07.08.2010

H&E optimistic in spite of losses

Baton Rouge, Louisiana based sales and rental company H&E Equipment has reported continuing falls in sales and large losses but is optimistic that the trend is now upwards and has begun to invest in its rental fleet again.

Revenues for the first half were down 33 percent on last year to $245.7 million with all sectors of the business declining, the greatest drop however was in new equipment sales down over 55 percent.

The lower volume for the period resulted in a pre-tax loss of $30.5 million compared to a profit last year of $3.9 million.

The second quarter was also well down on 2009, but showed strong improvements over the first quarter which the company now says looks like being the bottom of the cycle.

Revenues in the second quarter were down 27 percent on last year to $131 million, while the pre-tax loss was $11.3 million, compared to a profit in the same period last year of $751,000.

The company says that utilisation picked up significantly in the second quarter coming in close to those of last year at just under 55 percent. However over all rental rates were down 9.3 percent on the year.

Chief executive John Engquist said that underlying trends in the second quarter and since the end of June are encouraging and that it has now started to release cash for fleet additions, starting with earthmoving equipment.

"Our business delivered solid sequential improvements in the second quarter despite ongoing challenges in the markets we serve and, as we expected, the first quarter was a low point of the cycle. Revenue for all of our segments increased sequentially from the first quarter resulting in a 14.2 percent increase in total revenue. Our rental business continued to improve as units on rent again increased, resulting in a 14.3 percent gain in rental revenue and a 63.4 percent gain in rental gross profit from the first quarter, said Engquist.”

“While new and used equipment sales improved from the first quarter, demand remains weak compared to a year ago as access to lending and economic uncertainty continue to impact large capital purchases. Our EBITDA increased 69.6 percent compared to the first quarter which is the largest sequential increase we have ever experienced.”

“While we are cautious regarding the market conditions for the remainder of this year, we are encouraged by the current activity. June was an inflection point for our rental business as we experienced year-over-year improvements in our rental gross margin and dollar utilization for the first time in more than two years."

Chief financial officer Leslie Magee added: "With improved market conditions in the second quarter, we began investing in our fleet once again, particularly earthmoving equipment. Fleet utilisation continued to improve and we are currently maintaining approximately 62 percent of our units on rent versus 52 percent at the end of the first quarter. We expect our rental business to continue to gain momentum as the year progresses.”

“Our parts and service business is also improving, which is an indication that our customers are beginning to utilize their own fleets. Lastly, we continue to focus on our capital structure as evidenced by our recent extension of our revolving credit facility. This five-year agreement demonstrates our ability to access capital and will also position H&E to invest as necessary to support long term profitable growth."