URI Q3 Deep Dive: Margin Pressures Offset Solid Revenue Growth and Demand Signals

Equipment rental company United Rentals (NYSE:URI) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 5.9% year on year to $4.23 billion. The company expects the full year’s revenue to be around $16.1 billion, close to analysts’ estimates. Its non-GAAP profit of $11.70 per share was 4.9% below analysts’ consensus estimates.

Is now the time to buy URI? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

United Rentals’ third quarter results drew a negative market reaction, with shares declining after non-GAAP earnings per share came in below Wall Street expectations. Management attributed the quarter’s revenue gains to robust demand across both its General Rental and Specialty segments, particularly from large infrastructure and nonresidential construction projects. However, President and CEO Matthew Flannery acknowledged that increased costs related to fleet repositioning and higher delivery expenses weighed on margins, stating, “our growth is coming with some additional costs.” The company also pointed to higher ancillary service activity, such as delivery and setup, as a contributor to the margin contraction.

Looking ahead, United Rentals’ guidance reflects optimism around continued demand from large-scale construction and infrastructure projects, as well as an expanding Specialty business footprint. Management expects these tailwinds to persist into 2026, with Flannery noting, “the pipeline that we have visibility to looks pretty good for ‘26.” At the same time, CFO Ted Grace cautioned that rising ancillary costs and inflationary pressures, including tariffs, may continue to impact profitability, emphasizing the company’s focus on balancing operational efficiency with capital deployment. The company plans to adjust its fleet investment and cost structure in response to evolving customer needs and project locations.

Key Insights from Management’s Remarks

United Rentals’ management highlighted that strong project wins and a higher volume of ancillary services supported revenue growth, but these same factors also increased operational costs and compressed margins.

• Large project momentum: Management pointed to a surge in demand from major infrastructure and nonresidential construction projects, with Flannery describing large projects as “really carrying the ball here.” This led to above-expected equipment utilization and drove incremental fleet investment in the quarter.
• Specialty segment expansion: The Specialty business, which includes areas like power, pump, and trench safety, saw double-digit rental revenue growth and 18 new location openings in the quarter. Management views expansion in these niche services as critical for long-term differentiation and cross-selling opportunities.
• Ancillary services growth: Ancillary services, such as delivery, setup, and fuel, now comprise nearly 18% of rental revenue. While these services support customer retention and project wins, Grace acknowledged their lower margins, saying they are “dilutive” but strategically necessary for United Rentals to be the “partner of choice.”
• Fleet repositioning costs: The company faced higher costs transporting equipment to remote or project-specific sites, with delivery expenses rising 20% year over year. Flannery noted this was a byproduct of serving large, geographically dispersed projects, adding operational complexity and cost.
• Margin impact from investments: Increased investment in fleet and Specialty cold starts contributed to higher depreciation and delivery costs, leading to a 170-basis-point decline in adjusted EBITDA margin. Grace explained, “the big difference was the increase in depreciation…[and] the other pieces were the same things we’ve talked about like delivery and really ancillary being the other big piece.”

Drivers of Future Performance

Management expects project-driven demand, Specialty growth, and ongoing cost challenges to shape results in the coming quarters.

• Major project pipeline: The company anticipates continued growth from large-scale infrastructure and nonresidential projects, supported by government spending. Management believes visibility into these projects provides a foundation for fleet investment and stable utilization rates.
• Cost and margin pressures: Rising ancillary service costs, ongoing inflation—including tariffs—and ongoing fleet repositioning are expected to constrain profitability. Grace stated that while these services are strategically important, they will “drive kind of variability depending on what that composition looks like.”
• Local market uncertainty: While major projects are fueling growth, management described local market conditions as “flat” and noted that improvement may depend on interest rate cuts or broader macroeconomic recovery. Flannery acknowledged that local growth is a potential upside, but visibility remains limited until further planning is completed.

Catalysts in Upcoming Quarters

Over the next few quarters, our team will focus on (1) tracking the pace of large infrastructure and nonresidential project wins and their impact on fleet utilization, (2) monitoring whether ancillary and delivery costs can be better managed or offset, and (3) watching for signs of improvement in local market activity as interest rates and macro conditions evolve. Execution around Specialty expansion and capital allocation will also be critical.

United Rentals currently trades at $910.12, down from $991.78 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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