03.07.2020

Herc holds its own

US rental company Herc – previously Hertz Equipment Rental, has reported first half results which are not too bad at all given the current crisis.

Total revenues for the six months declined 15.5 percent to $804.2 million, however much of that was due to lower used equipment sales from its fleet. Rental revenues were nine percent lower at $714.1 million. The business generated a pre-tax loss of $2.5 million, compared to a profit last year of $5.2 million. Although this year includes a write off of $3.2 million for two depots that have been closed with two more having been put up for sale. Capital expenditure so far is $161.5 million compared to $257.1 million last year. As a result the average age of the fleet increased from 44 to 47 months.

In the second quarter revenues totalled 368 million a decline of almost 22 percent on the same period last year, with rental down 19.6 percent. The company managed to do slightly better than break even posting a pre-tax profit of $100,000 compared to $15 million last year. Net debt is $2 billion, while overall interest costs for the half year were reduced from $64.5 to $47.7 million.

The company is forecasting second half rental revenues to decline by between eight and 13 percent, which would take overall revenues to somewhere in the region of $1.7 to $1.85 billion compared to almost $2 billion in 2019. Net capital expenditure is forecast at less than half that in 2019 at $190 million to $210 million.

Chief executive Larry Silber said: "We maintained rates and did an excellent job of controlling costs in a challenging quarter. We took actions in 2019 to focus on disciplined capital expenditures and margin improvements, and with these programmes in place, we were in a good position when the Covid-19 pandemic hit to intensify our cost control initiatives in line with business conditions.”

"Our highest priority remains the safety of our employees and our customers and we have continued to maintain strict adherence to the Centers for Disease Control and Prevention's guidelines in our operations and interactions with customers. Our strategy to diversify our customers and fleet through specialty services has partially offset the overall impact of the pandemic on rental revenue. We are very pleased with the performance of our ProSolutions team in particular, as they continued to generate strong year over year growth during this healthcare crisis."

"Our leadership team's experience contributed to better than anticipated second quarter operating results and reflect our ability to manage through challenging times. Construction and business activity began to improve in early June and continues to trend slowly upward. We have managed our costs and taken steps to substantially reduce our capital expenditures to conserve capital. We generated free cash flow of approximately $179 million in the first half of 2020 and as of June 30, 2020, we had ample liquidity of $1.2 billion."

"Our Herc Rentals team continues to demonstrate their professionalism and resiliency as we serve our customers every day. We are ready to support our customers in whatever capacity they need, with the understanding that we must prove ourselves every day."

Vertikal Comment

This is not a bad result from Herc which has struggled under its debt pile since it was split from Hertz car rental. The fleet is beginning to reach an age profile that will create issues next year, given the plan to continue the current underspend. Costs have been saved in the service area too according to the commentary, and if so the combination of an aging fleet and lower service and maintenance costs does not bode well.

The good thing is that can always be changed if the current pick up continues. It would be no surprise however if Herc was acquired along the way or moves towards becoming a more specialised operator. It currently seems to fall between two stools – it is not a truly national full service rental company like United Rentals or Sunbelt, but neither is it a privately held regional or specialist player.

Having said all that it is doing OK in these very challenging times.