01.08.2016

Tougher quarter for H&E

US crane and access sales and rental company H&E Equipment has reported lower revenues and profits for the second quarter.

Total revenues for the six months were $489.1 million marginally lower than last year, due to lower sales of new equipment, rental revenues were roughly the same as last year at $108,650. Pre-tax profits dropped 25 percent to $22.2 million.

Looking at the second quarter, revenues fell seven percent to $242 million, with rental revenues roughly flat. Pre-tax profits dropped 35 percent to $12.7 million. This due to lower margins in some areas and higher Sales & General Admin costs.
Physical utilisation in the rental fleet slipped slightly from 67.7 to 67.5 percent, while rental rates softened by 0.3 percent. The average age of the rental fleet at the end of June was 31.6 months. Net debt was cut from $817 to $806 million.

Chief executive John Engquist said: “The overall non-residential construction industry remains healthy and demand for rental equipment remains solid. Unfortunately, the heavy rainfall and subsequent flooding in South Texas and Louisiana was a major headwind during the quarter, having a significant impact on the demand for earthmoving equipment. Despite the weather challenges, our utilisation based on Original Equipment Cost for the second quarter was 70.1 percent, down just 20 basis points from a year ago as a result of higher demand for aerial work platforms. As we expected, rental rates declined slightly from a year ago and our distribution business continued to be negatively impacted by weak crane demand as a result of the ongoing weakness in the oil & gas markets.”

“From a mid-year perspective, demand in our non-residential construction markets remains favourable across our entire footprint. Despite the significantly lower number of energy and chemical related project starts compared to last year, activity in our Gulf Coast industrial markets is positive with ongoing maintenance work on existing plants and new projects. Texas remains a strong market with new projects unrelated to the oil patch, including new warehouses and distribution centres, infrastructure and industrial projects, and new office buildings to support the state’s strong, recent employment growth.”

Vertikal Comment

While not a fantastic set of numbers, in terms of profitability, the company is in good shape and ought to complete the year on a more positive note that the second quarter results might suggest. They are particularly impressive given the H&E is based in the heart of Oil & Gas country.

The company has a good geographic spread, good sales and rental diversity and a good product mix, all of which bodes well for the longer term.