United Rentals Earnings Call Nuggets: Second-Half Expense Outlook and Fleet Demand
United Rentals Inc (NYSE:URI) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Second-Half Expense Outlook
Seth Weber – RBC Capital Markets: So just on the pull-through margin assumption of 60% to 70% for the year, I guess, can you just tell us, are there any of these expenses that we should be thinking about for the third quarter, fourth quarter, things that could come up that we’re not aware of? I know that some of these expenses go away; the 5S and the OEC not available, but the merit increases and incentive comp and things. Could you just help us understand what could be out there for the second half to help us get to the 60% to 70% number? It’s a big range.
William B. Plummer – EVP and CFO: Yeah, it’s certainly the range that we’ve talked about historically. I think the one thing I would point to that – that it’s hard to forecast whether we’ll have or not is the self-insurance reserve adjustment. As I said, it was a $6 million headwind in the current quarter. We update our estimates for the self-insurance reserves twice a year. We do that in March and October, I believe. It’s hard to say what that might do in the latter part of this year, but our view right now is that that – I wouldn’t – if I were modeling, I wouldn’t model an incremental impact from self-insurance reserves. OEC not available; 5S go away as I said; and those are the key things that we’ve experienced so far that I would say would go away. The possibility is that – again, that we might have a self-insurance adjustment late in the year, but it’s hard to say what that might look like on a year-over-year basis right here.
Seth Weber – RBC Capital Markets: I guess if I could just slide another one. On the rate increase, the rate guidance for the year, it seemed to – it was a little bit lower than what I was thinking for the quarter. I mean, can you just talk about the competitive environment? Are you seeing – are your competitors being rational, both the bigger national guys? And also, are you seeing any increased pressure from the smaller independent operators?
William B. Plummer – EVP and CFO: Go ahead, Matt…
Matthew Flannery – EVP and COO: Seth, it’s Matt. We actually are seeing the competition pretty responsible. We’re comfortable that the whole industry realizes that this is important for us all. You may have some one-offs in an individual market, but I’d say all the public companies specifically are doing a great job of rate discipline. And we’re seeing the benefit of the demand as well. And we know what the headwind we have to meet our full year rate number. But historically, we’ve achieved what we need to achieve to get to our guidance, and we have a laser focus on it.
Seth Weber – RBC Capital Markets: Are you seeing a lot of re-fleeting from the local independent guys?
Matthew Flannery – EVP and COO: Not across the board.
Scott Schneeberger – Oppenheimer: Could you address – you alluded on the prepared remarks that you could do a little bit of upside to the CapEx and that implied the strong demand environment, and you just addressed the price a little bit. What types of fleet are in demand? What have you bought? What are you buying? If you could take us a little bit deeper on that?
Michael J. Kneeland – President and CEO: Well, let me just kind of tell you, since I talked about the idea of the capital side. Keep in mind, our principles have not changed. It’s about profitable growth, higher returns, and it’s also about generating cash flow to reduce our leverage. Those principles have not changed, to be clear. We have to balance rate and time. As Matt said, we’re looking at the rate. Most of those have to be played out. The one thing that I will tell everybody, if you go back to our earlier messaging, we originally were only going to have nine locations, cold starts in our specialty business; we’re no doubling that. That does take up some capital, but as I mentioned, at 40% margin, it’s very attractive and accretive. So we think it’s the right thing to do. That’s probably in a order of $30 million to $40 million. Everything is under review. Nothing has been decided. We want to continue to see the nice progression we’ve seen on time utilization and net demand and specifically on rates. So, Matt can talk specifics on what kind of assets.
Matthew Flannery – EVP and COO: As Mike has mentioned, the really only big change over our current product mix is much more focus on the specialty products; and that’s in line with the direction that we want to go strategically. We think not only are they profitable, but it’s a differentiator between us and the marketplace and a value for our customers.
Scott Schneeberger – Oppenheimer: And is there a big difference, I see key count growth up 6% in the quarter, unassigned accounts up 1.5%. Is there a big difference in what you purchase for each of those target groups?
Matthew Flannery – EVP and COO: I wouldn’t say that there is a big difference. One of the opportunities that we are finding, and we have found since the merger of RSC is the increased need and demand for us to cross-sell and we’ve got great results from that. So I’d say that’s one of the more significant changes for our key accounts is the legacy RSC customers are now getting access to Trench, Power & HVAC product, and we are cross-selling our tools across the network as well. So, those would be the most significant key account differences.