can you give us at least how you're thinking about that between specialty and gen rent growth and also fleet productivity versus fleet growth I'm not looking for exact numbers, but just how do you think about the different contributors and then I have a second question.
Matt Flannery: Sure David So when we think about how next years, playing out and I'll just talk about qualitatively because we haven't even finished our planning process.
Matt Flannery: That will inform what our what we actually think our growth will be but we're going to have a little bit of carryover in fleet.
Matt Flannery: We feel confident that we will put to work.
Matt Flannery: And the demand on the demand perspective.
Matt Flannery: There is still a good pipeline of large projects the wildcard as we get deep into with our customers and our field leaders, what's that local market kind of due when we talked about that a lot this year.
Matt Flannery: Pass that along.
Matt Flannery: The industry was able to as we approach 2025, Matt just if equipment pricing is softening.
Speaker Change: Can you guys still drive rate in that environment.
Speaker Change: Even if we're in a more deflationary environment, just love to get your view on that.
Speaker Change: Yeah. So.
Matt Flannery: Absolutely we can continue to drive rate that's about what's your value to the customer and you got to try to offset inflation, even if equipment pricing stayed flat to down this year for the next batch we buy we still have to absorb the inflation that we've been paying for the last couple of years on the fleet, which was significant but additionally, there has been a fluid inflation throughout the business.
Matt Flannery: Right and we're going to continue to give our employees raises we continue to have cost inflation that we've been absorbing throughout the last couple of years. So the need to continue to drive rate is certainly there and probably more importantly.
Matt Flannery: The discipline in the industry is there so everybody's in the same boat, where we have inflation that we've got absorbed and I think the industry is creating good value and giving a good output for the customer which is the most important part of allowing yourself to get price increase.
Speaker Change: Fair enough amount of if you just follow up my last question just.
How are you feeling with your fleet age your fleet mix. If we are in another environment, where there's a little bit more mega is versus local a little bit more specialty versus gen rent excuse me comment.
Speaker Change: Where you feel like your fleets and positioned to still be able to have a growth year next year with where the aegis to that thank you.
Speaker Change: Yeah, our fleets a little over 50 months I believe right now it's the lowest it's been pre COVID-19 and that's even absorbing some longer lived assets that we bought.
Speaker Change: And the last five seven years, right with with General finance and tanks and so we feel really good about where it is there's plenty of headroom.
Speaker Change: If we ever had to lean on that but that's not our expectation, but we're in real good position, where like I said were back to pre Covid fleet. It.
Speaker Change: With our business model of fungible assets.
Speaker Change: We're able to move stuff within districts, so really nothing to call out there.
Speaker Change: Thanks, and then obviously really strong growth on the specialty side can you rank order them.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Didn't catch it all again, clearly I think were asking us to rank order or specialty gras.
Speaker Change: Yeah, well just some color on you know, what's the stronger areas within specialty sorry about that.
Speaker Change: Sure sure I mean, we don't get too granular here, but certainly we've talked about power being.
Speaker Change: Very strong.
Speaker Change: Region for Us and that has continued to be the case.
Speaker Change: Frankly, there's growth across all segments of specialty.
Speaker Change: They each have different variances summer less mature and we are building out so you're kind of building off smaller numbers. So you can have stronger growth rates as a result, but they all performed quite well in the quarter and half year to date and then that's really what you've seen in those numbers.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Robert Wertheimer with Melius Research. Please go ahead. Your line is open.
Robert Wertheimer: Thanks, Good morning, everybody.
Robert Wertheimer: Good morning, Ralph So my question is going to be on cost.
Robert Wertheimer: So the question is on costs and I know, it's not the highest growth revenue quarter. I think we talked about that last quarter were a little little ish cost show up and I don't imagine you're managing your strategy for <unk>.
Robert Wertheimer: Quarterly SG&A number anyway. So the cost of the question is really around the investments that you've made or are you doing anything different there do you have a sense of.
Robert Wertheimer: Is there a payback what are you thinking about pay back into next year I mean, what's what's interesting about that spend there and what are you trying to do.
Speaker Change: Yeah. Good question, Rob So as we've talked about all year, we are making.
Speaker Change: So we'll see kind of what the net impact of these two events is.
Speaker Change: But certainly as it relates to our guidance. There is there is no change.
Speaker Change: Yes.
Speaker Change: The impact of the storms, although devastating to the folks there and we certainly are going to help out in any way, we can both our employees and the communities and customers that we work and live in but at the scale of our business I mean, we're talking small numbers here in the big scheme of things and I'm, probably more twenty-five event. If there is some significant re.
Speaker Change: But even within that we're talking small numbers in a big scale. Thanks.
Speaker Change: Got it thanks.
Speaker Change: We will take our next question from Kyle images with Citigroup. Please go ahead. Your line is open.
Speaker Change: Thanks, guys. It would be great. If we could hear a little bit more color on just what you're what you're seeing in some of the industrial end markets. Maybe if I know you called out manufacturing it sounds like that's been strong but anything else. That's perhaps been weak. This year I know we've heard from some other companies that industrial MRO hasn't exactly been not as strong this year. So maybe.
Speaker Change: You know that starts to improve into next year as well.
Speaker Change: You get some improvement in PMI is just just anything noteworthy on the industrial side of things to call out that could maybe.
Speaker Change: Prove a little bit next year.
Speaker Change: So on our side the one thing we've called out year to date and it was again true in third quarter was some of the headwinds has gotten Petro chem.
Speaker Change: And it's really across the board. So upstream has kind of mirrored what's happened with the U S land rig count we will see what happens with.
Speaker Change: Investment upstream investment in North America next year, but that has continued to be a headwind midstream has kind of followed on.
Speaker Change: Not a surprise there if you're not completing wells there is no need to tie them back.
Speaker Change: And then when you think about.
Speaker Change: Refining and chemical processing those also year to date of.
Speaker Change: Have been down a bit so.
Speaker Change: That to US is more likely timing certainly if you look at things like gasoline demand diesel demand jet fuel demand very strong it's our sense that a lot of refineries are postponing.
Speaker Change: Work to the degree they can to take advantage of the margins or earnings so that to us is more of a timing issue.
Speaker Change: Certainly on the chemical processing side.
Speaker Change: It would seem to be similar to refining.
Speaker Change: Other than that.
Speaker Change: Industrial manufacturing has continued to be very strong for us.
Speaker Change: That's helpful. Thanks, and then certainly the revenue contribution from ancillary and re rent has been a nice tailwind for this year and it sounds like it's been driven by specialty. So just how should we be thinking about that into next year should we assume continued growth in ancillary and re rent just given.
Speaker Change: Expected expecting specialty growth as well next year.
Speaker Change: Yes, I mean time will tell if you look at that I think it was up 15% in the quarter. So certainly outpace.
Speaker Change: Rental revenue.
Speaker Change: and I think the value.
Speaker Change: that rental brakes overall. Certainly, we feel like we lead the way, but I think the industry overall gives better output, better value.
Speaker Change: So the more we're much more reliable channel, much more flexible and responsive channel. So I think that's part of the reasons why people are able to keep that discourse.
Speaker Change: Thank you.
Speaker Change: Yep!
Speaker Change: Take our next question from Neil Tyler with Red Burnet Lintek. Please go ahead. Your line is open.
Neil Tyler: Yeah, thanks for coming on Matt. One left when I was coming back to the coldstarts and the pace of opening there. I don't want to forget if we think about that in the context of what you said.
Neil Tyler: and the composer 23, what drives your sort of planning outlook for how many and where to land those starts and how should we think about the...
Neil Tyler: The cold starts particularly with I think about specialty.
Neil Tyler: and especially branches within that number. How should we think about where we are in say a sort of five year view on that journey? Are you trying to put a lot of branches in place in order to capture future growth for you? Do you think it is a sort of more measured?
Neil Tyler: and Hayden's over the next few years. If you can just sort of talk a little bit around that, that would be very helpful. Thank you.
Speaker Change: So sure, Neil, we don't have multi-year.
Speaker Change: Coles, we put it out, you know, in the beginning of the year we'll go through the planning process. We'll see who wants to fund what Coles starts and who wants to fund organic growth in many different ways. And then we'll go through it and we'll communicate that in January. But just when you think about it,
Speaker Change: We still have white space, some products that are more mature.
Speaker Change: may be not as much in geographic expansion as opposed to penetration.
Speaker Change: But now there's, we have a lot of new product lines that we've added over the last couple of years, whether that's our reliable, on-site business, our acquisition, yeah, and still quite frankly, the general finance team. Where in mobile storage we still have white space to fill in.
Speaker Change: That's most of what it is. It's new products and your deeper geographic penetration. And we communicate that each year. We think there's plenty ahead of them.
Speaker Change: and specialty overall as a team. And quite frankly, one of our most mature and power still is showing tremendous growth and they're just doing it by penetration versus cold starts. So we continue to see a lot of opportunity with our specialty business.
Speaker Change: We think we've built a unique value proposition for large projects, large plants and large customers throughout the US and Canada and I won't give you a forecast of future cold starts, I don't say there's lots ahead of them for us there.
Speaker Change: Okay, great. Thank you so much. I was really just trying to...
Speaker Change: trying to think about the...
Speaker Change: and the margin impact that's taking place here and whether that's something we need to think about as an ongoing. But I guess it's a bit of some extent of the ease. But can I follow up with perhaps picking up on your comment about...
Speaker Change: Power and the penetration there. Could you perhaps help us understand what's driving that additional penetration, you know, some of the market trends that you're picking up on?
Speaker Change: Well, I think power overall is a growth space, right, as an end-market vertical and that's not just for us.
Speaker Change: Our business, but also for the industry as a whole, right, and our general products as well. But within our power business, which is PowerHVAC, we've got a lot of additional products that we've added in. We've got a lot of penetration that's through.
Speaker Change: Deeper, product offering to existing customers and allowing us to get into new verticals because of some of the products that we've added. So that's really, you know, the teams very innovative, very creative and very growth-minded and I think they've done a great job.
Speaker Change: Deepening existing products and broadening with new products and a lot of that need in the HVAC part of the business, right? So that's about, you know, going any further than that, I want to get into competitive opportunities, but we're really pleased with the headroom there.
Speaker Change: Now I'm done. That's helpful. Thank you. Thank you very much.
Speaker Change: Thanks, Leo.
Speaker Change: and we'll take our next question from Stephen Volkman with Jefferies. Please go ahead. Your line is open.
Speaker Change: Steve, did I?
Speaker Change: and Steve, we made it to check the meet function on your phone.
Speaker Change: i
Speaker Change: Be move on, guessing these, yep, we will take our next question then from Scott Schnaubberg with Openheimer. Please go ahead, your line is open.
Scott Schnaubberg: Thanks very much, Good morning guys. I have two kind of end of the call questions. One for Matt and then one for Ted. I'll ask him both up front. Matt on on on.
Speaker Change: M&A is there of, you know, you've this...
Speaker Change: Long-term initiative to grow specialty within the portfolio at Mix.
Speaker Change: As you come into the new year you've done digesting yaks.
Speaker Change: How are you thinking about Jen Ren versus specialty ren acquisition? I know party ranch will be whatever you write and looks the best at the time best.
Speaker Change: Cultural Financial Fit. Are you looking at that mix when you make these considerations? Is that heavy consideration? And then also you made a comment on it. It was on David's first question, not the beginning of the call, about not needing to be number one in a specialty category. I just was in...
Speaker Change: and I'm curious to get a elaborate on what you mentioned. You said it, you said it, Jen, finance as a good building platform, but just curious to get a elaborate on what you meant. And then, Ted, for you real quick, new sales were up a lot in a quarter. I think the biggest quarter in maybe three, four years. Just curious to there's anything there. You need mega projects, a big sale, or is that a trend or is that a unique event? Thanks guys. Appreciate it. Allow me a moment. Thank you.
Speaker Change: Thanks, God. I'm glad I got a rope to rope those down. You've been testing my memory here, but as I go through the M&A prioritization, which is how I heard your first question.
Speaker Change: It's wherever we're gonna need.
Speaker Change: I'm more value for the customer, whether that's in a new product offering which is mostly specialty and we love.
Speaker Change: We would highly prioritize any kind of brand new offering to the business where we could take a reasonably good-sized platform and then grow upon it through our very strong network. Like we did with Blue Jack, like we did with General Finance. So I wouldn't call it that it's...
Speaker Change: Because it's generally especially, it's like anything additional. If we found a new Jen Rent product line
Speaker Change: that we didn't carry, we would feel the same way. And then when I think about the general end, it's more like, where do we need more capacity?
Speaker Change: Where do we need more density? Where we need more of an offering?
Speaker Change: and when we have that opportunity, we certainly are very comfortable integrating in our Jen Rent. There's this as we've done as you can see our history very thoroughly. There's not as much white space geographically, but certainly a lot of opportunity to add more capacity to serve more of the marketplace.
Speaker Change: Um...
Speaker Change: When I talked about not being number one, just for clarity, I want to be number one with our customers. So let's use an example.
Speaker Change: for ROS or a libel on site.
Speaker Change: We don't need to have.
Speaker Change: for the Johns at every wedding or every soccer field. But when you go into a major project, you go into a plant. We're going to make sure we're there to support our customer of full one stop shop value. So we want to be number one with our customers and those products. I use general finance as an example. We don't need to have modular classroom.
Speaker Change: and every school, right? That's not the business we're after. What we do need to do is make sure if our customers want a modular building or storage container.
Speaker Change: On a site for their needs, we want to be the number one in that space. So that's what I mean when I talk about that, not every product line do we need to be the largest in the industry? We need to be the largest in our industry.
Speaker Change: So that's the way we look at that and then Ted, I think, new sales. Yeah, that's an easy one Scott. So, yeah, I got an impact there. I think, yeah, I got new sales, something like 16 million.
Speaker Change: So while you see that number up 48% nominally, I think if you back that out we are up about 15% which is probably a little more in line with what you would have expected.
Speaker Change: Thanks for your call guys.
Speaker Change: Thanks, God.
Speaker Change: and there are no further questions in queue at this time. I will turn the call to Matt Flannery for an additional or closing remarks.
Matt Flannery: Great, thanks, Operator and thanks to everyone on the call. We appreciate your time and I'm glad you're enjoying us today. Our Q3 Investor deck has a latest update, so please take a look at that when you get a chance and as always, Elizabeth is available to answer your questions.
Matt Flannery: So, until we speak again in January, stay safe, have a great holiday season and we'll talk to you soon. Operator, you can end the call.
Speaker Change: This does conclude today's program. Thank you for your participation and you may now disconnect.
Speaker Change: Music
Speaker Change: [music].