14.08.2009

Essex Crane slips 25% but steps up investment

Essex Crane the US based crawler crane rental company has reported first half revenues of $31.9 million, almost 25 percent lower than last year.

The fall in revenues as largely due to lower gross rental sales, with utilisation dropping to 51 percent from 72 percent in the same period of 2008. However average crane rental rate per month jumped from $20,200 to $22,200, reflecting the company’s strategy to move towards larger capacity cranes.

Pre-tax profits were halved to $6.2 million for the six months, largely due to the lower revenues.

The second quarter showed a further fall, with revenues down 34 percent to $14.5 million as utilisation dropped to 44 percent. Pre-tax profits plunged to $779,000 from $9.2 million last year.

The company says that its markets are stabilising and that it expects a steady pick up as we go into 2010, as the economy begins to recover and stimulus funds begin to kick in on heavy highway projects. As a result it is continuing to buy new cranes, having purchased nine larger crawler cranes in the first half, replacing nine older models.

Essex chief executive Ron Schad, said: "Our performance in the second quarter reflects continued weakness in many of our end markets, which resulted in lower crane fleet utilisation and rental revenues. Many of our customers have delayed the start of their projects due to inability to access the credit markets, general economic uncertainty and diminished demand for large construction.”

“To offset decreased demand, we have implemented several cost cutting initiatives, including reducing headcount, eliminating the use of outsourced services for many projects and significantly reducing overtime labour hours. Additionally I and my senior management team elected to take salary reductions of 30 and 20 percent, respectively, and all salaried managers took a 10 percent reduction.”

“In the second quarter, we were able to decrease our compensation expense by $400,000 and we project that these additional actions will result in a combined total of nearly $5 million in annualised savings. These measures were taken in an effort to avoid having to further eliminate positions within our organisation, as retention of our best employees is integral to our continued success, while positioning the Company to capture business when the market recovers."

"Despite the current economic weakness, we continue to focus on our growth strategy of repositioning the fleet to heavier lifting capacity cranes that generate higher rental and utilisation rates. Over the past six months, we have sold nine used cranes, at an average price that was in excess of 110 percent of orderly liquidation value."

"We have used these proceeds, in conjunction with our free cash flow, to fund the purchase of nine new larger lifting capacity cranes and attachments. This in turn has improved the fleet's mix and market position, further enhancing the future earnings power of the business. As a result of our direct purchase relationships with key equipment suppliers, we have secured this new equipment on terms that we believe will generate an attractive return on capital."

"Based on our analysis of a number of business metrics and current visibility, we believe that while our operating environment will remain challenging through the end of the fiscal year, the business has stabilized, as evidenced by the relative equalization of rental starts and ends. We anticipate that these factors, in addition to increased federal stimulus spending subsequent to the end of the second quarter, specifically related to heavy highway work and other projects that target many of our end markets, will result in an increase of orders placed for the rental of crawler cranes in the next six to nine months.”

"Our confidence in our strategy to grow our business by the migration of our fleet towards higher lift capacity crawler cranes has influenced us to take advantage of outstanding opportunities to continue investing in new cranes. We feel the use of cash to purchase new high capacity cranes on attractive terms represents the best opportunity to ensure our future growth and provide a superior return on our invested capital."

"As we continue to use this market contraction as an opportunity to implement prudent cost control and asset management initiatives, we believe that we are increasingly well positioned to weather the current economic storm and emerge even stronger when the market turns."

Vertikal Comment

While Essex Crane has seen its revenues and utilisation drop to a frightening degree, it remains profitable and is taking the opportunity to reposition itself for the future, both in terms of renewing and upgrading its fleet and reviewing its cost base.

The average age of the US crawler crane fleet is excessive as witnessed by the continuing use of ancient mechanical machines on many small to medium road and bridge projects.

As contractors begin to appreciate the productivity and safety benefits of using newer cranes as well as renting cranes rather than owning them, Essex will be one of the main beneficiaries. The US infrastructure is creaking, something that the government’s stimulus package was intended to tackle or at least accelerate. So far the opposite seems to have happened, but this is likely to change as we go into the new year.

Essex looks set to benefit from this down cycle which came just after it had a major ownership change.