It has been about a month since the last earnings report for United Rentals (URI). Shares have lost about 18.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is United Rentals due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
United Rentals Q4 Earnings Miss Estimates, Revenue Beat
United Rentals released mixed fourth-quarter 2024 results. The company’s earnings per share (EPS) missed the Zacks Consensus Estimate, but revenues surpassed the same. Nonetheless, both metrics registered improvement on a year-over-year basis.
The company reported fourth-quarter records in revenues, EBITDA and earnings. A strong focus on safety and productivity for customers supported its 2024 performance and remains a key part of the company’s long-term strategy to create value for shareholders.
The company expects growth in 2025, supported by strong demand carried into the new year and customer optimism. It remains focused on driving profitable growth, maintaining strong free cash flow and delivering shareholder returns. The company is also focused on completing the acquisition of H&E.
United Rentals’ Quarterly Highlights
Adjusted EPS of $11.59 missed the Zacks Consensus Estimate of $11.77 by 1.5%. The reported figure, however, increased 2.9% from the prior-year adjusted figure of $11.26 per share.
Total revenues were $4.095 billion in the quarter, surpassing the consensus mark of $3.942 billion by 3.9%. On a year-over-year basis, the top line grew 9.8%.
Equipment Rentals revenues increased 9.7% from the year-ago quarter to $3.422 billion, marking a record high for the fourth quarter. Fleet productivity inched up 4.3% year over year, and the same increased 2%, excluding the impact of the Yak acquisition. Average original equipment at cost increased 4.1% year over year.
Used equipment sales (or sales of rental equipment) increased 3.2% from a year ago to $452 million. This produced an adjusted gross margin of 48.9%, which contracted 640 basis points (bps). The decrease in the year-over-year adjusted gross margin primarily resulted from the ongoing normalization of the used equipment market, which includes pricing adjustments.
United Rentals’ Segment Discussion
General Rentals: This segment registered 2.2% year-over-year growth in rental revenues to a fourth-quarter record of $2.339 billion. Rental gross margin contracted 170 bps year over year to 37.4%, indicating the impact of inflation and normal cost variability, including higher insurance expenses and certain other costs.
Specialty: Segmental rental revenues improved 30.5% year over year to a fourth-quarter record of $1.083 billion. Excluding the impact of the Yak acquisition, rental revenues grew 17.8% year over year. Rental gross margin, however, contracted 170 bps year over year to 45.5%, indicating higher depreciation expense related to the Yak acquisition.
United Rentals’ Margins
The company’s total equipment rentals’ gross margin contracted 130 bps year over year to 40%.
Adjusted EBITDA for the reported period grew 5% year over year to $1.9 billion. However, the adjusted EBITDA margin contracted 210 bps to 46.4%. The decline in the adjusted EBITDA margin primarily stemmed from a decrease in the adjusted gross margin related to sales of used equipment.
United Rentals’ 2024 Highlights
For the full year, the company generated total revenues of $15.345 billion (up 7.1%) and adjusted earnings of $43.17 per share (up 6% from 2023).
Adjusted EBITDA rose 4.4%, but adjusted EBITDA margin contracted 110 bps to 46.7% year over year.
Balance Sheet of United Rentals
United Rentals had cash and cash equivalents of $457 million as of Dec. 31, 2024, up from $363 million at 2023-end. Total liquidity was $2.845 billion at 2024-end. Long-term debt at the fourth quarter of 2024-end was $12.23 billion, up from $10.05 billion at 2023-end.
On Dec. 31, 2024, the net leverage ratio was 1.8x compared with 1.6x on Dec. 31, 2023. Return on invested capital was 13% for the trailing 12 months ended on Dec. 31, 2024.
During 2024, net cash from operating activities decreased 3.4% year over year to $4.546 billion. Free cash flow fell 10.8% year over year to $2.065 billion for the same period.
In 2024, the company returned $1.934 billion to its shareholders, including $1.5 billion through share repurchases and $434 million in dividends.
United Rentals’ 2025 Guidance
Total revenues are expected to be in the range of $15.1-$15.3 billion. Adjusted EBITDA is anticipated to be between $7.115 billion and $7.215 billion.
Net rental capital expenditure is now anticipated to be in the range of $2.2-$2.5 billion (after gross purchases of $3.65 billion to $3.95 billion) compared with $2.235 billion after gross purchases of $3.756 billion in 2024.
Net cash provided by operating activities is anticipated to be in the range of $4.5-$5.1 billion. Free cash flow (excluding the impact of merger and restructuring-related payments) is expected to be in the range of $2-$2.2 billion.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
VGM Scores
At this time, United Rentals has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, United Rentals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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United Rentals, Inc. (URI) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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