McGrath RentCorp (NASDAQ:MGRC) has been through some cyclical ups and downs over the last few years. Its energy segment has suffered from the decline in oil drilling in the U.S., and a lack of communications investment has been a drag on that business as well. But the need for mobile, modular buildings continues to rise and has been a boon to the company. And now the tides in its struggling segments may be turning. 

First-quarter results released after the market closed on Tuesday show growth on both the top and bottom lines, but it's improvement in the business segments that have been struggling that could be the long-term driver of this company and its stock. 

Rendering of a modular building.

Image source: Getty Images.

McGrath RentCorp results: The raw numbers

MetricQ1 2017Q1 2016Year-Over-Year Change
Sales  $94.8 million $93.7 million  1.2% 
Net income $8.0 million  $6.6 million  21.4% 
EPS $0.33  $0.27  22.2% 

Data source: McGrath RentCorp Q1 2017 earnings report.

What happened with McGrath RentCorp this quarter?

Mobile modular continues to be the strength at McGrath RentCorp, but Adler Tanks is finally improving after being a drag on the business for a couple of years due to low energy prices. Here are some highlights from its business segments: 

  • Mobile modular rental revenue was up 8% to $33.7 million, and gross profit was up 13% to $18.7 million. Income from operations was up 6% to $8.6 million. 
  • TRS-RenTelco rental revenue fell 6% to $19.7 million, but gross profit was up 5% to $8.3 million. Income from operations rose 9% to $5.7 million, offsetting the decline in revenue. 
  • Adler Tanks had a 1% increase in rental revenue to $14.6 million, and gross profit was up 6% to $8.2 million. Income from operations was up 36% to $2.3 million. 
  • Management increased its dividend 2% from a year ago to $0.26 per share. 

What management had to say

Management sees the business turning in the right direction and starting to reverse tough conditions for both Adler Tanks and TRS-RenTelco. The communications segment continues to be tough, but general purpose test equipment did increase 3%, so there are some signs of improvement. The tank business has also been improving and margins are on the rise, which should help the bottom line. 

Education, commercial, and portable storage markets also continue to be the core strength for McGrath RentCorp's mobile modular business. The long-term trend in those markets is strong, and can likely be counted on as growth drivers in the years ahead.

Looking forward

Management expects a 3% to 5% increase in operating profit for 2017, which would be driven by mobile modular, and that there will be less drag from the other two segments than in the past. After a solid first quarter, McGrath RentCorp's business may finally be turning around.  

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends McGrath RentCorp. The Motley Fool has a disclosure policy.