08.08.2011

Essex crane losses mount

US based Essex Cranes has reported increased losses in its first half on strong pick up in revenues.

The company now incorporates Coast Crane which has helped boost revenues by 250 percent to $43.8 million for the six months. The revenues include $20.5 million of rental almost double that of last year, thanks to the addition of the Coast crane fleet.

Utilisation for all cranes is up but the Essex crawler fleet is still weak at just under 41 percent, but well up on the 35 percent reported at this point last year. Rough Terrain cranes fared best at 67.9 percent although this is one percent down on the first quarter.

Sales of new equipment and retail parts – all Coast business – was $12.9 million, while equipment repairs and maintenance also benefited hugely from the Coast acquisition at $5.6 million compared to less than $2 million last year.

While the revenue side is clearly a major upside the costs of doing the extra business – the Sales and General Administration costs - are of course significantly higher too– more than two and half times at $14.5 million compared to $5.1 million for Essex on its own. The result is a large increase in operating losses which, combined with higher depreciation and interest costs translates into a first half pre-tax loss of $14.4 million, compared to a loss of $6.7 million last year.

Essex is confident though, that a strong pick up in quotations for its crawler crane fleet combined with new deliveries of better utilised crane sizes coming through in the second half will lead to a significantly better back end to the year for its rental operations while sales activity is expected to continue its upward trend. The company also says that it has good liquidity to take it through this period.

Ron Schad, Essex chief executive said: "Overall, we are pleased with the business trends that we are seeing at Coast Crane. The acquisition has enabled us to diversify our earnings and is presenting us with a number of meaningful growth opportunities. The steady increase in rental equipment utilisation rates, combined with accelerated revenues in our equipment distribution segment and the predictability of our parts and service, provides Essex with a balanced business portfolio that is well positioned for growth as our end markets continue to recover."

"We are optimistic about the opportunities in the second half, particularly as we continue to experience strong quoting activity, relating to construction jobs that have already been awarded to contractors. Based on historical experience, we view the continued increase in our rough terrain and boom truck utilisation as a leading indicator that utilization for our crawler cranes will continue to steadily improve. During the balance of 2011, we will begin to take delivery of approximately $28 million of new equipment. Much of this equipment is in asset classes in which we are enjoying high utilisation, and we believe that as it is deployed it will be a catalyst for further revenue growth.”

"We continue to seek out opportunities to sell older and less utilised pieces of used rental equipment to reposition our rental fleet. We are currently finalizing the sale of three crawler cranes which we expect to close during the third quarter at a premium to appraised value. Our new equipment distribution backlog continues to build and during the third quarter of 2011, we are expecting to achieve a significant sequential increase in revenue compared to the second quarter. We remain pleased with the decision to broaden our equipment distribution platform by expanding our relationship with certain manufacturers and initiating new relationships with others. As we deploy marketing strategies over the ensuing months for both our new equipment distribution and our parts and service segments, we believe we will continue to grow at an accelerated rate.”

"On August 1st, we completed the first phase of the installation of information systems at Coast, allowing us to operate a single ERP system platform across Essex Rental Corp. The new system allows us to meaningfully improve our management of Coast Crane's asset portfolio to ensure that we are maximizing both rate and utilization of the fleet and operating in a cost effective manner."

Vertikal Comment

On the surface this looks like a dismal set of results with two unprofitable companies joining together to make one large very unprofitable business. However….. as long as the company has the liquidity and shareholder support to take it through this year and perhaps next, of market recovery and consolidation of the two businesses it should emerge as a much stronger more diverse business.

One question that might be relevant is how the market will react over the long term to the new operator certification and training rules that are coming into force? Will it gradually turn the USA towards a more European style of crane service with shorter term contracts and operator included, in which case companies such as Maxim and All Erection might be better placed to benefit, or will it have the opposite effect with the emergence of more independent operators and/or operator providers on the market boosting the bare lease concept?

One thing is for sure Essex could do with the current upward trend in the overall market continuing for a good year or two while it transforms and consolidates.