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Strong Rental Pricing Drives McGrath RentCorp's Bottom-Line Growth

By Travis Hoium - Feb 28, 2018 at 4:57PM

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All of McGrath RentCorp's business units were running at full steam in late 2017.

McGrath RentCorp (MGRC -0.22%) continued its financial improvement in the fourth quarter of 2017, which was reported after the market closed on Tuesday. Mobile modular continued to be a point of strength, but a recovery in telecommunications and energy markets helped, as well. 

Here's a look at the raw numbers and a more detailed look at segment results for McGrath RentCorp last quarter. 

Modular building with four windows in a parking lot.

Image source: Getty Images.

McGrath RentCorp: The raw numbers

Metric Q4 2017 Q4 2016 Year-Over-Year Change
Revenue $122.2 million $105.3 million  16.1% 
Net income $117.7 million  $9.7 million  1,109.4% 
Diluted EPS $4.82  $0.40  1,110% 

Data Source: McGrath RentCorp's Q4 2017 earnings release. 

What happened with McGrath RentCorp this quarter? 

This is the rare quarter where all of McGrath RentCorp's businesses were performing well. And the tax bill passed in December also helped the bottom line. Here's a look at segment results and adjusted net income for the quarter. 

  • A $102.8 million benefit from the Tax Act passed in December was recorded in the fourth quarter, driving most of the net income growth. Without that benefit, net income would have grown 54%, to about $14.9 million. 
  • Mobile modular revenue was up 9%, to $37.7 million, and operating income fell 5%, to $12.6 million. A $1.6 million impairment charge on rental assets is what drove the lower operating income. Higher rental rates is what drove most of the financial improvement. 
  • TRS-RenTelco reported a 7% increase in rental revenue, to $22.2 million, and income from operations jumped 29%, to $8.2 million. Sales revenue was also up 20%, to $5.4 million in the quarter. 
  • Adler Tanks continued its recovery with an 18% increase in rental revenue, to $17.8 million, and an 86% improvement in operating income, to $4.1 million. 
  • Full-year guidance is for 3% to 5% in rental revenue growth, with operating profit up 8% to 12% versus 2017. 
  • The dividend rate was increased 31%, to $0.34, for the fourth quarter, a 2.8% dividend yield. 

What management had to say

There were a lot of bullish signs for McGrath RentCorp at the end of 2017, and management is so confident that it's putting the extra money the company is making into shareholders' pockets. CEO Joe Hanna said on the conference call:

The improved Company performance and anticipated earnings and cash flow benefits from tax reform support the 31% dividend increase announced today.

Entering 2018, I believe that our businesses are well positioned and we will be working hard to build upon our solid 2017 performance.

If the earnings momentum continues, we could see further dividend increases in 2018. 

Looking forward

As telecommunications businesses upgrade their systems, and oil drilling expands, it's likely that the momentum for all three business lines will improve. What investors will want to watch is rental rates in 2018, but right now, they look to be pointing in the right direction for all of McGrath RentCorp's markets. 

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