McGrath's Classroom Builder Now Supplies 18% Of Pretax Profit As Its Two Biggest Rental Units Earn Less
Third-quarter net income rose 15% to $48.8 million, but Mobile Modular and Portable Storage both earned less than a year earlier.
McGrath RentCorp, which rents modular buildings, storage containers and electronic test equipment, grew third-quarter net income 15% to $48.8 million, yet its two largest rental units both earned less. A classroom manufacturer and a test-equipment business tied to data-center construction carried the quarter, according to the company's 10-Q filed Wednesday.
Enviroplex fills the gap
Enviroplex, which builds portable classrooms for California schools, supplied 18% of pretax income in the quarter, against 5% a year earlier. Its gross profit rose $8.2 million to $12.7 million on higher sales revenues and a better margin, with sales up $12.0 million.
The prior quarter's filing put the unit's contribution at less than 1%. Earnings per diluted share rose 16% to $2.00 from $1.72, and revenue climbed 7% to $274.6 million.
Over nine months the picture is milder: Enviroplex contributed 8% of pretax income, against 6% a year earlier, and net income rose 3% to $109.5 million.
Modular and storage slip
Mobile Modular, the largest segment, saw pretax income fall to $37.9 million from $41.1 million. Its share of the total dropped to 57% from 70%. Rental revenue rose 4%, but sales fell 10% on lower new-equipment sales, and selling and administrative costs rose 8%.
Average utilization slipped to 70.2% from 72.6% while average rental equipment grew 10%. Portable Storage's pretax income fell 29% to $4.2 million; rental revenue fell 3%, and higher trucking costs pushed its rental-related services margin to negative 25%.
TRS-RenTelco went the other way. Pretax income rose 47% to $12.5 million, rental revenue rose 26%, and average utilization climbed to 69.9% from 64.8%. CEO Phil Hawkins said demand stayed robust and the business benefited from projects supporting the buildout of new data centers.
More spending, lower revenue outlook
In its earnings release, McGrath raised its expected gross rental equipment capital spending to $270 million to $290 million from $200 million to $220 million. It cut its total revenue outlook to $945 million to $960 million from $955 million to $985 million, citing lower Mobile Modular new equipment sales.
The spending is financed with debt. Net borrowings under bank lines of credit were $163.3 million in the first nine months, against net repayments of $40.6 million a year earlier, as rental equipment purchases climbed. The company also repurchased shares during the period, and its market value was about $2.9 billion.
Fourth-quarter results will show whether Enviroplex's sales hold up and whether the added fleet spending lifts Mobile Modular's utilization.
