United feels downturn as RSC stays steady

By Murray Pollok and Patrick Hill29 October 2008

Michael J. Kneeland

Michael J. Kneeland

United Rentals is to close 30 depots in the final quarter of the year and has cut its full year earnings estimate by 20% to $2.55 to $2.65 per share to reflect the "acceleration of softness in the company's end markets."

United's third quarter rental revenue was $677 million, down 5.7% from $718 million in the same period in 2007, while total quarterly revenue of $873 million fell 12% from last year's $990 million. Profits from continuing operations declined 33% to $74 million.

Michael Kneeland (pictured), United's chief executive officer, said; "We are prepared for our operating environment to become steadily more challenging as economic pressures and the credit crisis combine to suppress construction spending.

"As we move through the fourth quarter and into 2009, we will continue to pull the many levers at our disposal, including fleet transfers, used equipment sales and the closing of approximately 30 more branches."

United's EBITDA (earning before interest, taxes, depreciation, and amortisation) was $318 million for the quarter 2008, down 7%, although EBITDA margin rose by 1.9% to 36.4%.

Meanwhile, number two in the North American rental market, RSC Equipment Rental, said its increasing reliance on non-construction markets, particularly the industrial sector that now represents over a third of revenues, was helping it weather the downturn.

RSC's third quarter rental revenues were up 1.6% to $419 million and total quarterly revenues rose 1% to $467 million. RSC's EBITDA fell 9% to $204 million, representing an EBITDA margin of 44.1%.

The Scottsdale, Arizona-based company attributed its position to a "compelling end-market mix", which comprises 60% of rental revenues from non-residential construction activities and 35% from the industrial sector. Its residential construction activity was 5%.

Erik Olsson, RSC's president and chief executive officer, said: "While fleet on rent grew during the quarter, we chose to substantially reduce CapEx to support rate stability and maintain high utilization. In line with this strategy, we delivered an impressive free cash flow for the quarter.

"Our priorities and business model remain the same in all marketplace conditions: sustain rental rates, keep utilization high, maintain high profit margins and deliver strong cash flows."

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