United Rentals, Inc. (URI) Q2 2026 Earnings Report, Transcript and Summary

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.

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 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 with 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 nonresidential 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 remained strong at nearly $1.2 billion. And 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 is 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 1.5 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. The large projects 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.

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 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 3x 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 at 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 the 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 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 1.8x 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 acknowledged 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 billion 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 billion 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 billion to $5.25 billion in response to the stronger demand we see. This now implies net CapEx of $3.4 billion to $3.8 billion. And finally, we are reaffirming another year of strong free cash flow in the range of $2.15 billion 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.

We'll go first this morning to David Raso with Evercore ISI.

A question on margins and a question on end demand. First, on the margins, the second quarter margins ex the 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, right? 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 U comment, given the nature of large projects, right, more long-dated, is some of the CapEx increase being provided confidence to do it to given the visibility on '27? Are you starting to get a better look at '27 on the demand at this high time U can stay at a pretty high level even as you're adding CapEx?

Yes, 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 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, do you want to touch on the margins?

Yes. On the margin side, David, I'd say a couple of 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 is 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 of your question. But certainly, we feel confident that the team is doing everything we've asked 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.

Would you mind just a little more color, do you see the spread that it 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 of how to think about that? Again, just trying to think of a few building blocks on that. I know the volume improvement there.

Yes, absolutely. 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.

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

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.

Yes. 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 rate 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 has 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.

Perfect. 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 fleet to new projects? Or should I think about that as being an ongoing minor unpredictability? I'll stop there.

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 has done a great job. If you look across our big 3 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 3. 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 kind of the one -- the biggest -- probably the biggest point of variability we've 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.

We'll go next now to Michael Feniger with Bank of America.

Matt and Ted, I know we talked about the margins. Just you obviously saw headwinds last year on ancillary and delivery costs. 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 can kind of outline the headwind you're absorbing this year or in the quarter just on fuel alone. It doesn't seem like that would be there next year. Just trying to see if this absorption on labor and R&M can keep improving as we look forward into next year.

Yes. So in the quarter itself, if you just think about the incremental fuel cost that 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 even in the first quarter where there was very little fuel effect. 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, and it's something we're still managing through in '26. So Matt, I don't know if you'd add anything.

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.

And Matt, just a 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 and adjacencies and how we could think about sizing that up?

Yes. 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 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 it's -- 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 is built out. So now we're just feeding the organic growth in that business, and they're doing quite well.

We'll go next now to Steve Fisher with UBS.

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 cost 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 could get to a point where we really don't need to call out the repositioning impact anymore. It's sort of more normalized?

Yes. 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 right at 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 will 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.

Yes. 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 -- 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 Steve, otherwise, it's 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 capital-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.

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

Yes. I would say that it's certainly certain categories are pretty tight. Fortunately, we do a pretty large APO, so advanced 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, $1 billion 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.

We'll go next now to Jerry Revich with Wells Fargo.

Nice to see the specialty asset grow by about $1 billion 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 6 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?

Yes, I'll do my best to help with some of that, and Matt can jump in. Certainly, we've talked about all 7 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 would you think about mobile modular and mobile storage. Would you think about ROS in that context? Yes, 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, if you think about the power and HVAC business, that is also putting up very strong growth. Team is doing a great job executing strong end market demand and everything in between. So certainly, Fluid Solutions is doing a great job. Trench and safety is doing a great job and tools. So really -- 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 7 that are really pulling in the right direction and obviously contributing to that really nice 25% growth you saw year-on-year.

And when you think about our go-to-market strategy, we should expect that, right? 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.

Super. 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 a similar question in power, the big behind-the-meter data center actually 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?

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

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

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 mega projects out there and that visibility you have, how you think you can grow maybe in the next couple of years if -- sorry, 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.

Sure, Kyle. So local markets, we've been talking about since January has stabilized and they have. And I'd say net-net, our local customers, which we use as a proxy for the aggregate of 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, right? That's a good opportunity for us. Industrial manufacturing is not really hot right now. So -- and we're not even talking about residential and then the 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.

Got you. 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.

Yes, 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, any time 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.

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

Congrats on the nice quarter. Yes. 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 improvement in sequential rental rates into the back half? Or just how do you think about the opportunity for rental rate improvement to go forward?

Yes. 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 rate is a good guy, and we expect it to continue. And 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.

Very helpful. Okay. And then for my follow-up here, if I remember from your Analyst Day a few years ago, you had mentioned maybe some new product opportunities in 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?

Yes. We don't talk about -- we 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 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.

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

I wanted to go back to your rate comment. I know we're not getting specifics around rate, but can you just highlight -- I know you've talked about implementing some AI into your 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?

Yes. 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. It's 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 that discipline that is critical. So Matt, I don't know if you'd add anything there.

No, I would just say to your point, as we -- 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.

Got it. Okay. 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-fenced 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 million, $15 million a quarter in savings? Or does it accelerate or...

Yes. 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 million to $50 million 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 million year-to-date. And for the full year, we thought those charges would be $55 million to $65 million, still our expectation. So everything really is going to plan on all those restructuring activities. Matt, anything you'd add there?

No. No, I think you covered it.

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

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?

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 as the other public companies and we use that as a proxy -- report, I would expect to hear that would 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.

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 lower 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?

Yes, 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. But I -- 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.

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

Nice quarter. I guess two questions. Ted, clearly, now with markets and 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. Your -- I don't know if investing on tech goes up or if that's a positive relative to the aspirational targets you laid out in -- at your Analyst Day of the 50% to 60%. And 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, -- what I mean just in order to get fleet?

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 included 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 to kind of that goal we've talked about. And when you look at those big 3 metrics across cost of rental, here again, labor, delivery, 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 strong growth, right? If you look at ancillary being up -- or sorry, 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 a partner of choice, a 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.

And as far as the acquisitions and consolidation, I think that will 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 will continue to be a part of the industry's growth.

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

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.

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

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 historical lows and continue to decline with this very strong kind of fundamental performance. So just I'm curious how you perhaps kind of weigh that investment-grade opportunity versus -- or opportunity to get upgraded versus opportunities of M&A or more buybacks?

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 have 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 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 like what our existing capabilities are, where we think reasonably we might deploy capital and then compare that against 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 M&A strategy. So Matt, I don't know if you'd...

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

Amazing. Super helpful. And then I wanted to ask just on the CapEx front. You mentioned if you wanted another $1 billion worth of fleet, 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 the 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?

Yes. So the carryover of the growth this year certainly helps. It 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 of 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.

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

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

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

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. Was it you 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.

Yes. So we had confidence in April. We usually wouldn't do a raise in April because we -- to your point, we 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 a 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. So -- 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 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.

Great. And then there was 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 it just the demand backdrop is 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?

Yes. 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 has done a really good job offsetting it. And as I said earlier, you'd have to assume -- I don't have the math 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.

We'll go next now to Tami Zakaria with JPMorgan.

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 2 quarters?

So thanks for the question, Tami. 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. On the other hand, we -- inevitably, these conversations start there, but we would point people towards the range, which points to, we think, any reasonable set of outcomes. Certainly, if you think about kind of like the back half and probably the parts that could most reasonably drive the greatest part of volatility, it's probably things around ancillary and re-rent, 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.

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 spark up this end market?

So admittedly, it's all theoretical, but you could imagine interest rates has been topical and one of the drivers in that coming down. Residential growth, right, 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.

We go next now to Chad Dillard with Bernstein.

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 2 axes. So first of all, maybe by business segment and then second, by end market.

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 -- 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 usually participate in. So generally, major projects across the board are just stronger and deeper.

Great. That's helpful. And then just a 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 gen versus specialty.

Yes. 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 [ ut ]. We will continue doing those things and expect that, that should continue to drive improving returns on the business. And 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.

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.

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 is available to answer your questions. So until we speak again in October, stay safe. Operator, you can now end the call.

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.