US based Herc Rentals has published its first half results, with improved revenues but lower profits, thanks to higher costs.
First half
Total revenues for the six months to the end of June were $1.65 billion, up 7.5 percent on the same period last year. Most of the growth came from rental with rates improving 3.5 percent. Pre-tax profit slipped two percent to $174 million. Capital expenditure on rental equipment was $468 more than 33 percent lower than in the same period last year. However, sales of equipment from the fleet were slightly lower at $125 million. As a result, the average age of the fleet increased from 46 to 47 months. Net debt at the end of June increased marginally to $3.8 billion.
Second Quarter
Total revenues came in at $848 million, a six percent increase on the same quarter last year, while pre-tax profit slipped almost 10 percent to $93 million.
New aquisition - Otay Mesa Sales
The company says that in the past week or two, it has acquired the assets of Otay Mesa Sales which operates from four locations in San Diego, California along with Phoenix and Yuma, Arizona for $264 million.
Chief executive Larry Silber said: “In the second quarter, we benefited from positive rental pricing, increasing fleet efficiency, and expanding market share, as we continue to significantly outpace rental industry growth. Overall, our record second quarter revenue results came in according to our expectations. However, while national mega projects are on plan, we saw a greater deceleration in the local market's growth trajectory versus our forecast, primarily driven by the persistently higher interest rate environment. The local-revenue deficit was essentially offset by contributions from acquisitions that added 21 locations year to date, including 10 in the second quarter.”
“As is typical, these new acquisitions and greenfields initially generate lower incremental margins than our established local-account business, which reflected an unfavourable trade-off in profitability in the second quarter. Looking to the second half of the year, mega project activity is ramping up into the peak season as anticipated. Higher revenue growth for the rest of the year and incremental adjustments made in the second quarter to better align our local cost structure should support more normal margins. Based on current line of sight to market trends, we expect to deliver record full year results and are reaffirming our annual performance targets. Despite temporarily slower growth in the more rate-sensitive local market this year, the outlook for rental demand long-term is robust as the pipeline for mega projects remains strong, data centre construction is accelerating, federal infrastructure spending continues to roll out, and rental penetration increases.”
Vertikal Comment
These a mixed set of numbers from Herc, on the one hand it continues to grow, but on the other hand the flurry of new acquisitions are costing the company in terms of lower margins and higher interest costs. The company is confident however that in the coming months as they are integrated, and it pays down debt the benefits will flow through. Typically they don’t, but in recent years companies like Herc, United and Sunbelt/Ashtead have proved that they can. While Herc has been making strong progress in the past two your or so, it does not seem to be as slick and well organised as the other two at acquisition integration. It also needs to keep an eye on the age of its fleet the current capex levels will come back to haunt they continue at this level.
But let’s see how the second half goes before rushing to judgement.
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