Custom Truck One Source enters its third-quarter report with an odd disconnect. Management has raised its full-year outlook twice, described utility transmission spending as a possible once-in-a-generation super cycle, and kept cutting leverage. Yet the stock has fallen nearly 23% since the last report while the S&P 500 was roughly flat. The quarter now has to show whether the guided sequential slowdown is just a timing quirk, or whether the market sensed something the company's upbeat tone missed.
The Street expects earnings of about a penny a share on revenue of $520.1 million. That revenue figure would be up a modest 7.9% from a year ago but well below the record $563.4 million posted in the second quarter. The drop is no surprise. Management warned that some new and used equipment deliveries and rental purchase option buyouts were pulled into the second quarter, leaving the third quarter modestly lighter. The penny of profit compares with a loss of three cents a year ago, so the triple-digit growth rate mostly reflects a swing from a small loss to roughly breakeven. It says little about the strength of the business.
The guidance math matters more. The company now expects 2026 revenue of $2.10 billion to $2.20 billion, up from $2.005 billion to $2.12 billion, and adjusted EBITDA of $437.5 million to $455 million. With about $1.03 billion of revenue booked in the first half, the low end of the range implies at least $1.07 billion in the back half. The full-year consensus of about $2.04 billion sits below management's floor. Either analysts doubt the raise or their models have not caught up. A third-quarter print near $520 million that comes with a reaffirmed or raised range would effectively push estimates higher for the fourth quarter. A trim to the range would confirm the skeptics.
Operationally, the first item to check is backlog in the equipment sales business. New sales backlog fell to $322 million in the second quarter, about 3.5 months of sales and below the company's four-to-six month target, although it fell because deliveries hit a record. Management said backlog had already rebuilt above $340 million early in the quarter, with June quoting up 26% from a year earlier. A quarter-end figure moving back toward the target band would support the super cycle claim. A further decline would be harder to blame on delivery timing alone. Investors should also look at sales margins, which slipped on a heavier mix of lower-margin national accounts, and at whether the lagging waste and dump truck markets have stabilized.
The rental fleet is the profit engine, and it set a high bar. Utilization ran at 81.6%, on-rent yield climbed to 39.4%, and segment EBITDA margin reached 53%. Management has already said year-over-year growth in equipment on rent will slow as it laps a record second half of 2025, so slower growth alone should not alarm anyone. Falling yield or utilization would, especially since the company raised net rental capex to $170 million to $200 million because of strong demand. Continued progress below 3.85 times net leverage would show that the extra spending is not hurting cash generation. Any sign of chassis pre-buying ahead of the 2027 emissions rules is a secondary item.
Sentiment has turned from mildly bullish to clearly bearish. The stock, at $9.08, trades just above its 200-day average and near the bottom of its post-earnings range of $8.71 to $12.23. That leaves a low bar for relief if the narrative holds and little support if it doesn't. The key question is whether management reaffirms its raised outlook with a rebuilding backlog. If it does, the third-quarter dip looks like timing rather than a peak.