McGrath RentCorp Profit Slips as Sales Deals Slide to Later Quarters
McGrath RentCorp reported second-quarter net income of $33.7 million, down from $36.0 million a year earlier, as a 34% drop in sales revenue offset gains in its rental business.
McGrath RentCorp (MGRC), the modular space and equipment rental company, reported second-quarter net income of $33.7 million, or $1.37 a diluted share, down from $36.0 million, or $1.46, a year earlier, as lower gross profit on sales revenues weighed on results.
Total revenues fell 6% to $221.1 million, reversing the 2% growth posted in the first quarter and the 5% growth in last year's fourth quarter. The reversal traced almost entirely to the sales side of the business: sales revenues dropped 34% to $46.4 million, a steeper decline than the 13% drop in the first quarter and the 18% drop a year earlier, as new sales projects at Enviroplex and Mobile Modular shifted into the second half of the year.
Rental operations, which make up the bulk of McGrath's business, told a different story. Rental revenues rose 6% to $172.5 million, accelerating from 5% growth in the first quarter and matching the pace set in the fourth quarter. Income from operations nonetheless fell 7% to $53.3 million, a reversal from the 18% increase posted in the fourth quarter, and adjusted EBITDA declined 4% to $82.8 million, marking a third straight quarter of EBITDA growth deceleration or decline. Adjusted EBITDA margin held at 37%, unchanged from a year earlier though down from the trailing-twelve-month margin of 38%.
The divisional picture diverged sharply. TRS-RenTelco, McGrath's test-equipment rental unit, extended a multi-quarter acceleration tied to data-center buildout demand: rental revenue growth climbed to 17% from 13% in the first quarter, continuing a run that included 9% growth in the third quarter of last year and 13% in the fourth, and division adjusted EBITDA rose 29% to $25.0 million. Sales gross margin at the unit jumped to 66% from 47% a year earlier, lifting gross profit on sales 59% even as sales revenue itself grew only 13%.
Mobile Modular, the company's largest segment, posted a 4% decline in adjusted EBITDA to $50.7 million as rental revenue growth slowed to 2% from 4% in the first quarter, still positive for a fourth consecutive quarter. Average utilization in the segment fell to 70.1% from 73.7% a year earlier, though there was a slight sequential improvement from the first quarter. Sales revenues at the division fell 23% to $31.2 million, but an improvement in gross margin on sales to 36% from 32% cushioned the impact, with gross profit on sales down only 14%.
Portable Storage was the weakest link. Division adjusted EBITDA fell 23% to $7.6 million, a sharper drop than the 17% decline in the first quarter, as rental related services swung to a gross loss of $0.8 million, a negative 18% margin, from a 2% positive margin a year earlier, on higher trucking costs.
McGrath raised the low end of its full-year 2026 revenue guidance to a range of $955 million to $985 million from $945 million to $995 million previously, and narrowed adjusted EBITDA guidance to $363 million to $375 million from $360 million to $378 million. The company also lifted its gross rental equipment capital-expenditure guidance to $200 million to $220 million from $180 million to $200 million, signaling heavier investment in fleet even as near-term sales timing weighed on results.
McGrath disclosed a new $725 million five-year credit facility completed May 11, replacing its prior $650 million line, and flagged a CEO transition as a new risk factor, with Phil Hawkins now identified as President and CEO in place of Joe Hanna. Results also included a $1.8 million bump in other income from a one-time gain on the sale of a corporate property, a discrete item not present in the prior four quarters.