The building rental business is booming at McGrath RentCorp (NASDAQ:MGRC), and that's offsetting any challenges in its telecommunications or tank rentals. It's a trend the company has been going through for a couple of years now, but in the second quarter the leverage on the bottom line really started to show. 

Here's a look at the key metrics from the quarter. 

A blue modular building with a connective door between with a large window.

Image source: Getty Images.

McGrath RentCorp: The raw numbers

Metric Q2 2017 Q2 2016 Year-Over-Year Change
Sales $109.6 million  $103.1 million  6.3% 
Net income $11.5 million  $9.1 million  26.2% 
Diluted EPS $0.48  $0.38  26.3% 

Data source: McGrath RentCorp Q2 2017 earnings report. 

What happened with McGrath RentCorp this quarter? 

Within the improved result, different business segments continue to head in opposite directions. Here are the key metrics to focus on: 

  • Mobile modular rental revenue was up 11% to $35.0 million and gross profit from the segment was up 28% to $19.5 million. The company also sold more units, resulting in a 64% increase in sales revenue to $9.5 million. Overall, mobile modular income from operations rose 36% to $11.3 million. 
  • TRS-RenTelco, the company's electronic test equipment arm, saw a 2% decrease in rental revenue to $19.8 million, but gross profit on those rentals rose 8% to $8.6 million on lower depreciation expense. The company also sold more equipment, and while sales fell 13% to $5.6 million, gross margin on sales jumped from 47% a year ago to 61%, resulting in a 13% rise in gross profit to $3.4 million. Overall, the segment's income from operations rose 19% to $7.1 million. 
  • Adler Tanks continued to struggle overall on weak energy demand. But rental revenue did rise 2% to $15.1 million, although higher costs resulted in a 7% decrease in income from operations to $3.0 million. 

What management had to say

Higher demand is expected to continue throughout the year, which gave management confidence to increase guidance as well. They now expect operating profit to be up 9% to 12% this year, up from previous growth guidance of an increase of 3% to 5% in operating income

Looking forward

The test equipment and storage tanks businesses continue to struggle, but management is pulling as much money out of them as possible, selling noncore equipment and lowering costs where they can. 

The mobile modular business continues to perform well, and both educational and commercial customers are showing strong demand. With the increased guidance for the year, it looks like McGrath RentCorp's earnings outlook for the foreseeable future is getting stronger. 

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