13.08.2020

H&E holds steady

US sales and rental company H&E Equipment Services has reported a first half loss, but overall the business has not been hit as hard as might have been expected.

Total revenues for the six months to the end of June were down 13 percent on last year at $564.3 million. Rental revenues though held up quite well being just 10 percent lower at $330.3 million, while new equipment sales came in 35 percent lower and used equipment remained flat. The company posted first half pre-tax loss of $35.3 million, compared with a profit of $50.2 million at the same point last year. However this includes a $62 million impairment charge relating to acquisition goodwill.

Total debt at the end of June was just over $1 billion compared to $1.17 billion last year. Capital expenditure of the first half was just $73 million, compared to $208 million in the same period last year. Average age of the rental fleet was 39.1 months – however the average age of its aerial lift fleet is 46 months, while its crane fleet is 57.9 months.

In the second quarter, total revenues were 16.6 percent lower at $278.3 million, with a pre-tax profit of $12 million, compared to $30.9 million in the same period last year. Utilisation was just under 60 percent compared to 71.2 percent last year, while rental rates declined 2.8 percent.

Chief executive Brad Barber said: “As a result of the Covid-19 outbreak and subsequent economic slowdown, the second quarter was a challenging period for our business. Work continued in our end user markets while some projects were paused, delayed or cancelled. As we expected, demand for rental equipment declined which pressured rates, physical utilisation and ultimately rental revenue. Utilisation bottomed in April, subsequently, utilisation improved and stabilised with increased levels of activity in our end user markets.”

“Recently, there are some encouraging trends compared to the second quarter, however, we believe the headwinds related to Covid-19 will persist throughout the balance of this year. There is still tremendous uncertainty regarding the cadence of the economic recovery, including the outlook for the non-residential construction markets. We are working very hard to generate returns for our shareholders in the current environment and I am very pleased with how our team has responded to these significant marketplace challenges.”

Vertikal Comment

This is quite a decent set of numbers from H&E, and with business beginning to bounce back the company looks set to pull through the crisis in fairly good shape. The downside might be an aging rental fleet. 39 months is not so bad but aerial lifts are an important part of the fleet and are likely to increase to more than 48 months this year, creating a lumpy age profile which can cause problems in terms of service costs, reliability and replacement costs.

Based in Baton Rouge, Louisiana, in the heart of the Gulf, one positive point from the conference call presentation is that the company’s dependence on the oil & gas industry which is just five percent these days.

The current crisis may well throw up some decent acquisition or other growth opportunities so all in all things look fairly positive.