29.02.2016

H&E slips

US based sales and rental company H&E Equipment has reported a 4.5 percent fall in full year revenues, with a steeper fall in profits.

Total revenue for the 12 months was $1.04 billion just 4.5 percent lower than in 2014, this due mostly to lower sales of new equipment, partially offset by higher rental revenues. Rental was boosted by a larger fleet with slightly lower physical utilisation at 72 percent compared to 72.4 percent last year. However rates were 0.6 percent higher. Pre-tax profit declined 18.5 percent to $75.7 million.

Total debt at the end of the year was almost nine percent lower at $816.8 million, the average age of the rental fleet was 31.4 months, compared to 31.7 months a year earlier.

In the fourth quarter revenues were down eight percent to $273.2 million due again to lower sales of new equipment, while pre-tax profit was 26.5 percent lower at $20.5 million.

Chief executive John Engquist said: “We delivered solid results for the quarter and year despite the turmoil in the oil patch, the historic flooding that occurred in May, and the exceptional rainfall we saw in many of our end markets in the fourth quarter. Our rental business continues to strengthen, with revenues increasing 3.7 percent for the quarter and 9.6 percent for the year, and helped offset the weakness in our distribution business, specifically new crane sales. Once again, we achieved positive rental rate growth both year over year and sequentially over last quarter, which we believe demonstrates the ongoing strength in the non-residential construction markets”.

“We believe the uncertainty over the direction of the economy will help drive increased rental penetration as our customers believe it is more prudent to rent rather than make large capital purchases. In terms of 2016, non-residential construction activity remains strong across our footprint, especially in the Gulf Coast where a significant number of large capital projects remain on schedule to begin over the next several years".

"Furthermore, the Gulf Coast region continues to experience the highest levels of commercial construction starts and activity in the U.S. However, until the oil patch rebounds and stabilises, we expect to continue to have limited visibility into our distribution business”.

“At 31.4 months, we continue to utilize the youngest fleet in the industry, which allows us to take a conservative approach to capital spending in 2016. We intend to closely monitor manufacturer inventory levels and make our cap-ex decisions as close to the point of need as possible. We believe we can react to market demand, positive or negative, very quickly.”

Vertikal Comment

While negative by direct comparison, this is not a bad result at all given that H&E has some substantial exposure to the oil & gas industry from its Louisiana base. The company has significantly expanded its footprint in recent years, both geographically and in terms of industries served. This is now standing it in good stead.

Its approach to capital spending is not dissimilar to many other large rental companies and is likely to result in a surge in demand in a year or two if it continues into next year. All said and done the company is well placed to continue to expand this year and will be well placed to bounce back when the current uncertainty eventually subsides.