United Rentals Q3 2026 Earnings Call Transcript
United Rentals (NYSE:URI) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
United Rentals reported a 16% year-over-year increase in total revenue to $4.9 billion for Q3, with rental revenue up 18% to $4.3 billion, both setting quarterly records.
The company raised its full-year guidance, expecting over 12% total revenue growth and EBITDA margins over 46% at the midpoint, supported by strong demand from large projects across diverse end markets.
Adjusted EBITDA reached a record $2.3 billion, with a margin improvement of 160 basis points year-over-year, and adjusted EPS grew by 33% to $15.55.
United Rentals highlighted significant growth in its specialty business, with rental revenue up 35% year-over-year, driven by 40 cold starts year-to-date.
The company sold $677 million of used equipment at a 51% recovery rate, maintaining a strong used equipment market presence.
Year-to-date free cash flow was $1.4 billion, with plans to reinvest in equipment and return nearly $500 million to shareholders through share buybacks and dividends in Q3.
United Rentals’ leverage remains at a comfortable 1.8 times, with a recent credit rating upgrade to investment grade by S&P, enhancing financial flexibility.
The company increased its capex guidance to over $5.3 billion, focusing on fleet expansion to meet ongoing strong customer demand.
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. 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 yesterday afternoon. We were very pleased to report our third quarter results, which are a testament to our strategy, the team’s dedication to the customer and the unmatched breadth and scale of our premier offering. We came into 2026 expecting another year of growth. As evidenced by our results, the business continues to perform better than we expected. Large projects across a variety of end markets are driving our growth, and we expect this momentum will carry for the remainder of this year and into next year.
We remain well positioned to outperform the industry with our broad footprint, our unmatched one-stop-shop offering accompanied by exceptional levels of service and leading technology, and of course our unwavering commitment to safety. These capabilities, combined with our customers’ confidence and backlogs, support our revised guidance. We came into the year dedicated to being the partner of choice for our customers, accompanied by a laser focus on finding cost efficiencies.
I’m very pleased with the team’s efforts and how the year is playing out. Team United continues to raise the bar, providing an unmatched offering for our customers while also generating strong returns. So let’s get into the details of our third 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 16% year over year to $4.9 billion. Within this, rental revenue grew by 18% to $4.3 billion, both quarterly records. Fleet productivity of 6.5% contributed to OER growth of 12.9%. I’ll note that time and mix all contributed to the quarter’s productivity along with rate.
Adjusted EBITDA was a record of $2.3 billion, resulting in a margin of 47.6%, an improvement of 160 basis points year over year. And finally, adjusted EPS came in at $15.55, up 33% year over year and another quarterly record. Now let’s discuss customer activity. The third quarter again saw growth across both our Gen Rent and specialty business. Specialty was a standout with rental revenue growth of 35% year over year, including 12 cold starts, which brings us to 40 cold starts year to date. Notably, each specialty line of business reported strong double-digit growth in the quarter. By vertical, the trends of the first half of the year carried into the third quarter. Construction continues to grow across nonresidential and infrastructure, and on the industrial side, power once again posted double-digit growth, as did metals and minerals.
As I mentioned earlier, a variety of end markets drive our growth. This diversified exposure is an important and very intentional part of our strategy. With this in mind, we saw projects kick off in the third quarter across numerous end markets including energy, manufacturing, infrastructure and data centers. Now turning to the used market, we sold $677 million of OEC at a 51% recovery rate. The demand for used equipment remains strong, and we still expect to sell approximately $2.8 billion of fleet this year. Given the demand from our customers and our replacement of sold equipment, we spent $1.8 billion on gross rental capex in the quarter, and this takes us to $4.7 billion year to date. The combination of a strong demand environment and fleet productivity underpins this additional spend as we ensure we support our customers while driving profitable growth.
Subsequently, we generated year-to-date free cash flow of $1.4 billion. Even with higher capex needs, we’re able to generate meaningful free cash flow due to a combination of our industry-leading profitability, capital efficiency and the flexibility of our business model. This strong free cash flow is redeployed in ways that allow us to augment shareholder value and is a critical part of our strategy. Finally, our capital allocation in the quarter reflects the disciplined framework we employ. Our balance sheet is very healthy, 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 1.5 to 2.5 times, leaving plenty of dry powder to support growth and to return excess capital to our shareholders.
We’ve long talked about the importance of financial strength to support our strategy and to drive long-term value creation. To this point, we were very pleased to see S&P acknowledge our efforts with their upgrade of our credit rating to investment grade earlier this month. As we enter the last few months of 2026, our focus is unchanged. The demand environment for large projects remains robust, supporting our revised guidance which reflects over 12% total revenue growth with EBITDA margins over 46%, all at the midpoint. We increased our capex guidance to over $5.3 billion at the midpoint as we see the opportunity to put even more equipment on rent while generating strong free cash flow and returns.
So in conclusion, the United Rentals team’s diligent focus on our strategy day in and day out is delivering results we’re all very proud of. Over the last nearly 30 years we built and continue to expand a value proposition which differentiates us in the industry. Our business model is truly unique and goes beyond purely equipment rental. By layering on technology innovation and unmatched service across both our specialty and Gen Rent businesses, we support our customers’ productivity and drive a better partnership.
And for our shareholders this translates to profitable growth, strong free cash flow and compelling returns. And with that, I’ll hand it over to Ted to review our financial results and then we’ll take your questions. Over to you, Ted.
Ted Grace (EVP, Chief Financial Officer)
Thanks, Matt. Good morning everyone. As Matt just shared, the team delivered strong results that exceeded even our raised expectations from last quarter — quarterly records for total revenue, rental revenue, EBITDA and EPS. Beyond that, we raised our full year guidance for revenue and EBITDA to reflect our expectations that this performance will continue through year end in support of a record 2026. But before we get into the details of the updated guidance, let’s review the third quarter’s results. As you saw in our press release, rental revenue increased 17.8% to over $4.3 billion, supported once again by the team’s strong execution across large projects and key verticals. Within this OER increased by 12.9%, driven by a 7.9% increase in our average fleet size and fleet productivity of 6.5%, partially offset by assumed fleet inflation of 1.5%.
And finally, within rental revenue, ancillary and re-rent grew over 37%, again outpacing OER growth by a healthy margin. Pivoting to used, we sold $677 million of OEC in the quarter, generating $348 million of proceeds at an adjusted margin of 46.3% and a 51.4% recovery rate. As Matt mentioned, consistent with our initial guidance, we’re on track to sell approximately $2.8 billion of OEC this year at a recovery rate in the low 50s in what remains a healthy used equipment market.
Next, let’s turn to adjusted EBITDA, which increased $385 million to a record of over $2.3 billion. This was driven primarily by a $417 million increase in rental gross profit and an $8 million increase in used gross profits. SG&A increased by $54 million, translating to a 20 basis point improvement as a percentage of revenue, while gross profits from other lines of business added $14 million. Looking at profitability, our third quarter adjusted EBITDA margin increased 160 basis points to 47.6%, reflecting another quarter of strong cost discipline.
While there will always be some quarter to quarter variability, we are very pleased with our team’s ability to efficiently leverage our third quarter growth to offset the impacts of both lower margin ancillary and re-rent revenues and other inflationary pressures. Shifting to capex, we’ve responded to robust customer demand by investing over $4.7 billion in gross rental capex year to date, which is an increase of almost $1 billion year over year. Moving to returns and free cash flow, our return on invested capital increased 30 basis points year over year to 12.3%, which remains comfortably above our weighted average cost of capital, while our free cash flow year to date has exceeded $1.4 billion. Turning to our balance sheet, net leverage remains very comfortable at 1.8 times at the end of September with total liquidity of over $2.6 billion.
As Matt mentioned, we are very pleased to see S&P’s recognition of our commitment to maintaining a strong balance sheet by upgrading our credit rating to investment grade earlier this month. We view this as a testament to our disciplined financial policies around leverage, liquidity and maturity management, as well as the strength and durability of our free cash flow. Turning to capital allocation, through the third quarter we returned roughly $1.5 billion to shareholders, including $1.125 billion through repurchases and $371 million via dividends.
Now let’s move to the guidance we shared last night, which reflects our confidence in delivering another record year. Total revenue is now expected in the range of $18 to $18.2 billion, an increase of $450 million at midpoint versus our prior guidance. While used sales are still expected at around $1.45 billion at midpoint, this now implies full year total revenue growth ex-used of better than 13% versus our initial 2026 guidance of closer to 6%.
In turn, we’ve also raised our adjusted EBITDA guidance by $300 million to a range of $8.3 to $8.4 billion, reflecting our continued expectation to bring the revenue growth to the bottom line and finish the year strong, notably at midpoint. Excluding the benefit of the H&E termination fee last year and the gain on sale of our scaffolding business this year, this implies a roughly 70 basis point improvement in our full year EBITDA margin compared to the goal we initially shared in January of a flat full year margin.
On the fleet side, driven by strong customer demand, we’ve increased our gross capex guidance by $300 million to a range of $5.2 to $5.5 billion. This now implies net capex of $3.75 to $4.05 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 to $2.45 billion, which reflects an increase in our cash flow from operations offset by higher capex. I think it’s important to call out that we’ve invested significantly in our fleet this year to drive strong organic growth, positioning the business for attractive returns over the coming years while also generating substantial free cash flow.
And finally, 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 over 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
Certainly. Thank you, Mr. Grace. Ladies and gentlemen, at this time if you would like to ask a question, please press star one. If you do find your question has been addressed, you may remove yourself from the queue by pressing star 2. Additionally, we ask that you please limit yourself to one question and one follow up. We’ll go first this morning to David Rosso with Evercore ISI.
David Rosso (Analyst)
Hi, thank you for the time. The margins were impressive and the sustainability of that improvement is sort of the spirit of the question. The pricing opportunity you see coming up as some larger projects roll off to new ones, maybe some flexibility in pricing in current multi-year projects. Just give us a sense of how you’re thinking about the chance to maybe improve the pricing on those. Any change there? And the same idea of structurally there probably some ceiling to how high time utilization could go and I mean at least versus history it feels like we’re maybe getting a bit close to that ceiling.
If that’s the case, should we think of how we address that high ceiling as expect strong capex next year but also maybe an increased focus on rental rate. Thank you.
Matt Flannery (President & CEO)
Thanks David. I mean what you’re touching on, right, you see we’re doing all three components very strongly here in the quarter with the productivity of 6.5% that you saw. With all that being said, rate’s been climbing and been a good guy for us for quite some time and that’s necessary because of the inflation that we’re all experiencing in the industry, so we expect that to continue next year. Certainly the demand environment and the high time utilization, to your point, assist that.
So we feel really good about that opportunity. And as far as the capex, we’ll get to that when we get to January guidance. But it’s a fair point that maybe running at this level of time utilization isn’t the most prudent thing to do. We’re doing it out of necessity right now. But we could temper that a little bit next year, which would require a little more capex, but not a lot. I think we’ll get to that in January once we get through our planning process here throughout the fourth quarter and let you guys know in January.
David Rosso (Analyst)
Any thoughts you maybe could provide on the rate opportunity thinking about larger projects still as a base case driving the business next year and obviously any other color between rate growth for gen rent versus specialty. Thank you.
Matt Flannery (President & CEO)
Yeah, we’re seeing positive fleet productivity throughout all business units and throughout all project types and all customer sets. So this isn’t just unique to projects or local market or industrial. This is across the board, concerted effort for all of us to make sure we recapture the cost that we’re absorbing.
David Rosso (Analyst)
All right, thank you for the time.
Matt Flannery (President & CEO)
Appreciate it.
OPERATOR
Thank you. We go next now to Rob Wertheimer with Melius Research.
Rob Wertheimer (Analyst)
Thank you. You know, one of the concerns people had heading into the year, if we go back a few quarters, is just the fleet movement costs in a market that was bifurcated, soft on one side, strong on another. And it seems like you’ve alleviated that. I’m sure some of that is internal management. I wonder how much of that is the overall market has tightened up. And I wonder if you could just sort of comment on that dynamic and if it remains a risk or a focus.
Matt Flannery (President & CEO)
Sure, Rob. It’s really been a lot of internal management and process change more than anything. The reality is a tighter market could require more movement. So I think the team’s done a great job. We obviously put more process changes and eyeballs into it. And it wasn’t that the team was doing anything wrong last year. We just needed to see how we could do it better. We have a team that’s very responsive to customer demand. And if we could bundle some of those responses together and put a little more elbow grease into making sure cost was a big variable in these decisions, that’s the result that you saw.
Rob Wertheimer (Analyst)
Perfect, thank you. And then just kind of more generally, and I guess maybe David just touched on this, but as you roll through the mega project era, you guys add a ton of value with fleet diversity, technology, service uptime, all these different things you guys do well. Are conversations around the value you deliver to megaprojects more constructive now than they were in the past? Do people kind of realize how much you can save through all those — delivering all those factors?
Matt Flannery (President & CEO)
Yeah, I certainly think that surety of supply and the one-stop shop value proposition have definitely taken more prominence really in the last year. Plus, when you run a big site, not having a bunch of vendors running around is very helpful for the folks that have to control the security and the safety of that site. And I think probably all the large companies are playing favorable there, but we certainly think our unique value prop advantages us there.
Rob Wertheimer (Analyst)
Thank you.
OPERATOR
Thank you. We go next now to Jerry Revich with Wells Fargo.
Jerry Revich (Analyst)
Yes, hi. Good morning, everyone. I just wanted to ask on the cost performance, what really stood out is really strong labor and R&M productivity across both general and specialty rentals. And you know, earlier this year, you folks have implemented a number of rationalization plans. Can you just update on where we stand on that? And is there more runway for further efficiency gains from here? Are we at the run rate from those efforts?
Ted Grace (EVP, Chief Financial Officer)
Sure. Thanks for the question, Jerry. Yeah, to your point, this is something we’ve been talking about publicly since January, something we challenged the team to do early in the year. And they’ve delivered incredibly well. Certainly we’ve gotten very good labor absorption and you can see that in both sides of the businesses. And you mentioned R&M. But almost back to Rob’s question, I think the team’s also done an extraordinary job on the delivery side.
And so we said that all three of those would be critical to producing kind of better margins year on year. In terms of the restructuring, that’s really played out in line with expectations. So the benefits have been consistent and they really are not a big part of what’s driven the year on year improvement. So they’ve been helpful for sure, and we were prepared to take those actions. But at the end of the day, it’s really been the team’s focus on leveraging growth efficiently. So you think about growth. I mean, growth itself has been very strong, stronger than we expected.
The composition of growth has been very strong. You can see that in the fleet productivity. And then to your point, the team has just done a really good job driving efficiency across those big three buckets. And that’s something we’ve long talked about. It’s a challenge we’ve got to meet every year. We feel like the team’s done a great job prior to ’26, to be honest, and we talked about that publicly and going forward. Almost coming back to something David asked about the sustainability. This is just how we run the business. And so there’s always going to be an ebb and flow to all these dynamics. But certainly our expectation is we’ll continue to deliver. Our goal is to deliver margin expansion always. And we feel like we’ve got a good recipe to continue driving strong results.
Jerry Revich (Analyst)
Thanks, Ted and Matt. Can I ask just to expand. In your prepared remarks, you spoke about delivering to manufacturing as well as power. So what we’re seeing in the semi fab plans is for plans to double capex ’27 versus ’26. Is that the magnitude of startup deliveries that you folks are alluding to when you mentioned the prepared remarks in manufacturing? And can you expand on just the magnitude of growth in Aure? Because in addition to utility capex growth, obviously behind the meter is set to more than double as well.
Are you seeing that level of growth in those verticals?
Ted Grace (EVP, Chief Financial Officer)
So we don’t get too specific in verticals, but certainly we feel like we’re very well positioned to be that partner of choice for the kinds of contractors that build the kind of facilities you’re alluding to, the very high-spec, demanding customers. So we feel very good there. Not sure we’d kind of quantify what that translates to too specifically, but we’re doing very well there. And on the power side we saw double-digit growth. It’s been a trend we’ve been talking about publicly for a while. And so certainly that’s actually not going to be the behind-the-meter piece as much as it is working with investor-owned utilities across generation, transmission, distribution, you know, all of which have been key elements to our power vertical strategy since really for over a decade, since we introduced in ’16. Matt.
Matt Flannery (President & CEO)
Yeah, yeah. And I think the broader point is, you know, our end markets are very diverse. We cover a broad range of end markets both in construction and industrial as well as infrastructure and all with the same fungible assets. I think that’s really the story there. For example, even in power, we’re not doing a bunch of specialty power assets, right, or large-scale to power some of these projects. We’re really staying in our lane and I think it’s playing out really well for us.
Gives us a lot of flexibility.
Jerry Revich (Analyst)
Thank you.
OPERATOR
Thank you. We go next now to Angel Castillo with Morgan Stanley.
Angel Castillo (Analyst)
Thanks and good morning everyone. Could we just talk about price/cost a little bit as you start to do your 2027 planning? I know we’re still a little bit early, but can you just talk about what kind of levels of inflation you’re seeing across the major buckets of cost of goods sold? Again, you’ve done a great job so far here in 2026 covering that. So it would be helpful to understand how you’re seeing that progression or the implications of cost inflation next year.
And, and as it relates to the questions earlier on rental rate, how much of that has maybe already been kind of secured through recent renewals or projects or just kind of increases and will just kind of roll through into next year versus how much do you still need to kind of go out there and get as you do renewals of contracts?
Ted Grace (EVP, Chief Financial Officer)
Yeah. So touching on the first piece, Angel. Look, inflation is very real. It’s certainly not benign, it’s certainly not deflationary. I think it depends on the bucket. On the one hand you look at that labor absorption we talked about, frankly, that’s while we’re absorbing above-trend merit increase, and we think that’s important. We want to take care of our people. I think we pride ourselves on being the employer of choice and that certainly means taking care of your people in a lot of ways.
And so I can tell you, we proudly think about the way that we reward our team for the great job they deliver. But honestly, the underlying increase is above trend and yet you’re still seeing the team offset that productivity gains. Within R&M, you can imagine that’s another area where our suppliers are focused on their pricing on parts, and yet we’ve been able to manage that very effectively. And within delivery, what is incredible, I think people see what’s happened with diesel, they can see what’s happening with freight rates, and yet here again, we’ve been able to offset that.
So it’s not at all to suggest that we’re in some kind of deflationary beneficial cost environment. Going forward, we’ll see how next year shapes up — a lot of dynamics to consider as we get into planning internally and then what that translates to from a forecasting perspective. But I’d come back to our goal is to be as efficient as possible and consistently deliver strong margin performance across the business.
Matt Flannery (President & CEO)
And the second part of your question, as far as the rate component, to the second part of your question about fleet productivity, first of all, we manage rate and time rigorously. It’s the mix of the two that matters, which is why we talk about fleet productivity. But to be clear, we manage rate throughout the year. There’s no magic date or point where we’re doing renewals. We work with our customers throughout the year, making sure there’s a balance of getting paid for our value and making sure they can do what they need to do on the job, both physically and economically.
And we think we’ve found a really good balance and we don’t expect that to stop anytime soon.
Angel Castillo (Analyst)
That’s very helpful, thank you. And then maybe could we touch on capital allocation? You now have investment grade with one credit agency, and when I look at your balance sheet, you still have quite a bit of kind of firepower. So maybe a couple of things — maybe touch on what the implications to perhaps your borrowing cost or cost of capital is from the shift to IG. And then as we think about your current leverage or net leverage versus your target of kind of 2.5 at the high end, is there anything preventing, I guess, you from being able to deploy more of that, whether it’s to buybacks or for M&A. I know you did, I think, a little over 100 million this quarter. So just talk about the puts and takes there for capital deployment and perhaps timing.
Ted Grace (EVP, Chief Financial Officer)
Sure. So — and I think we talked a little bit about this last quarter — but, you know, when you think about our capital allocation philosophy, it always starts with the balance sheet and where we position. And certainly over the years, you’ve seen us evolve that strategy, get to the point where we’ve got a very strong balance sheet that will allow us to do pretty much anything we think makes the most sense for the company and the shareholders. As a result of that, we changed our internal financial policy such that we felt comfortable moving to investment grade. And the concern we previously had was the potential constraints that could put on inorganic growth. But as the company has grown and the scale has gotten bigger and bigger and what that’s done for our financial capacity, we realized that, frankly, we had the ability to do anything we wanted with the existing constraints. And as a result, we’ve changed that internal financial policy and communicated that externally.
And that’s really what’s precipitated at least one of the upgrades. So it doesn’t change much — really, it doesn’t change anything internally. So there’s no quote, unquote cost. The benefit is obviously those tighter spreads that we’ll get, as an IG issuer versus high yield. I wouldn’t want to speak for the market, but certainly people can look at kind of triple-B-minus credits to get a sense for kind of what their yields would look like relative to ours. And we think it’ll be a very appreciable benefit that will, over time, as we refinance debt or issue debt for whatever reason, accrue benefit to the shareholders.
But it doesn’t change that strategy of starting with a strong balance sheet, investing in organic growth, funding smart M&A, and then returning the excess capital to our shareholders. It’s really going to be that kind of framework — I think certainly for 2027 to be a reasonable assumption that that’s the framework we use to figure out that capital allocation strategy. Does that answer all the questions or was there one at the end that you also wanted us to address?
Angel Castillo (Analyst)
Yeah, just more, I guess, in terms of the potential for timing of either buybacks or M&A — should kind of be leaning one way or another. How to kind of think about that?
Matt Flannery (President & CEO)
Well, if there was any impact on our ability to do M&A, frankly, we wouldn’t be doing this, so we don’t see any impact there. And as far as the buybacks, you know, stay tuned. I think we’ve been pretty consistent there.
Ted Grace (EVP, Chief Financial Officer)
Yeah. You know, we’ve got to go through that planning process to see, you know, what that growth opportunity is, what the investment looks like organically, get a sense for what that part of the use of cash would be, and then obviously we’ll assess kind of the M&A opportunity and then what’s left over, consistent with history. I think you can expect us to return that excess capital to our shareholders. So I wouldn’t anticipate any change there, to Matt’s point.
Angel Castillo (Analyst)
Very helpful. Thank you.
OPERATOR
Thank you. We go next now to Seth Weber with BNP Paribas.
Seth Weber (Analyst)
Hey, guys, good morning. Thanks for taking the question. Appreciate all the comments about the strength in the mega projects and stuff. I just wanted to get your sense a little bit on the local markets. Would you characterize them as still being kind of stable? And just how much of a lag do you think we should expect? How long will it take for those markets to accelerate once interest rates start to come down, in your experience? Thanks.
Matt Flannery (President & CEO)
Sure, Seth. So we would continue to call it stable. Now, to be a little more information there for you, it probably gave us a couple of points of growth here in this quarter, but the big driver here is still the mega projects, the large projects and our large customers driving this growth. So we like the fact that there was a little bit of growth there as far as — is that a pivot point? We don’t know. And for the second part of your question, we’ll stay in our lane.
As I said earlier, we have no idea how to forecast what that lag would be. What we do have is the ability to get, especially as we go through our budget process, to have boots-on-the-ground feedback. And that’s what we’ll learn and we’ll count more on that than any kind of thoughts about what a lag would be. But we have heard for a while now sentiment has been more positive. We have seen a little bit of growth in a lot of these local markets. So we are feeling good about the direction of it.
Seth Weber (Analyst)
Okay, thanks. Thanks, Matt. And I guess just on the specialty
Matt Flannery (President & CEO)
Yeah. So we’re slightly ahead of target this year. This is kind of a continuum of markets that our teams in each business unit have on their docket of where they want to grow into. We haven’t done that work yet. That’s part of the budget process. So I don’t want to try to predict what we’re going to come out with. But we still have white space geographically in some of these markets and really the ability to grow some density in markets where we already exist in some product lines as we’ve been outgrowing the existing facilities. So I think there’ll be more opportunity and we’ll update you guys in January.
As far as the competitive set, there’s always competitors that want to get into what we’re doing. Right. Somebody always covets thy neighbor’s revenue, so to speak. What I will say is the barrier to entry and the value prop that we’ve built is really strong. So I think we’ve got a pretty good competitive moat there as far as what we offer to the customer. Talk to you soon. Thanks.
OPERATOR
We’ll go next now to Kyle Menges with Citi.
Kyle Menges (Analyst at Citi)
Thank you guys. Maybe following up on Seth’s first question on the local markets, I’d just love to hear a little bit more of what you think is driving some of the positive sentiment in those local markets. In spite of still a choppy macro backdrop and elevated interest rate environment,
Matt Flannery (President & CEO)
I don’t really have any additional color in aggregate. We’re giving you a number in aggregate what the puts and takes in all these different markets. Right. 1,800 branches that we’re in almost in the US and Canada. It’d be really hard to homogenize that for you as far as what’s driving it. But we are seeing local markets that do have some growth and we’ll update you guys what we think that’s going to turn into in 2027. But I don’t really have any additional color for.
Kyle Menges (Analyst at Citi)
Got it. And then ancillary again outgrew OER pretty significantly this quarter. How should we think about that gap between the ancillary and OER growth potentially narrowing over time and maybe into 2027. And how much of it is just a matter of mega projects maturing into maybe year two, year three, year four, versus a lot more of them in year one and getting ramped up. And maybe there’s more ancillary revenue as those projects ramp up.
Matt Flannery (President & CEO)
Yeah, we view ancillary as responsive to customers’ needs and their requests. Not really something we’ll predict. I’m certain that specialty growth is one driver of it. I’m certain that projects do tend to need more of it. But as we continue to add more offerings and customers are aware of what we have to offer them. You know it’ll be interesting to see if that how that spreads. I think more importantly is we’re just being a better provider to our customers. So for us we don’t have a target for it to grow it or to not grow it. It’s to make sure we’re in position to respond when the customer asks us to do something for them that’s related to our products and our services. So really no ability to predict there because it is a responsive, non-capex-driven type of volume.
Kyle Menges (Analyst at Citi)
Understandable. Thank you guys.
Matt Flannery (President & CEO)
Thanks Kyle.
OPERATOR
Thank you. We go next now to Chad Dillard with Bernstein.
Chad Dillard (Analyst)
Hey, good morning guys. My question for you is on the capex raise in the quarter and what drove it. Is it the demand that you’re seeing right now or are you preparing for what you’re seeing ahead and if you could just like what end markets are getting better to drive that and then maybe just secondly what was the breakdown between what drove it? Gen rent or specialty?
Ted Grace (EVP, Chief Financial Officer)
Sure Chad, I’d say yes to both. So it is the work that we see right in front of us right now. We had talked about how we’re driving historically high time utilization so this isn’t a pull forward of stuff we’re going to need next year but certainly the fact that we think 2027 is going to be a growth year is gives us the confidence to support these growth needs that we have late in the year here in Q4. So it’s really a little bit of both. And as far as forgot the second part of your question.
Oh yeah. Just general versus specialty. Oh yeah. Thank you. So you see the growth of specialty so really for quite a few years now specialty gets an overweighted amount of the growth capex to support cold starts in the growth they’re having outside of that. And once you get beyond specialty within our gen rent portfolio we’re really utilizing our full portfolio on these major projects because you think about it’s pretty evenly spent throughout those categories that we carry in our gen rent source.
Chad Dillard (Analyst)
Gotcha. And maybe just double clicking on specialty saw some pretty sizable growth, you know, plus 30% in the quarter. Can you break down how much is from cross sell or scope increase versus just like a dedicated specialty sale. If you can’t do it quantitatively maybe give some qualitative color.
Matt Flannery (President & CEO)
Yeah it’s hard to break down too specifically but certainly when you think about the value proposition of being a one stop shop that is a good example of cross selling. And so certainly as we’ve been providing more and more products and services on these large projects that lend themselves very well to it. It certainly benefits, I guess what you would call cross sell to us. It’s solving problems for customers and making their lives as easy as possible.
And that all kind of comes back to the strategy we’ve been talking about being that partner of choice. But it’s hard to peel it apart.
Chad Dillard (Analyst)
Okay, thank you.
OPERATOR
We’ll go next now to Mig Dobra with Baird.
Mig Dobra (Analyst)
Yes, thanks for taking the question. If we can go back to the discussion around ancillary and maybe double click specifically on the re-rent revenue. I mean we’ll see how Q4 shakes out. But it looks to me like this line item is going to be up quite significantly, maybe 40 to 50% on a year over year this year. And I’m curious what the right way to interpret this or think about this is. Is this a function of you guys just re-renting equipment in categories that maybe you’re not participating or is this more of a kind of like a capex signal in terms of where demand is materializing and part of the reason why you’re raising capex simply not having enough equipment and having to source it from third parties?
Ted Grace (EVP, Chief Financial Officer)
Yeah, I would say it’s the latter, Mick. I mean this goes hand in hand with the demand environment and the time utilization that we’re driving. And part of the reason why you see a capex raise here. So it is the latter and sometimes it’s, I would say most of it. I won’t say all because there’s always something that we’re getting to support a customer’s need that we don’t necessarily have in that market. Sometimes it’s the more efficient play, especially for a short term need or for something that, you know, we don’t have access to handily at that moment of need.
But overall it is indicative of the combination of demand and high time utilization that we’re running.
Mig Dobra (Analyst)
Okay, that’s helpful. And as you’re raising capex and I’m sure you’ll give us an update on 27, it sounds like you’re probably going to spend a little bit more. Is it fair to expect this line item re-rent to maybe like flip to more towards OER and does that kind of have a bit of a margin benefit that we need to contemplate if that’s the case? Thank you.
Ted Grace (EVP, Chief Financial Officer)
It’s a good question. I would say ultimately, certainly as we pivot some of the stuff through capex, you know, into capex and we internalize those cash flows, it’s going to benefit your OER line. But you know, one of the things again is solving, solving problems for customers. And so I think, you know, you’ve long seen kind of re-rent as part of our business for a lot of different reasons, whether it’s sourcing additional capacity or providing those things as a one stop shop service provider that for one reason or another we don’t own or don’t want to own.
So I’m hesitant to get too specific, but I think your logic makes sense as we do convert some of that re-rent into OER via capex. That’s going to benefit our core results. Overall, not that big a number in the overall scheme of things and not something that we plan for. So it’s hard even for us to model what that would be. So I don’t know how to guide you how you would, frankly.
Mig Dobra (Analyst)
Thank you.
OPERATOR
We’ll go next now to Jamie Cook with Truist Securities.
Jamie Cook (Analyst)
Hi, good morning and congrats on a nice quarter. I guess just two questions. You know, my first question just with regards to conversations that you’re having with OEMs as you think about capex for 2027, any concerns on capacity constraints in the market, are we having conversations earlier just because of concerns on OEM availability and just sort of the pricing setup for 2027? And then I guess my second question, just the competitive dynamics, which I’m sure there’s always new ones each cycle, but obviously you have a large OE who’s trying to get more aggressive and compact and trying to focus more on mega.
We have new players in the market trying to double their OE. I guess just. Ted, given what you’re seeing in the market, do you think the improvement that we’ve seen in rental rates, do you think that could continue into 2027? And I guess to what degree are you concerned that some of these peers could be potentially putting too much fleet into the market and that becomes an issue potentially at some point next year. Do you just see this as sort of normal new entrants trying to do things and ultimately not making big waves in the market?
Thank you.
OPERATOR
And ladies and gentlemen, it appears we’re having a technical issue. Please stay on the line and we will have it resolved as soon as possible. Again, ladies and gentlemen, please continue to stay on the line. We are resolving the technical issue as we speak. I’ll let you know just as soon as Matt and Ted have rejoined us. And again, ladies and gentlemen, please continue to hold. We are still resolving the technical issue as we speak. We will resume momentarily. And Ted Grace, I believe, excuse me, Ted and Matt, I believe we do have you back. If you can hear us again, can you hear us?
Matt Flannery (President & CEO)
We can, we can.
OPERATOR
Ted, Matt, go ahead.
Matt Flannery (President & CEO)
Great. Sorry about that folks. We had, I don’t know what happened, went a little blackout here, but with all that being said, we’re on another line. So I believe what we heard at the tail end was that Jamie asking a question, if you’d like to repeat it.
Jamie Cook (Analyst)
Sorry, I guess.
OPERATOR
Jamie, please go ahead.
Jamie Cook (Analyst)
Want me to read people’s questions? I guess the first question was just on, you know, talking to OEMs about 2027 concerns, basically on any constraints in terms of you being able to get equipment and pricing. And then my second question, it was just the competitive dynamics this cycle with a major OE trying to get more into compact and mega, obviously other public players trying to double OE. To what degree are you concerned? Potentially we could be flooding the market and equipment could be flooding the market and this becomes an issue.
Or do you think the appropriate level of equipment that’s going into the market meets demand? So I guess that was the spirit of the question. And whether competitive dynamics are any different or more concerning versus what you’ve seen in other cycles. Thanks.
Matt Flannery (President & CEO)
Yes, sure. So to the flooding supply, I mean the industry has shown really good discipline on supply and demand, including the OEM. So we feel good about that backdrop. More importantly, we feel really good about the demand going forward. So we’re not overly concerned about that. And as far as our ability to access, you see this year with the raised CAPEX throughout the year, we’ve got really good relationships and flexibility with our partners where we do feel we’re able to react quickly and respond quickly to opportunities. But there’s a lot of planning in that and a lot of forward-looking information that we’re sharing with our partners to make sure we can do that effectively. So we do feel good about supply, demand and our ability to participate appropriately in that.
Kim (Analyst)
Thank you.
Matt Flannery (President & CEO)
Thanks, Kim.
OPERATOR
Thank you. We’ll go next now to Steven Fisher with UBS.
Steven Fisher (Analyst)
Great, thanks. Good morning. And my call dropped a little earlier, so I apologize if these have been addressed. But last year in the fourth quarter you had a couple of things that were specifically weighing on the margins in that quarter, and so the comps I think should be easier. And I guess I’m just curious how you approached the setting of expectations for Q4 incremental margins or implied incremental margins in light of sort of easier comps on that from last year versus this year.
I would think they should be better than what you saw in Q3, but it seems like there might be something else you’re factoring in.
Ted Grace (EVP, Chief Financial Officer)
Yeah, I mean certainly, you know, it won’t react to dynamics we talked about a year ago. But, you know, I’d say that the biggest thing we did call out was that repositioning a year ago, and the team’s done a good job to some of my earlier points. You know, Steve, I’m getting the gist of your question is if you’re trying to see what’s implied at the midpoint of guidance on the fourth quarter, and we’ve long cautioned people against anchoring at the midpoint of our guidance.
I mean, on the one hand it’s inevitable and it anchors these conversations because it’s an easy point to point to, but it’s not without risk. So we’ve got a range. We feel very good about the momentum we’re carrying throughout the year into the fourth quarter. Fundamental performance we would not expect to deviate. And I just remind people the sensitivity of that calculation. Right. I mean if you think about a 1% variance in EBITDA and you hold everything else constant, that equates to about a 50 basis point swing in the implied margin year-on-year. And so without obviously decomposing all the factors that influence a quarter, because it varies quarter to quarter, I’ll just say we feel really good about the year-to-date execution. We feel really good about our expectations for the fourth quarter.
Where we end up, time will tell. But if you’re inferring that something’s changed or anything along those lines, nothing has.
Steven Fisher (Analyst)
Okay, that’s helpful. And then in terms of cold starts, I think if not all of your cold starts have been in specialty, certainly it seems like the vast majority of them. I’m just curious, as we think about an increasing mix of large projects going forward, just curious geographically where those large projects are setting up. Is there an opportunity for you to do more Gen Rent branches, or are they in places where you’ve got adequate coverage already within your existing footprint?
Matt Flannery (President & CEO)
Typically we have adequate coverage where they are, but if there happens to be a large project in a really remote area, more times than not we’re able to get an on-site to service it that way. If we think it’s a market that’s going to continue to grow outside of the major project, then we certainly have no hesitation putting a cold start in there. But our coverage is pretty good, especially here in the U.S. and in Canada. So we feel we rarely need to add a store in Gen Rent just for a major project.
Steven Fisher (Analyst)
Okay, fair enough. Thanks a lot.
Matt Flannery (President & CEO)
Thanks, Steve.
OPERATOR
Thank you. We’ll go next now to Sabahat Khan with RBC Capital Markets.
Sabahat Khan (Analyst at RBC Capital Markets)
Great, thanks and good morning. I think last quarter you shared some comments on sort of underlying margins. That’s some of the moving pieces, and I guess with higher ancillary and re-rent mix, maybe if you could just share some thoughts on how underlying margins trended this quarter as well.
Ted Grace (EVP, Chief Financial Officer)
Yeah, thanks for the question. The dynamics we had to manage through in the third quarter were not dissimilar to what we managed through in the second quarter. Whether it’s that impact from the outgrowth of ancillary and re-rent, I would say the headwind, which obviously you saw us offset, was similar, and even within fuel. Right. We talked about the headwind we absorbed in fuel last quarter. It was pretty similar third quarter over second quarter.
So not a lot of change there. Shouldn’t surprise people, but obviously what you saw was our ability to again leverage that growth, the composition of growth, and just very good cost execution across the company.
Sabahat Khan (Analyst at RBC Capital Markets)
Great. And then as you think about ’27, some of the costs or operational cost reductions you’ve been making, those likely help into next year. And I guess when you outline some of the technology initiatives earlier this year, whether it’s on the AI front and some of the other programs, do those become a material contributor to margins as we head into next year? Or are some of these technology programs that you’re undertaking more longer-term contributors and maybe a bit less material?
Should we start to think about them getting more material as we head into ’27?
Matt Flannery (President & CEO)
So as we get through the budget process, we’ll probably get a little deeper into that. I think most of them are longer term, but there’s certainly some productivity improvements in there. Some of them are less easy to input into a margin conversation, but just productivity of some of our human capital. I certainly think longer term we should get productivity in the shops from some of the technology we’re using and certainly free up some time for our managers to use more of their time to drive the business.
So I think there’s a range of opportunities probably more towards the long term, but we’ll update appropriately as we learn. And this isn’t all to take away from the opportunity, but just as a reminder, I mean, we’ve long embraced continual improvement. And so while a lot of the AI tools have a lot of potential and we’re really excited, we view it as a continuation of what we’ve been driving internally to drive productivity for several decades.
Sabahat Khan (Analyst at RBC Capital Markets)
Thanks very much. Thank you.
OPERATOR
We’ll go next now to Scott Schneeberger with Oppenheimer.
Daniel (Analyst at Oppenheimer)
Good morning, guys. Hey, it’s Daniel on for Scott. Could you please address the sustainability of the used sales margin expansion you’ve seen recently? Thank you.
Ted Grace (EVP, Chief Financial Officer)
Sorry, which margin expansion?
Daniel (Analyst at Oppenheimer)
Used sales.
Ted Grace (EVP, Chief Financial Officer)
Look, we’ve been very pleased. I’d say overall that that market has performed as expected. You know, if you rewind a year ago and we talked about, we felt like ’25 was kind of the bottom innings of that normalization process. And we saw that progressively. If you think about how 1H25 played out versus second half, and obviously we’ve progressed through ’26 pretty well. So it feels like the market’s normalized. Certainly it’s a very deep market, plenty of demand.
You can see that in our results. In terms of the margins, I think we’re back to kind of what we would say are normalized margins. And so I would not encourage people to think there’s going to be a huge amount of variability there. The likelihood is we’re kind of again back in this normalized market. But the good news is things have played out as we kind of expected them to.
Daniel (Analyst at Oppenheimer)
Got it. And just to round off on EBITDA flow-through, I mean, you’ve done a great job with the efficiency this year. How do you think about EBITDA flow-through longer term? Any color there will be helpful. Thank you.
Ted Grace (EVP, Chief Financial Officer)
Yeah, so we’ve really tried to pivot this discussion away from flow-through because I think it almost simplifies things. And really our goal is to drive margin expansion across the cycle, and we feel like that’s what we’ve done. Certainly, as we’ve talked about, in some periods of time it’s easier to do and easier to show, and other times it’s more difficult or it gets clouded by dynamics. Whether that’s used, to kind of your earlier point, Daniel, or whether it’s, you know, obviously this outgrowth of ancillary and re-rent, I would just say going forward, our focus is on driving profitable growth and then being as efficient as possible.
And that obviously implies driving core margin expansion. And similar to what we talked about in ’23 and ’24 and ’25, we’re going to help people see what the underlying results look like as best as possible. But as we go forward, certainly our goal again is going to be to drive strong margins and ultimately margin expansion is the goal.
OPERATOR
Thank you. We’ll go next now to Neil Tyler with Rothschild and Company.
Neil Tyler (Analyst)
Ok, good morning. Thank you. Just one more for me, please. Coming back to the topic of inflation more broadly, I guess you’ve talked about the various aspects in which that appears across your industry. Are there specific areas or verticals that you might want to call out where you’re seeing customers come to you to solve their inflation problems in ways that your model might be better able to absorb it? If you could just talk a little bit about that as a theme.
Matt Flannery (President & CEO)
We usually think about capital cost avoidance when we’re thinking about rental versus owning. But to your point, those come at a cost. So I think the most important part is how can we help our customers drive efficiency? We believe fleet, technology and part of that, and fleet, is a great way for them to do that. So we make sure we provide that, and we do think rentals is a better way. You could own fleet and get some productivity out of the usage, but we feel strongly that rental’s proven to be the better way for them to do that.
So I think it’s a big part of our value proposition to continue to help customers drive efficiency, to improve their margins and competitiveness in their markets.
Neil Tyler (Analyst)
Great, thank you. And then the second question would be, obviously you talked confidently about your, you feel good about demand and into ’27 as well. Obviously there are discussions ongoing as to sort of longevity of some of the cycles and end markets that you serve. Can you sort of talk a little bit more longer term? It feels like the market’s broadening out, the demand environment’s broadening out. But how you would characterize your visibility compared to, say, 6–12 months ago across the sort of indicators that you look at?
Matt Flannery (President & CEO)
Yeah, I would say we feel better than we did six to 12 months ago. Certainly you see that not only in the raised guidance but in the activity that’s going around in the industry. And the end markets we serve are very, very broad, even within non-res. And I know there’s been a lot of talk underlying in that commentary. People are wondering how long is data center going to continue. Well, that sits in our non-res business. And even if you take data centers out, we’ve got strong double-digit growth within non-res.
And then we think about infrastructure, power, LNG, even upstream oil and gas is doing well right now, but growing. So those opportunities remain, and that’s with a couple of end markets not being strong, like industrial manufacturing we think is a potential future opportunity for us. Residential, which then will drive more non-res work, is still down. And downstream oil and gas, petrochem overall on the downstream side, which is an area where we have a lot of run-and-maintain work, a lot of turnaround work, that’s just not getting done right now because those folks are busy as heck right now, as you can imagine.
So we feel really good about the long-term view here and certainly more bullish than we did six to 12 months ago.
Ted Grace (EVP, Chief Financial Officer)
And the one thing I might add, Neal, is I think people know we survey our customers regularly, and they continue to feel very good about their own prospects. So this is something that Matt and Elizabeth and I have gotten a lot of questions on in the last, let’s just say, six-plus months. Given what’s happened with energy pricing and inflation, and what the market’s discounting on rates and understandable concerns around whether it’s the short end of the curve or long end of the curve throughout all that volatility that markets have wrestled with, I would tell you our customers have felt consistently positive and that certainly, you know, as of the most recent reading. So that also helps underpin our confidence and kind of what that outlook looks like.
Neil Tyler (Analyst)
Great. That’s super helpful. Thank you.
OPERATOR
Thank you. And ladies and gentlemen, that is all the time we have for questions this morning. Mr. Flannery, I’d like to turn things back to you, sir, for any closing comments.
Matt Flannery (President & CEO)
Great. Thanks, operator. And once again, folks, we apologize for the tech disruption, but to everyone on the call, we appreciate your time. I’m glad you could join us. And our Q3 investor deck has the latest updates and, as always, Elizabeth is available to answer your questions. So until we speak to you again in January, have a safe and happy holiday season and have a great end of your year. Operator, you can now end the call.
OPERATOR
Thank you, Mr. Flannery. Thank you, Mr. Grace. Again, ladies and gentlemen, this does conclude United Rentals third quarter earnings conference call. We’d like to thank you all so much for joining us today and wish you all a great afternoon. Goodbye.
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