United Rentals (NYSE:URI) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

Access the full call at https://edge.media-server.com/mmc/p/vknxrjnp/

Summary

United Rentals reported a 12% year-over-year increase in total revenue for Q2 2026, reaching $4.4 billion, with rental revenue specifically growing by nearly 13% to $3.8 billion.

The company raised its full-year 2026 guidance, expecting total revenue growth of almost 10% at the midpoint, driven by large projects and strong demand across both general rentals and specialty businesses.

Adjusted EBITDA for the quarter was over $2 billion, with an adjusted EPS of $12.76, marking a 22% year-over-year increase.

United Rentals highlighted a strong performance in its specialty segment, with a 25% year-over-year increase in rental revenue, supported by 11 new branch openings.

The company reported a strong balance sheet with net leverage at 1.8x and returned nearly $500 million to shareholders through share buybacks and dividends during the quarter.

Management noted increased capital expenditures, with $2.9 billion spent year-to-date to support growing customer demand, and revised CapEx guidance upwards due to historically high time utilization rates.

The company aims to maintain flat margins year-over-year, despite ancillary and delivery cost pressures, by leveraging operational efficiencies and disciplined pricing strategies.

United Rentals sees continued growth in various end markets, including infrastructure, power, and industrial, with a significant pipeline of large projects extending into 2027.

Full Transcript

OPERATOR

Good morning everyone and welcome to the United Rentals Investor Conference Call. Please be advised that this call is being recorded. Before we begin, please note that the Company's press release, comments made on today's call and responses to your questions contain forward-looking statements. The Company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control and consequently actual results may differ materially from those projected.

A summary of these uncertainties is included in the safe harbor statement contained in the Company's press release. For a more complete description of these and other possible risks, please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2025, as well as the subsequent filings with the SEC. You can access these filings on the Company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

You should also note that the Company's press release and today's call include references to non-GAAP terms such as free cash flow, adjusted EPS, EBITDA and adjusted EBITDA. Please refer to the back of the Company's recent investor presentation to see the reconciliation from each non-GAAP financial measure to the most comparable GAAP financial measure. Speaking today for United Rentals is Matt Flannery, President and Chief Executive Officer, and Ted Grace, Chief Financial Officer.

I will now turn the call over to Mr. Flannery. Please go ahead, sir.

Matt Flannery, President & CEO

Thank you, operator, and good morning everyone. Thanks for joining our call. As evidenced in our second quarter results, 2026 is on track to be a great year for Team United as we continue to execute our strategy and prove ourselves as a partner of choice for our customers. Our growth accelerated in the quarter, customers remain optimistic, particularly around large projects, and we continue to exhibit strong cost discipline. Our one-stop-shop value proposition, coupled with our technology, service levels and an unwavering focus on safety and customer productivity, continue to differentiate us in the industry.

Coming into the year, we set the bar high for the team and our results are a testament to both their collective efforts and the strategy we've been laser focused on for the better part of 20 years. As we enter the second half of the year, I'm pleased to raise guidance as we provide our customers a best-in-class partnership while generating strong shareholder returns. So let's get into the details of our second quarter results and our updated full-year guidance, and then Ted will get into more details around the numbers before we open up the call to Q&A. Starting with the quarter's results, total revenue grew by 12% year over year to $4.4 billion. Within this, rental revenue grew by almost 13% to $3.8 billion. Both were quarterly records. Fleet productivity of 3.4% contributed to OER growth of 9%. Adjusted EBITDA was just over $2 billion, resulting in a margin of 46.6%. And finally, adjusted EPS came in at $12.76, up 22% year over year and another quarterly record. Now let's discuss customer activity.

We continue to see growth across both our Gen Rent and Specialty businesses. Specialty saw exceptional rental revenue growth of 25% year over year, including 11 cold starts, and growth across all lines of business. By vertical, the trends of the first quarter carried into the second. Namely, construction posted strong growth led by non-residential and infrastructure, and on the industrial side, power continues to post double-digit growth while metals and minerals also grew at a healthy rate.

As you know, critical to our strategy is diversified exposure across end markets. In the quarter we saw projects kick off in a variety of end markets including hospitals, airports and LNG terminals, to name a few, while data centers continue to be a source of growth. Now turning to the used market, we sold $624 million of OEC at a 53% recovery rate. We're on track to sell approximately $2.8 billion of fleet this year, supported by strong demand for used equipment.

As we replace this fleet and grow to meet customer demand, we spent nearly $2.1 billion on gross rental CapEx. In the quarter year-to-date we spent $2.9 billion, which exceeded our expectations. Coming into the year, the demand environment continues to outpace our original expectations, and we're well positioned to support our customers' needs while continuing to focus on capital efficiency. After funding our year-to-date growth, free cash flow remains strong at nearly $1.2 billion.

As you've heard me say before, this is a critical feature of our company. The combination of our industry-leading profitability, capital efficiency and the flexibility of our business model enables us to generate meaningful free cash flow through the cycle, which can then be redeployed in ways that allow us to augment shareholder value. Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet's in a great spot, allowing us to support both organic and inorganic growth and to also return nearly $500 million to shareholders during the quarter through a combination of share buybacks and our dividend.

Our leverage of 1.8x remains well within our targeted range of 1.5x to 2.5x, leaving plenty of dry powder to support growth and to return excess capital to our shareholders. Now let's discuss our raised 2026 guidance, which reflects total revenue growth of almost 10% at the midpoint. When we spoke in April, we said the year was playing out better than we had initially expected. As we started to progress through our busy season, demand outpaced even our revised expectations.

A large project drove this demand in the first half of the year and we expect that will continue through the second half. Our increased EBITDA guidance embeds the cost actions we outlined coming into the year as we proactively look to improve our efficiency and support profitability. And last but not least, we increased our CapEx guidance as we are running at historically high time utilizations and need additional fleet to support the stronger demand.

So in conclusion, we're executing on our long-held strategy and it's delivering the results we want. Our differentiated business model is truly unique in our industry and is enhanced by the implementation of cutting-edge technology across the business. We remain focused on leveraging innovation to support our customers' productivity and to drive internal efficiency gains. We are winning in the marketplace as our customers know they can depend on us not just to deliver the fleet they need when they need it, but to also provide an unmatched level of service.

As we look forward over the longer term, we believe our relentless focus on what we do best—being the preeminent rental company—will continue to translate to profitable growth as enabled by our prudent capital allocation and balance sheet strength, strong free cash flow and compelling returns to our investors. And with that, I'll hand it over to Ted to review our financial results and then we'll take your questions. Ted, over to you.

Ted Grace, EVP, Chief Financial Officer

Thanks, Matt, and good morning everyone. As Matt just shared, the year has continued to progress better than expected as we set all-time second quarter records for total revenue, rental revenue, EBITDA and EPS. More importantly, the increases to our 2026 guidance reflect our confidence that both the strength of demand and our team's discipline will continue in the back half of the year. But before we get into the details Of the outlook, let's now dive into the second quarter's results. As you saw in our press release, rental revenue increased $434 million year over year, or 12.7%, to a record of over $3.8 billion, supported again by strong execution across large projects and key verticals. Within this, OER increased by $246 million, or 9%, driven by 7.1% growth in our average fleet size and fleet productivity of 3.4%, partially offset by assumed fleet inflation of 1.5%.

Also within rental revenue, ancillary and re-rent grew nearly 28%, or roughly three times the rate of OER, adding a combined $188 million. Pivoting to used, we sold $624 million of OEC in the quarter, generating $330 million of proceeds, an adjusted margin of 47.3% and a 52.9% recovery rate. So another solid quarter there. Next, let's turn to EBITDA. Excluding the $49 million net benefit we realized this quarter from the sale of our scaffolding business, EBITDA increased $197 million to a second quarter record of just over $2 billion.

This was primarily driven by a $231 million increase in rental gross profit and a $3 million increase in used gross profits. SG&A increased $39 million year on year, which was flat as a percent of revenue, while gross profits from other lines of businesses increased $2 million. Looking at profitability on an as-reported basis, our second quarter adjusted EBITDA margin increased 70 basis points year over year. Excluding both the gain on sale of our scaffolding business and the outsized growth in ancillary and re-rent revenues—which I think gives a better insight into our core cost performance—our second quarter margins increased 40 basis points year over year. Within the ancillary, I'll note that we've been successful in passing through both higher fuel and delivery cost increases, which have driven revenue growth but brought limited incremental margin dollars. More broadly, our team continues to execute well on cost, which is helping us offset some of the ancillary impact I just mentioned, as well as overall cost inflation. Shifting to CapEx, we've responded to robust customer demand by investing over $2.9 billion in gross rental CapEx year to date, which is an increase of more than $650 million year over year.

Moving to returns and free cash flow, our return on invested capital of 11.8% remained comfortably above our weighted average cost of capital, while free cash flow has totaled roughly $1.15 billion year to date. Turning to our balance sheet, net leverage remained very comfortable at 1.8 times at the end of June with total liquidity of almost $3 billion. As most of you know, a key element of our capital allocation strategy has been ensuring that we have a strong balance sheet supported by conservative financial policies—think leverage, liquidity and maturity management—and consistent operating performance, particularly excess free cash flow.

Along these lines, we were very pleased to see S&P recently acknowledge our progress on this front by raising our credit outlook to positive from stable, with the potential to upgrade our credit rating from high yield to investment grade within the next 12 months. Turning to capital allocation, we have returned $998 million to shareholders year to date, including $750 million through repurchases and $248 million via dividend. Now let's shift to the guidance we shared last night, which reflects our confidence in delivering a record year.

Total revenue is now expected in the range of $17.5 to $17.8 billion, an increase of $500 million versus our prior guidance. While used sales are still expected at around $1.45 billion at midpoint, this now implies full-year growth ex-used of over 10% versus our original guidance of closer to 6%. In turn, we've also raised our adjusted EBITDA guidance by $300 million to a range of $7.975 to $8.125 billion, reflecting our continued expectation to bring the revenue growth to the bottom line by maintaining flat margins year over year.

On the fleet side, we've increased our gross CapEx guidance by $450 million to a range of $4.85 to $5.25 billion in response to the stronger demand we see. This now implies net CapEx of $3.4 to $3.8 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 to $2.45 billion, with the increase in rental CapEx offset by higher cash flow from operations. On the capital allocation front, we still intend to repurchase $1.5 billion of shares in 2026.

Combined with our dividend, this will return roughly $2 billion to our shareholders this year, equating to approximately $32 per share, or a return of capital yield of approximately 3% based on our current share price. So with that, let me turn the call over to the operator for Q&A. Operator, please open the line.

OPERATOR

Thank you, Mr. Grace. Ladies and gentlemen, at this time, if you do have any questions or comments, please press Star 1. If you find your question has been addressed, you may remove yourself from the queue by pressing Star 2. Additionally, we do ask that you please limit yourself to one question and one follow-up. We'll go first this morning to David Raso with Evercore ISI.

David Raso, Analyst at Evercore ISI

Hi, thank you. A question on margins and a question on end demand. First, on the margins, the second-quarter margins ex-gain were down about 40 bps year over year. The implied second-half margins are up year over year, 10–20 bps. What are the swing factors when you think about labor absorption, delivery, repositioning costs, some of the restructuring savings to think about that swing from the down margins to up a bit in the second half of the year?

And then for the end demand, I was intrigued by the comment "historically high time utilization." We're starting to see the industry add capacity again, and you always wonder about supply-demand balances when we get a recovery in the CapEx numbers. That "historically high time utilization" comment—given the nature of long, large projects, more long-dated—is some of the CapEx increase being provided confidence to do it given the visibility on ’27?

Are you starting to get a better look at ’27 on the demand at this high time? You can stay at a pretty high level even as you're adding CapEx?

Matt Flannery, President & CEO

Thank you. Yeah David, this is Matt. I'll take the demand part first and then let Ted walk you through the margin. So we certainly feel good about the demand, and to your point, we wouldn't be bringing in this more fleet just to chase the last dollars of revenue here in the back half of ’26. We feel good about the pipeline of the large projects. We're not going to go as far as to give ’27 guidance, but we certainly think these tailwinds that we've been talking about for a while will carry into next year, and that gives us the confidence to bring in more fleet as well as the combination of really strong fleet productivity at record time utilization.

So there would be no reason for us not to feed that type of performance unless, to your point, we thought demand was coming to an end—and that's not in our sight at all. Ted, you want to touch on the margins?

Ted Grace, EVP, Chief Financial Officer

Yeah. On the margin side, David, I'd say a couple things. I mean, certainly if we look at how we started the first half of the year, we're up about 10 basis points on an underlying basis. So the team's doing a great job of managing that. Certainly we would expect that kind of performance to continue in the back half. There's always going to be normal quarter-to-quarter variability if you think about just the second quarter in the context to your question.

But certainly we feel confident that the team is doing everything we've asked of them and has us in a good position to achieve our goal for the year, which is flat margins excluding the impact of H&E last year.

David Raso, Analyst at Evercore ISI

Would you mind just a little more color? Do you see the spread that widened in the second quarter—ancillary outgrowth versus OER growth—do you see that spread narrowing to take a little pressure off that mix? Is there delivery, repositioning costs—maybe some quantification—how to think about that again, just trying to think of a few building blocks on that. I know the volume improvement.

Ted Grace, EVP, Chief Financial Officer

Yeah, absolutely. Thanks. It won't surprise anybody to know that it has been difficult to kind of forecast ancillary. We did see kind of another outsized growth in the second quarter. In terms of the third quarter, we'll see what happens there. Certainly fuel is part of that. Our expectation is that fuel prices probably remain constant 2Q versus 3Q, and certainly that will have some impact on where we fall within the range. But otherwise we expect to have another strong quarter of growth, solid fleet productivity and good cost execution that we think puts us in a good position to hit our goals.

David Raso, Analyst at Evercore ISI

Thank you very much. I appreciate it.

Ted Grace, EVP, Chief Financial Officer

Thanks, David.

OPERATOR

Thank you. We'll go next now to Rob Wertheimer with Melius Research.

Rob Wertheimer, Analyst at Melius Research

Hey, thanks and good morning. Question is a little bit on—and I know you don't want to disaggregate fleet productivity, I get it—but the decision to add CapEx seems like there's a lot of demand. Is rate where you kind of want it to be or is it getting there fast? Your margins actually are quite good, not quite at peak. So I don't know if you have an ambition of growing off where peak was. Just that balance between, I guess, rate and CapEx is my first question.

Matt Flannery, President & CEO

Yeah, and that's the right question to ask, Rob, because we need to get rate to further fund the business, and the team did a great job executing on that. So the way we view it is they earned this extra CapEx by driving great fleet productivity. And even though we don't talk about rates numerically, we certainly focus on rate a lot as a team, and we need to because we have to offset the inflation that's obviously impacting everybody in the business.

So the team's done a great job continuing to drive price for the value that we offer as well as utilizing the fleet. So it certainly is part of our decision. And the team did a great job of earning the right to get more fleet.

Rob Wertheimer, Analyst at Melius Research

Perfect. Thank you. And just the other one is just on margin. It's obviously, from our side of the table, hard to forecast some of the transportation costs, et cetera, that come as the industry has evolved to serve a little bit more bigger projects. With the rise in demand, does that risk fall further back? Because for one, you're kind of comping some of those issues, and for two, you can kind of ship more fleets to new projects, or should I think about that as being an ongoing minor unpredictability.

I'll stop there.

Ted Grace, EVP, Chief Financial Officer

Certainly, I'd say our ability to predict it is challenged just given the nature of these projects—right—some of the timing dynamics we've talked about. That being said, we've talked about the initiatives and the effort we've really kind of leaned into this year. And I think if you were to look at the delivery costs, the team's done a great job. If you look at costs, our big three costs within Core—so labor, delivery and R&M—and this is all in the segment disclosure, you can see we're actually ahead of the curve on all three.

We were in the second quarter and we are year to date. So, from that perspective, it takes a lot of effort. The team is finding ways to be more efficient in the face of ongoing repositioning costs. We expect to continue to see good results there, Rob. But in fairness, that was probably the biggest point of variability we thought about at the beginning of the year, and we talked about the need to offset it through some of the cost actions we're taking.

Rob Wertheimer, Analyst at Melius Research

Thank you.

Ted Grace, EVP, Chief Financial Officer

Thanks, Rob.

OPERATOR

Thank you. We go next now to Michael Feniger with Bank of America.

Michael Feniger, Analyst at Bank of America

Hey, guys, thanks for squeezing me in. Matt and Ted, I know we talked about the margins. Just you obviously saw headwinds last year on ancillary and delivery cost. You made some adjustments. This year you have cost savings. Is there anything you're observing this year that you guys are highlighting that there's more levers to pull to think about that for 2027? Ted, maybe you could kind of outline the headwind you're absorbing this year or in the quarter just on fuel alone.

It doesn't feel like that would be there next year. Just trying to see if this absorption on labor and RNF can keep improving as we look forward into next year.

Ted Grace, EVP, Chief Financial Officer

Yeah. So in the quarter itself, if you just think about the incremental fuel cost we absorbed running the business. So this would be fuel used in service trucks, sales vehicles, managed vehicles, et cetera. That was probably in isolation, 20 or 30 basis points of additional headwind year on year, versus what you would have seen, you know, even in the first quarter where there was very little fuel effect. You know, we'll see obviously how geopolitics play out and what happens with oil markets and diesel and gasoline prices. But certainly that would be one thing and the other thing we've talked about, at some point, local markets come back and then we're better able to leverage the network. And that should help us on the delivery cost side. Specifically, that repositioning cost.

That certainly was something we talked about a lot in 2025 into something we're still managing through in 26. So, Matt, I don't know if you'd add anything.

Matt Flannery, President & CEO

I would just say in addition to the work that we've put in here in the first half of this year, where you see delivery is positive absorption here for us, as opposed to rent revenue. And you could assume with the cost of fuel that our outside hauling cost per mile has got to be up and to be able to have that kind of positive relationship between the cost of delivery and the revenue growth, we will continue to grow upon that baseline and execute.

Michael Feniger, Analyst at Bank of America

And Matt, just to follow up, just the verticals like utilities and let's say, power, what type of growth are you seeing there today? How big is this for you? Is there any way for us to size that? Are you one of the biggest, basically power rental fleets out there? And when you think of M&A with your leverage, is this an area that you're looking at to get bigger in? Just kind of curious what you're seeing there on these verticals, adjacencies and how we could think about sizing that up.

Matt Flannery, President & CEO

Yeah. So two different things, Michael. As far as the power vertical end market, we've talked about that, and that's growing well and is in excess of 10% of our business. Really, really pleased with that. If you're talking about power as a product, this business organically has been growing double digits for us for the past 10 years. So we don't necessarily talk about how big it is, but this is a real important part of our business. It's one of our largest asset categories. And we're very pleased with not only the previous growth, but the headroom that we have ahead and the footprint's built out. So now we're just feeding the organic growth in that business and they're doing quite well.

Michael Feniger, Analyst at Bank of America

Thank you.

OPERATOR

Thank you. We go next now to Steve Fisher with UBS.

Steve Fisher, Analyst at UBS

Great, thanks. Congrats. Just a bigger picture question about repositioning costs relative to CapEx. I think part of the margin headwind you've had to deal with over the last 18 months or so is incurring costs to reposition compared to what you're actually shipping from the OEM factories to projects. And you can correct me if I'm wrong on that, but now that you're ramping up CapEx again, I guess I'm curious to what extent does that help the relative impact of repositioning on margins?

Maybe it depends on whether we're talking about gross margins or EBITDA margins here, but just wondering if you can get some margin help from ramping up CAPEX versus repositioning. And then when do you think we can get to a point where we really don't need to call out the repositioning impact anymore? It's sort of more normalized.

Matt Flannery, President & CEO

Yeah, I'll start and let Ted give you some numbers to it. But we're actually not calling out the repositioning cost too much right now. Other than the cost of fuel. We're having positive absorption in that. So I think we are already righted the ship, so to speak. As Ted mentioned earlier, as the work demand gets more broad, we'll be able to leverage the broader network. So just by definition, that'll give some relief to that area. But we found a way to work through the repositioning after being challenged with it last year.

I wouldn't say that this CapEx philosophically, I get your point about the CapEx given relief there, that would be more true if we weren't running at higher time utilization. So it's really about the availability of the fleet where you need it. That would help that. So I wouldn't call that as the reason why we're having positive delivery absorption. This is really more about feeding more demand because we're running so hot from a time utilization perspective.

Ted Grace, EVP, Chief Financial Officer

Yeah, to Matt's point, I think it's hard to quantify kind of that repositioning cost this year. Last year was easier because that relationship between delivery growth and rental revenue growth was obviously unusual in the fact that we had 20% growth in delivery costs versus 6 or 7% growth in rental revenue. And that implied something like $115 million of excess cost that we absorbed. When you do that math now, you'd see that in the second quarter, for example, rental revenue up 12, 7, delivery up 11 7.

So we do have, you know, that repositioning cost continues to be something we're working through. We have found ways elsewhere to absorb it. Right. And we talked a lot about kind of like behavioral changes across the team to make sure that we are emphasized on balancing customer service with efficiency. And they've done a great job year to date. We've got to keep it up. Right. This is something we've got to maintain in the back half of the year to hit our goals, but see if otherwise it's hard to, hard to quantify.

And I think as Matt kind of alluded to, certainly CapEx is one way you can address it, but you've got to do it in a capitally efficient manner. And when you decompose fleet productivity, you can see that time was a positive good guy again. So we continue to do that quite effectively as well.

Steve Fisher, Analyst at UBS

Really helpful. And just curious, how hard is it for suppliers to react to more of the demand you're asking this year? You know, is the challenge that, you know, they're getting more broad demand across the rental industry or is it we're just sort of larger projects that, you know, they're able to serve it because it's really just larger projects they need to, to serve. Or is it broadly across the industry?

Matt Flannery, President & CEO

Yeah, I would say that it's certainly. Certain categories are pretty tight. Fortunately, we do a pretty large APO, so advance purchase orders. So we plan 80% of our spend is done well in advance and we're pleased that they were able to react enough to give this increase. If we wanted another, throw a number out there, billion dollars worth of fleet, we wouldn't be able to get it. So it really is just working with the team, trying to plan in advance, pull orders up where we can, and that's allowed us to support this extra demand.

Steve Fisher, Analyst at UBS

Terrific, thank you.

OPERATOR

Thank you. We go next now to Jerry Revich with Wells Fargo.

Jerry Revich, Analyst at Wells Fargo

Yes, hi. Good morning everyone. Nice to see the specialty asset grow by about a billion dollars plus and really nice growth in the branch count. I'm wondering, can you just unpack that for us? What part of the specialty portfolio have grown the fastest over the past six to 12 months? And then the CapEx outlook in the back half of the year. How much more can we grow the asset base within specialty, specifically with the CapEx raise?

Ted Grace, EVP, Chief Financial Officer

Yeah, I'll do my best to help with some of that and Matt can jump in. Certainly. We've talked about all seven parts of the specialty business growing well this year. I'll tell you, they're all in the double digits. It's hard to compare and contrast them on an apples to apples basis because some are younger and we're building out scale. So when you think about mobile modular and mobile storage, when you think about ROS in that context, yeah, absolutely.

Those are I'd say statistically putting up probably the strongest growth, but they're also the smallest in the context of the business. To Matt's prior point, you think about the power and HVAC business, that is also putting up very strong growth, teams doing a great job, executing strong end market demand, and everything in between. Certainly fluid solutions doing a great job. Trench and safety is doing a great job. And tools and matting, I should absolutely include matting.

So I would just say we've been really pleased with the growth we're seeing across the board. It is not one segment, it is all seven that are really pulling in the right direction and obviously contributing to that really nice 25% growth you saw year on year.

Matt Flannery, President & CEO

When you think about our go-to-market strategy, we should expect that because large projects are more complex, our customers need more service and we feel like we're outpacing our growth expectations because of that one-stop shop capability we have. So we need all of those specialty business units to support those needs and that value proposition. So it makes all the sense in the world to us that they're all growing significantly.

Jerry Revich, Analyst at Wells Fargo

Super, thank you. And can I just ask from an end market standpoint, you mentioned large projects, really strong. Semis and electronics have been one end market that's been in decline since 24, now inflecting positively. Are you starting to deliver more equipment onto the next round of semi fab sites? Is that an uptick in the business this year? Is that still in front of us? And, you know, similar question in power, the big behind-the-meter data center actual construction plans are set to accelerate next year.

I'm wondering, have you already started delivering equipment on sites there? Has that accelerated in your mix?

Matt Flannery, President & CEO

Both of those have accelerated here in the second quarter. So you are, you're dead on it, Jerry. The semis in that sector has grown and power continues to be a strong end market for us.

Jerry Revich, Analyst at Wells Fargo

Thank you.

Matt Flannery, President & CEO

Thanks, Jerry.

OPERATOR

Thank you. We'll go next now to Kyle Menges with Citigroup.

Kyle Menges, Analyst at Citigroup

Great, thank you guys. You're now growing revenue 10% this year with pretty much no help from local markets. So I'm curious in your mind just with the pipeline of megaprojects out there and that visibility you have, how you think you can grow maybe in the next couple years if local markets do come back. And would be helpful to hear an update on what you're seeing in local markets this year as well.

Matt Flannery, President & CEO

Sure, Kyle. So local markets we've been talking about since January have stabilized and they have. And I'd say, net-net, our local customers, which we do use as a proxy for the aggregate in local markets, have grown low single digits. So we are seeing stabilization with some very modest growth. That's good news because we're able to drive this kind of growth on the major projects. To your point, you want to know what's in the future, but it's not just needing to rely on local market growth whenever the large project pipeline slows down a few years from now.

There's also other major sectors that are not growing right now, whether that be petrochem—that's a good opportunity for us. Industrial manufacturing is not really hot right now and we're not even talking about residential. And then a knock-on effect as residential picks up of all the infrastructure around it to support that residential growth. So we feel good about the growth prospects. The last part I talked about, about residential and the knock-on, would probably be the more local-related growth opportunities for us.

UNKNOWN Analyst

Gotcha. And then would also just be helpful to hear your latest thoughts on the M&A pipeline, how strong it is and assuming you're still targeting specialty deals. Curious if there's any of size in the existing pipeline.

Matt Flannery, President & CEO

Thank you. Yeah, the pipeline continues to be robust. We continue to work it. Obviously this growth here is primarily like 90% plus organic, but we do have the dry powder. We have the capability and we have the expertise to integrate well. So we are definitely working the pipeline. There are opportunities of all shapes and sizes. To your point, anytime we get to add a new product or enhance one of our specialty offerings, that's first and foremost top of mind.

But we're really looking at deals of all shapes and sizes and we'll continue to do so. And stay tuned.

OPERATOR

Thank you. We'll go next now to Ken Newman with KeyBanc Capital Markets.

Ken Newman, Analyst at KeyBanc Capital Markets

Hey, good morning guys. Congrats on the nice quarter.

Matt Flannery, President & CEO

Thank you.

Ken Newman, Analyst at KeyBanc Capital Markets

Yeah, maybe first just a clarification on the rate question from earlier in the call. I know you guys don't quantify all the components of fleet productivity, but just given where we've seen used prices in the secondary market, is it fair to assume that you'd expect some improvements in sequential rental rates into the back half or just how do you think about the opportunity for rental rate improvement to go forward?

Matt Flannery, President & CEO

Yeah, we feel that the supply-demand dynamics are positive to drive fleet productivity. We've talked a little bit how time was up and a little bit of a surprise for us. But rates is a good guide and we expect it to continue. And you know, in this kind of demand environment, that should be the case, especially when you're offsetting inflation. So we do feel good about the opportunity to drive all components of fleet productivity. Positive.

Ken Newman, Analyst at KeyBanc Capital Markets

Very helpful. Okay. And then for my follow-up here, you know, if I remember from your analyst day a few years ago, you mentioned, you know, maybe some new product opportunities and specialty. I think you had multiple pilot programs for new specialty applications. Any comments or commentary just about how those pilots are progressing or if you're seeing any traction in something where you feel like you can maybe lever up and do an acquisition to gain some more scale there?

Matt Flannery, President & CEO

Yeah, we don't talk about, don't foreshadow it publicly. We certainly don't want the targets to get more expensive. We continue to look at anything that you would consider temporary on a project or a plant. Right. If it's temporary, we see that as a right of way of us having an opportunity to support it. You can assume that we're looking at everything that we don't already have and some of what we already have just to accentuate whether it's gaps in the portfolio from a geography perspective or in a product perspective.

So we're certainly focused on that, Ken, and looking at targets constantly.

Ken Newman, Analyst at KeyBanc Capital Markets

Appreciate it.

Matt Flannery, President & CEO

Thanks. Thank you.

OPERATOR

We'll go next now to Seth Weber with BNP Paribas.

Seth Weber, Analyst at BNP Paribas

Hey, guys. Good morning. Hey, I wanted to go back to your rate comment. I know we're not, you know, getting specifics around rate, but can you just highlight. I know you've talked about implementing some AI into your, you know, pricing and rate calculus. Can you talk about where we're at with that and whether that's contributing at this point to the rate progression or if that's really more still on the come? Thanks.

Ted Grace, EVP, Chief Financial Officer

Yeah, I guess what I'd say is that the team has a lot of tools to try to maximize the rates we're realizing on any given transaction. Certainly there are some things that we're working that are really in pilot mode. But I think when we really take a step back and we think about kind of the environment today, we've long talked about a very constructive environment where you're seeing good discipline across the industry on the supply-demand front. And that is probably the biggest factor currently driving success in rates across the industry, in my opinion.

Not to say the tools aren't important. They are, and we think incrementally they'll be more and more valuable to us. But right now what you've seen is kind of, you know, that discipline that is critical. So Matt, I don't know if you'd add anything there.

Matt Flannery, President & CEO

No, I would just say to your point, Seth, as we continue to enhance tools with AI and continue to update the opportunities, you could certainly think that would only be helpful down the road.

Seth Weber, Analyst at BNP Paribas

Got it. Okay, thanks. And then just going back to. I think David asked the question just on the cost savings. I think it was you kind of ring fence around $10 million in the first quarter. Is that a similar number here for the second quarter? And should we just think about that as kind of ratable through the year, 10, $15 million a quarter in savings or does it accelerate or.

Ted Grace, EVP, Chief Financial Officer

Yeah, that's a reasonable way to think about it. I would say we'd estimate internally the second quarter benefit was on the order of about $12 million, which is effectively that annualized run rate. We talked about achieving 45 to 50 of realized savings in 2026. And so we're basically at that run rate you saw in the quarter. We took another 6 million of charges. So we're now running at 51 year to date. And for the full year we thought those charges would be 55 to 65.

Still our expectations. So everything really is going to plan on all those restructuring activities. Matt, anything you'd add there?

Matt Flannery, President & CEO

No, no, I think you covered it.

Seth Weber, Analyst at BNP Paribas

Got it. Thanks guys.

Matt Flannery, President & CEO

Appreciate it. Thanks, Seth.

OPERATOR

We'll go next now to Mig Dobre with Baird.

Mig Dobre, Analyst at Baird

Thanks for taking the question. Good morning. Going back to your comment about record time utilization, I mean, congrats on that. I'm sort of curious. Based on everything that you know competitively about the industry, the benchmarking that you do is this record time utilization condition just specific to your business. Certain things that you guys are doing that are just sort of idiosyncratic. Or would you say that the industry as a whole is in a position where equipment supply versus demand is just kind of reaching this balance where you're getting good broad utilization?

Matt Flannery, President & CEO

Well, I think it's both. I think we have some. Our scale gives us some inherent advantages. The tools we utilize and the major project work helps drive our time utilization. We believe at a premium to the industry. But I do think the industry overall is driving higher time utilization on a year over year basis right now. And you know, as the other public companies and use that as a proxy report. I would expect to hear that. I'd be surprised if you didn't hear that.

So we think it's a little bit of both. We continue to want our premium but we think the supply-demand dynamics in the industry overall are really good right now.

Mig Dobre, Analyst at Baird

That's helpful. And maybe to ask Kyle's question, a little bit different, if this is the case and we're seeing just utilization more broadly in the industry get better, if at a point in time we do have, say for instance, a little bit of help from low rates, some recovery in local markets, how do you think about the capacity of the industry and your suppliers to be able to kind of scale up to meet that incremental demand?

Matt Flannery, President & CEO

Yeah, it's something that we'll think about. If I had to guess, I would say some of the more localized, smaller players in the space will probably have some time utilization to fill some of that gap. But we certainly feel good about our opportunity to source future demand. We think that our distributed footprint and all those data points that are out there in the field for us would give us a little bit of a leg up on planning ahead. But it is something if everything, if we had strong local market right now with this type of major project work, it would be challenging today.

So it's not even a bad thing that we don't have that. All I could say is I think that with all the data and all the information and touch points that we have throughout our network, we should be able to get ahead of that curve.

Mig Dobre, Analyst at Baird

All right, good luck. Thank you.

Matt Flannery, President & CEO

Thanks, Mick.

OPERATOR

We'll go next now to Jamie Cook with Truist.

Jamie Cook, Analyst at Truist

Hey, good morning. Nice quarter, I guess. Two questions, Ted. Clearly now with markets in recovery, trying to think about if you could update us on your thoughts on setup for incremental margins this cycle. Obviously we have ancillary which is a headwind. We don't have noise from acquisitions. It sounds like the bear case on rental really shouldn't be there anymore. I don't know if investing on tech goes up or if that's a positive relative to the aspirational targets you laid out at your analyst day, about 50 to 60%.

Then my second question. With markets in recovery, and it sounds like suppliers can ramp, but only to a certain degree. To what degree do you think that the industry would look to use acquisitions or consolidate, you know what I mean? Just in order to get fleet. Thank you.

Ted Grace, EVP, Chief Financial Officer

I'll take the first part. Jamie, and Matt can take the second on the margins. We've long said our goal is to drive margin expansion. And I think if you look at our year to date results and certainly the second quarter results include within that, we're doing that on an underlying basis. And that to us is the most important way to measure our business internally. So just to kind of like go through a bridge, you'd see the as-reported margins being up 70 basis points year on year.

When you back out the gain, they're down 40. I think David made that point. That includes that outsized growth from ancillary and re-rent. If we adjust for that, just that outsized growth, the margins were up 40 basis points year on year even while we included or absorbed, excuse me, 20 to 30 basis points from the higher fuel price. Again, that's the internal consumption piece. So that to us is indicative for the underlying cost performance of the business and gets at kind of that goal we've talked about.

And when you look at those big three metrics across cost of rental here again, labor, delivery, and R&M, all showing positive absorption year to date and in the second quarter. So as we roll that forward again, we think the core should continue to drive margin expansion. Things that are to some degree outside our control, like how we serve customers with ancillary, will be impactful. That said, these are things customers are asking us to do and frankly they're part of what's driving the—I would say that that's strong growth.

Right. If you look at specialty being up 25%, the underlying market is not up 25%. We are certainly outpacing the market and we think to some degree that's driven by the fact that we are being selected as this partner of choice, key part of our strategy for doing these small things. So we're not going to shy away from them. We're going to support customers, we're going to take advantage of that strategic focus and then explain to people what that ultimate impact may be on margins.

So we can dig into any of that, but hopefully that gives you at least a sense for how we're thinking about the business going forward.

Matt Flannery, President & CEO

And as far as the acquisitions and consolidation, I think that'll continue in the industry. I've said it for a while, the bigs will continue to get bigger. I think consolidation is part of that. Even those that had very aggressive cold start models have turned to realize it's just faster, more complete, a better way to fill some of your gaps if the math makes sense. So I think that'll continue to be a part of the industry's growth.

Jamie Cook, Analyst at Truist

And sorry, one quick one of the CapEx increase. What was gen rent versus specialty implied in the increase in forecast?

Ted Grace, EVP, Chief Financial Officer

We haven't broken that out, but you could assume you see the growth of each of those. You could assume that there's a lot of specialty growth within that CapEx number.

Jamie Cook, Analyst at Truist

Okay, thank you.

OPERATOR

Thank you. We'll go next now to Angel Castillo with Morgan Stanley.

Angel Castillo, Analyst at Morgan Stanley

Hi, good morning. Thanks for taking my question a little bit of a bigger picture I guess. Just wanted to go back to the comment that you could potentially get upgraded to investment grade over the next 12 months. Can you just talk about, I guess, how important that is to your capital allocation strategy? Just the reason I ask is your leverage at this point is kind of near its historical lows and continuing to decline with this very strong fundamental performance. So I'm curious how you perhaps kind of weigh that investment grade opportunity, or opportunity to get upgraded, versus opportunities of M&A or more buybacks.

Ted Grace, EVP, Chief Financial Officer

Honestly, it's a great question. Thanks for asking, Angel. I don't think it really affects our capital allocation strategy at all. I mean, we're clearly comfortable with the idea of moving to IG at this point of our evolution. If you look at our credit metrics, we've screened IG for many years and it's really been our internal financial policy that kept us in the high yield realm. And the idea there was to ensure we had the balance sheet capacity to support that inorganic growth if and as we saw opportunities.

But as we've grown we've organically essentially sourced all that M&A capacity we would need. You know, with frankly just looking at the EBITDA we have in absolute dollars and what that would allow us to do on a purely debt-funded basis. So as we took a step back and really assessed kind of what our existing capabilities are, where we think reasonably we might deploy capital, and then compared that against the cost/benefit of staying high yield, we just feel like we're at the point where we're very comfortable with the idea of migrating into IG and taking advantage of a lower spread for the simple reason doing so does not constrain us in any way, shape or form from an M&A strategy. So Matt, I don't know if you'd—

Matt Flannery, President & CEO

I think you just hit it. It has no other side-of-the-coin cost to us, so why not take the opportunity?

Angel Castillo, Analyst at Morgan Stanley

Amazing. Super helpful. And then I wanted to ask, just on the capex front you mentioned if you wanted another billion worth of fleet that you probably would be a little bit challenged in getting that. So just curious, one, can you talk about maybe where in particular in your fleet or type of products that you might be sourcing? There is a little bit more tightness. I think over the last couple, over the last year or so you've generally talked about more availability of fleet from the supplier.

And then a little bit of a preliminary into '27 — just curious as you see this demand backdrop, the backlog, I believe you've talked in the past about mega projects giving you more like a 12 to 18 month kind of visibility. So as you see all of that and this tightening in the supply base, how are you thinking about your capex needs, at least at a high level, for next year versus perhaps some of this increased capex this year being able to kind of set you up for that growth next year?

Thank you.

Matt Flannery, President & CEO

Yeah, so the carryover of the growth this year certainly helps, will help for the growth next year. And it's way too early for us, Angel, to get into forecasting capex next year other than to say you could expect we'll sell a little bit more used based on the bigger base of rotating our fleet and the correlating replacement capex from there. And then when we get into our planning process, which is ground up, very robust, we'll have a better idea what the growth needs are over and above the carryover.

So nothing to really say there other than we do expect next year to certainly be another year of growth, and what level of growth it is — well, we got to do all the work before we get ahead of our skis there.

Angel Castillo, Analyst at Morgan Stanley

And then just in the $1 billion of the fleet where there's maybe tightness—

Matt Flannery, President & CEO

The areas that you can imagine — it's pretty broad because the major projects are using everything, so it's specialty products. And, you know, think about the aerial, the reach forks, the stuff that usually runs at high time utilization, continue to run at high time utilizations.

Angel Castillo, Analyst at Morgan Stanley

Very helpful, thank you.

OPERATOR

Thank you. We go next now to Sabahat Khan with RBC Capital Markets.

Sabahat Khan, Analyst at RBC Capital Markets

Great, thanks and good morning. So just, I guess, on the H2 guidance, obviously the numbers are moving higher versus your initial expectations. Was this maybe a little bit of you waiting to see how the demand backdrop evolved or did something really inflect? And I know you talked a little bit about some of the non–data center markets, but it does look like fleet productivity comps are getting easier in the back half. Whether you were just waiting for some confidence in the market before sort of kicking that up, and then maybe if you can just share some thoughts around just kind of the expected cadence for the numbers, if you can, based on the comp last year. Thanks.

Matt Flannery, President & CEO

Yeah, so we had confidence in April. You usually wouldn't do a raise in April because, to your point, we'd want to see how the year is shaping out, but we had a lot of confidence that it was going to shape out strongly. We just exceeded our expectations. The pipeline of projects moved faster and got deeper. So I would just say combination of more demand, strong execution from the team gave us, gives us even more confidence for what we'll see in the back half than our original expectations, even on our increased guide in April.

And the ability to pull some more capex in. So it's that. And so the second part of your question was cadence. I assume if that's capex cadence, you would just think about, you know, we'll bring in against the new guide somewhere around 30% to 35% in Q3, balance in Q4, not dissimilar to how we usually bring in capital.

Sabahat Khan, Analyst at RBC Capital Markets

Great. And then there's a bit of discussion earlier in the call around just how some of the incremental costs around repositioning are being absorbed. If we bring it all together, is that just a function of, look, at this point, given it's been going on for a while, you've been able to adjust your business, reduce costs, and get customers to sort of take some of those increases? Or is this the demand backdrop being so strong you're able to maybe price for it better?

Just trying to think through how we should expect that — sort of the transportation kind of cost evolution — for the next few quarters. Or is that built in now, the rates are in a good place, and you're comfortable with sort of the margin outlook?

Matt Flannery, President & CEO

Yeah, I would say it's the former. It's a lot of hard work. Right. So it's really deep-diving on our processes. I mean, let's face it, when something gets away from you, so to speak, you got to look at it differently. So I would say it's just a lot of change in how we address it, a lot of coordination, and frankly more eyeballs and elbow grease on it. So the team's done a really good job offsetting it. And as I said earlier, you'd have to assume — I don't have the math, you know, directly behind it — but with fuel increases alone, our cost per mile has to be up.

So to get that kind of positive absorption is really more process change and execution from the field. Thanks so much.

OPERATOR

We'll go next now to Tammy Zakaria with JP Morgan.

Tammy Zakaria, Analyst at JP Morgan

Hi, good morning. I have a follow-up question on your rental revenue. Its growth accelerated to 13%, and year to date it's up almost 11%. So is there a reason to expect rental revenue growth to slow down from the year-to-date double-digit rate? Or, asked another way, what is your expectation of rental revenue growth for the next two quarters?

Ted Grace, EVP, Chief Financial Officer

So thanks for the question, Tammy. And you can kind of see the range of growth that's implied across our range. So on the one hand we always encourage people not to anchor at the midpoint and on the other hand inevitably these conversations start there, but we would point people towards the range, which points to what we think is any reasonable set of outcomes. Certainly if you think about kind of the back half, and probably the parts that could most reasonably drive the greatest part of volatility, it's probably things around ancillary and rerent, where you saw that accelerate obviously in the second quarter.

That has proven very difficult to predict as we talked about earlier in the call. So we did see a nice acceleration in OER and that's important, and certainly we see strong demand backdrop in the back half, so we're optimistic about that. But in terms of kind of where we fall out in the range, I hate to say we'll have an update for you in October, but we will.

Tammy Zakaria, Analyst at JP Morgan

Got it. Another question on your local market demand or the industry. Local market demand, in your view, what's holding it back from materially strengthening after staying stable for several quarters? Is it housing that needs to come back? Is it interest rates? Is it inflation that needs to come down? So what can perk up this end market?

Matt Flannery, President & CEO

So admittedly it's all theoretical, but you could imagine interest rates has been topical. One of the drivers in that coming down — residential growth. Would then feed other necessities, whether it be municipal works, retail, supermarkets, schools — all the stuff that goes on as you see residential growth in an end market — would all be things that would certainly assist. But then small businesses, right? We're still in an inflationary environment. Small businesses starting to invest back into their business, whether it be local manufacturing, local retail — all that is just kind of bouncing along right now.

Those are the things that we think would really spur some growth in the local markets.

Tammy Zakaria, Analyst at JP Morgan

Understood, thank you.

OPERATOR

Thank you. We go next now to Chad Dillard with Bernstein.

Chad Dillard, Analyst at Bernstein

Hey, good morning, guys. So Matt, in your prepared remarks you talked about demand outpacing original expectations. And I was hoping you could talk about the pockets of surprise on two axes — so first of all maybe by business segment and then second by end market.

Matt Flannery, President & CEO

So I would really just say it's the project pipelines, right. So if you wanted to say a little bit, maybe the local market growth of low single digits helped a little. But the big driver here is the major project pipeline and it's across the board. And as I had said in my opening remarks, there's a lot of noise about data centers, but we're seeing LNG terminals, we're seeing infrastructure — airports, we're seeing stadiums, I mean, pharmaceuticals.

So it's really quite broad in the major project work, Chad. But I would say it's major projects certainly tied to power, certainly tied to, you know, semis are picking up. And this is without seeing, as I said earlier, petrochem picking up. And even the downstream side where those folks are so busy, you can imagine they're putting off any kind of turnarounds or other things that we'd usually participate in. So generally major projects across the board are just stronger and deeper.

Chad Dillard, Analyst at Bernstein

Great, that's helpful. And then just second question, on your return on invested capital, can you talk about the path to improving it? And let's just leave aside just the market, but talk about what United can do itself. Maybe you can break down your efforts by general versus specialty.

Ted Grace, EVP, Chief Financial Officer

Yeah, so I guess I'll address it overall just because we don't get into specific segments. But one of the things we've talked about obviously on this call has been driving underlying margin expansion in the business. Now when you think about the way ROIC is calculated, it's NOPAT over invested capital. So the NOPAT obviously includes whatever the effect is of ancillary and re-rent. But fundamentally our goal is obviously to drive margin expansion.

That, when you think about the impact that has on ROIC, it's positive. And then the second thing you've heard us talk a lot about today and over the last many years is driving positive fleet productivity. So when you think about that as a proxy for capital velocity and driving better capital turns, that should contribute. So that is the goal. You've heard us talk about being as efficient with fleet as possible. You can see what we've done in fleet productivity this quarter and some of the comments we've had on time utilization.

We will continue doing those things and expect that that should continue to drive improving returns on the business. Then obviously making sure that M&A we do is value additive. Admittedly that can have a short-term dilutive impact on ROIC given acquisition accounting. And that's why we frame the deals really as cash-on-cash returns so people can see that discipline across our capital allocation strategies.

Chet

Great, thank you.

Matt Flannery, President & CEO

Thanks, Chet.

OPERATOR

Thank you. And ladies and gentlemen, that's all the time we do have for questions this morning at this time. Mr. Flannery, I'll turn things back to you, sir, for any closing comments.

Matt Flannery, President & CEO

Thank you, operator. And thanks to everyone on the call. We appreciate your time, and I'm glad you could join us today. Our Q2 investor deck has the latest updates, and as always, Elizabeth's available to answer your questions. So until we speak again in October, stay safe. Operator, you can now end the call.

OPERATOR

Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this will conclude today's United Rentals conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.