10.05.2011

Essex Crane doubles revenues and losses

Essex Crane has reported revenues up 260% for the first quarter, while losses grew by at a similar level.

Total revenues for the period were $21.5 million compared with just $8.3 million in the same period last year. Most of the increase came from the Coast Crane acquisition but improving utilisation in the Essex crawler crane fleet also helped.

Rental revenues more than doubled from $5.1 to $10.4 million. However the additional revenues did not translate into improved profitability – pre-tax losses went from $3.1 million last year to $7.05 million this year.

The damage was done at the SG&A line with costs rising from $2.5 million last year to $7.4 million this – Coast crane costs of $4.4 million was the major factor here, although costs associated with the integration work are also a factor.

Utilisation rates are on the up with crawler cranes achieving 42.8 percent physical utilisation compared to 30 percent in the same quarter last year. Rough Terrain cranes – all at Coast were 66.8 percent while tower cranes were just 32.6 percent.

Essex chief executive Ron Schad said: "The first quarter was a busy and productive period for Essex. While utilisation of crawler cranes declined slightly on a sequential quarterly basis, it significantly improved when compared to the same period in the prior year. The marginal decline in utilisation on a sequential quarterly basis is due to seasonality, the completion of stimulus-funded construction projects, and the conclusion of certain levee contracts. However, we did experience a modest sequential increase in average rental rates of crawler cranes compared to the fourth quarter of 2010.”

“As previously announced, we completed the acquisition of Coast Crane's assets in late November, 2010. To date, we are pleased with the quality of people at Coast Crane, and believe that their strengths have been exhibited while transitioning through the realignment of its management team. While there are short term challenges associated with any acquisition, we are encouraged by the early indications including the steady increase in utilisation of the rental assets that make up the majority of our investment in Coast Crane, the stability of its parts and service business, and the new distribution agreements that we have put in place. We continue to believe that we have an excellent opportunity to capitalise on Coast Crane's market position to generate highly attractive shareholder returns."

Vertikal Comment

Acquisitions can be tough and while both Coast and Essex are crane companies they could hardly be more different. Coast crane carries a high level of fixed cost with its network of distribution outlets - much of which is involved with the sales business which is still very much in the doldrums.

It is also still not quite clear which way Essex intends to go strategically, it has clearly decided not to leave Coast as a totally stand-alone operation. It stresses the fact that the price it paid for Coast was mostly for the asset value of the rental fleet and that it us installing its own systems within the company, which indicates that rental is its priority – and yet it has spent its first few months acquiring new crane distributorships which suggests that the sales business is still high on its priority list.

In order to get the most out of its purchase it does need the have Coast firing on all cylinders on both sides of its business. Whether this can work with the mix of two distinctly different cultures, remains to be seen.

Essex acquired the Coast rental fleet at a significant discount – paying around $80 million for the assets – so it has room for manoeuvre. It is also moving quickly to integrate the business and appears to have acquired at the bottom of the cycle all of which is positive.

Acquisitions don’t have a good track record though and all too often 2+2 = 3 or less, however the Coast Crane purchase could transform Essex, taking it to a new level, only time will tell with this one.