06.08.2019

Solid first half for Herc

US based rental company Herc (Formerly Hertz Equipment) has reported its first half results.
Total revenue for the first six months of the year was $950.8 million, up 3.7 percent ton the same period last year, with increases in all sectors apart from ‘service and other’ revenue. Pre-tax profits were $5.2 million, compared to a loss of $14.7 million last year. Rental rates in the first half were 4.2 percent compared to last year.

Second quarter revenues declined 2.1 percent to $475.1 million, due to lower sales of used equipment, while rental revenues improved 3.8 percent to $407.6 million. Pre-tax profits increased by a factor of 30 from $500,000 to €15 million, with rates 4.6 percent higher. Capital expenditure on the fleet was $257.1 million down almost 17 percent on last year at this point. Sales of used equipment from the fleet declined around five percent to $123.7 million. The average age of the fleet declined from 46 to 44 months. Finally the company took a 7.8 million restructuring charge in the second quarter to cover costs associated with closing underperforming branches.

Chief executive Larry Silber said: “Our strong second quarter results reflect the company wide focus on quality of earnings. We improved pricing 4.6 percent over last year and increased dollar utilisation by 260 basis points to 38 percent in the quarter. Our margin improvement initiatives reduced expenses and contributed to the year over year increase in adjusted EBITDA margin of 550 basis points to 36.8 percent. Lower net fleet capital expenditures and increased pricing improved dollar utilisation. These initiatives drove equipment revenue growth and strong profitability improvements despite record levels of rain in certain regions of the U.S.”

"Customer feedback and project backlogs support our expectation for solid equipment rental demand for the rest of the year. As we continue to successfully implement our revenue and cost initiatives, we expect to continue generating strong growth in profitability for the full year 2019. We raised the lower end of our adjusted EBITDA guidance to reflect the strong pricing environment and our outlook for continued equipment rental demand for the full year. Our expectation for improved operating results and lower net fleet capital expenditures in 2019 are expected to generate strong positive free cash flow and improve our net leverage for the full year."

Vertikal Comment

This looks like a decent report from Herc given the challenges of recent years and the results since the slit with the Hertz car rental business. While the company is firmly ‘back in the black’ profits remain thin compared to the industry norms while cuts to capital expenditure can only be temporary if they are not to hurt the long term position of the business.

It also looks as though the company will have a decent year in 2019 and will be in a good position to move forward more rapidly and
profitably in 2020. Given its size it might also be an acquisition target for a company like United Rentals.