30.04.2020

Solid quarter for Herc

US rental company Herc has reported a respectable first quarter result with higher rental revenues and rates.

Total revenues for the three months to the end of March were eight percent lower at $436.2 million. However rental revenues were almost 2.5 percent higher at $386.5 million, thanks to a 2.4 percent increase in rental rates, partly offset by lower volumes. Sales of new and used equipment however was significantly lower leading to the fall in overall revenues.

The company posted a pre-tax loss of $2.6 million compared to a loss of $9.8 million in the same quarter last year. In fact if it had not been for a $6.3 million write off related to a receivable associated to a previous join venture the company would have made a small profit.

Capital expenditure for the quarter was $83 million, roughly the same as last year, leaving the average age of the fleet unchanged at 46 months.

Chief executive Larry Silber said: "Equipment rental revenue improved year over year in the first quarter primarily due to positive rate growth. We controlled direct operating expenses and reduced selling, general and administrative expenses compared with last year, contributing to our growth in adjusted EBITDA."

"In response to the onset of the Covid-19 pandemic in North America, we communicated and implemented safety and operating procedures based on the Centres for Disease Control and Prevention's guidelines to our employees and customers. We are proud to be providing essential support to customers in a diverse mix of critical infrastructure sectors and nearly all of our branches are open and operating. Our ProSolutions team has been especially busy providing critical support to medical centres, hospitals and additional patient facilities. Our foremost priorities are the health and safety of our team, customers and communities, while supporting the needs of critical services and operations throughout North America."

Outlook for the Year

"We have cut variable costs and taken steps to substantially reduce our capital expenditures to conserve capital. As of the end of the first quarter, we had ample liquidity of $1.1 billion. These unprecedented times make it difficult to predict the length of the economic slowdown related to the Covid-19 pandemic or the full impact on our business. As a result, we are withdrawing our 2020 guidance. Nonetheless, we believe the steps we have taken provide ample liquidity to fund our business in 2020 and beyond."

"I am proud of the 'can do' attitude of our Herc Rentals team as we work to navigate this challenging time together. Our business model is resilient, and our leadership team is experienced. We remain ready to support our customers' operations in whatever capacity we can during this uncertain time and especially when construction and business activities resume. We thank all of our team members for their professionalism and dedication in serving our customers and communities. Working together, we will emerge stronger and better."

Vertikal Comment

Compared to some of its past reports, this was a very positive result for Herc, which has reduced costs – or held them down, while reducing its interest payments and improving rental rates. The effect of Covid-19 however would have been relatively minor during this period, having probably only impacted the last two or three weeks of the quarter. The half year results will be far more telling.

Having said that, Herc like most other rental companies looks set to come through this crisis in a better manner than most manufacturers. One of the dangers for rental companies is how deep they cut into their capital investment programmes and for how long. Too much and or too long will cause serious catch up pains later on, while damaging their main suppliers, which could lead to longer lead times and higher prices when fleet updates become essential due to the higher costs and customer dissatisfaction issues associated with running an aging fleet.

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