Equipment and building rental company McGrath RentCorp (MGRC 0.71%) continues to post surprisingly good operating numbers across its business with very few weaknesses to be found. We're long past the days of modular-building rentals outperforming tank and electronic-equipment rentals -- now all of the businesses are showing growth in both revenue and profits.
Here's a look at the key insights from recently released third-quarter 2018 results, including a big update to guidance.
Image source: Getty Images.
McGrath RentCorp: The raw numbers
| Metric | Q3 2018 | Q3 2017 | Change (YOY) |
|---|---|---|---|
| Sales | $143.1 million | $135.4 million | 5.7% |
| Net income | $24.8 million | $16.8 million | 47.8% |
| Diluted earnings per share | $1.01 | $0.69 | 46.4% |
Data source: McGrath RentCorp Q3 2018 earnings release. YOY = year over year.
What happened with McGrath RentCorp this quarter?
Overall, the numbers were great for McGrath RentCorp, and there weren't any major flaws in segment results, either. Here's a more detailed breakdown:
- Revenue from mobile modular rentals increased 14% to $14.2 million on a 9% increase in rental rates. Income from operations increased 21% to $19.2 million as price increases flowed disproportionately to the bottom line.
- Rental revenue for TRS-RenTelco, the electronic test equipment business, rose 6% to $22.2 million, and income from operations was up 8% to $7.7 million. Rental rates fell 2% on mix changes, although demand for equipment was strong overall.
- Adler Tank Rentals' revenue rose 13% to $18.7 million, and income from operations jumped 30% to $5.5 million. Improved utilization accounted for most gains, increasing 9% to 64%.
- A dividend of $0.34 per share was declared for the quarter, up 31% from a year ago.
What management had to say
Management touted strong rental conditions and expanding margins as the company's utilization grows and the fleet gets bigger.
"We realized a healthy 11% growth in rental revenues and delivered an 18% improvement in operating profit, despite additional expenses in the third quarter to get equipment ready for rent. Our pipelines remain strong and we are well positioned as we enter the fourth quarter to finish 2018 favorably," CEO Joe Hanna said in the earnings press release.
Right now, there's no indication that demand is slowing in McGrath RentCorp's markets. A good economy, high oil prices, and growing 5G wireless networks should help operations for the foreseeable future.
Looking forward
Management raised guidance for the full year and now expects an operating profit increase of 18% to 21%, versus previously expected growth of 11% to 15%. Strong demand, higher prices, and controlled costs have driven a better-than-expected bottom-line result, and by the look of it, the good times will continue.
This may not be the first growth stock investors think of in the industrial sector, but it's riding a wave of broad growth and improving margins, which is why earnings are up sharply in 2018.
