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

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McGrath RentCorp (NASDAQ: MGRC) 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.

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McGrath RentCorp: The raw numbers

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:

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