02.05.2023

First quarter boost for Herc

US rental company Herc Rentals has reported a very strong first quarter in terms of revenue growth with a more modest increase in profits.

Total revenues were 30 percent higher than for the first quarter 2022 at $740 million, driven mostly buy rental revenues, which benefited from a seven percent increase in rental rates, along with a 23.2 percent growth in volumes.

Pre-tax profits were 12 percent higher at $75 million, having been held back by a doubling of the interest cost, higher depreciation, higher sales and admin costs and higher general costs.

Capital expenditure was $332 million for the quarter, up 16 percent on the same period last year, while sales of older equipment (average age 7.5 years) from the rental fleet, were $49 million, compared to $29 million last year. This helped nudge the average age of the fleet down from 48 to 47 months. The company is forecasting full year capex at $1.0 to $1.2 billion net of disposals.

Net debt increased almost 40 percent, to $3.2 billion, driven by three new acquisitions in the quarter with a total of six locations and the opening of three new greenfield branches.

Chief executive Larry Silber said: "We continue to build on our momentum coming out of 2022 with record first quarter revenue that significantly outpaced industry growth. Higher rental rates are more than offsetting inflation, while demand across regions and in our end markets is seasonally strong, benefiting from the multiyear fiscal stimulus, re-shoring and mega projects, as well as long term industrial maintenance contracts for onsite fleet management.”

"While macro concerns are focused on residential and commercial construction, we have very diversified end markets, with growing share in manufacturing and reshoring projects, the private and government spend in infrastructure, as well as industrial MRO, which is required in all economic environments. Investments to capitalize on these opportunities are strategic and disciplined, whether it be in fleet, people or acquisitions. As a tenured market leader with a strong reputation, a comprehensive product and service offering, broad capabilities and one of the leading teams in the industry, we will continue to execute on our strategies to win new business and deliver profitable growth."

Vertikal Comment

This is an excellent result from Herc, in terms of revenues, which were mostly generated through organic volume and pricing growth, although the new acquisitions would have also contributed to both. The challenge of course in these days of high inflation, is to hold down costs at the same time as you are substantially increasing volumes.

Herc outpaced the two largest US rental companies - Sunbelt and United - in terms of revenues, but slipped behind when comparing pre-tax profit growth.
Having said that the company is making strong progress. It may well become an acquisition target for one of the big two?

In summary another positive set of results.