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Education Infrastructure Needs Appear Key For McGrath RentCorp

May 04, 2020 11:07 AM ETMcGrath RentCorp (MGRC)
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Jenks Jumps


  • McGrath RentCorp reported 2020 first quarter results on April 29th. Although the results were healthy, the company does appear at risk due to the COVID-19 pandemic.
  • McGrath's Mobile Modular segment has long considered education a key market. The COVID-19 pandemic is impacting three of McGrath's key education markets.
  • Because the impact of the COVID-19 pandemic is still uncertain, the nation does not yet have plans to reopen schools.

McGrath RentCorp (NASDAQ:MGRC) has historically believed it should "fare better" during a downturn as companies tend to turn to leasing. The business-to-business leasing company offers solutions in three business segments - Mobile Modular, TRS-RenTelco, and Adler Tank Rentals.

The Mobile Modular segment supplies infrastructure needs for schools as well as commercial businesses. The TRS-RenTelco segment supplies general purpose test equipment and telecom test equipment supporting the roll-out of next-generation 5G wireless networks. Adler Tank Rentals supplies solid and liquid containment solutions to a variety of industries such as industrial, environmental and construction, as well as the oil and gas industry.

But a downturn in the economy isn't quite the same thing as a shutdown of the economy. And, as such, McGrath RentCorp is currently just as uncertain about what to expect as many other businesses.

2020 First Quarter Results

McGrath RentCorp reported 2020 first quarter results on April 29th. Rental revenues improved 8% to $89.5 million, rental operations improved 9.5% to $114 million, and total revenue improved 6% to $129.5 million year over year. Revenues improved 12.5% and 11%, respectively, in the Mobile Modular and TRS-RenTelco segments, but declined 11.7% for Adler Tank Rentals. Average utilization improved 100 basis points to 65.3% in the TRS-RenTelco segment on 18.8% inventory growth. It declined 10 basis points to 78.7% in the Mobile Modular segment on 4.8% more inventory. Adler Tank Rentals' average utilization declined 950 basis points to 47.8% on a very slight increase in inventory.

The direct costs of rental operations only increased 7.8% compared to the 2019 first quarter. Both gross profit and operating income increased over 8% year over year. A lower interest expense resulted from lower rates and less debt which drove a 9.3% improvement in net income. Diluted earnings were $0.81 per share compared to $0.75 per share in the 2019 first quarter.

This article was written by

Jenks Jumps profile picture
I am a self-taught investor. As a member of an investment club, I provide the majority of research to the club. When I started writing for SA, the club was interested in stocks offering growth at a reasonable price (GARP) and stocks that were undervalued. We have since adopted a dividend growth investing (DGI) strategy. We search for GRAVY - our acronym for "GR"owth "A"bility, "V"alue and "Y"ield. I am very interested in other active investors critiquing my research. I believe this critique will make me a better investor for my own interests as well as the club's.

Analyst’s Disclosure: I am/we are long MGRC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I belong to an investment club that owns shares in MGRC.

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