01.05.2015

Slower start for H&E

Louisiana based equipment rental company and distributor H&E has reported lower revenues and lower profits for the first quarter.

Total revenues were $227.4 million down just over four percent, although this is entirely due to lower sales of new and used equipment. Rental revenues climbed steeply, rising almost 18 percent to $101.4 million, while gains were also made in parts and service sales. The lower revenue, combined with higher depreciation and sales costs hit margins, while interest expense also helped push pre-tax profits down 16 percent to $10.2 million. The average age of the company’s rental fleet at the end of the quartet was 32.5 months.

Chief executive John Engquist said: “Overall, the first quarter approximated our expectations as we anticipated a challenging first quarter in certain areas of our business due to normal seasonality, extreme winter weather in many of our regions and the sharp decline in the oil and gas markets. Demand for rental equipment remained strong despite significant weather headwinds, with revenue increasing 17.6 percent from a year ago. Certain market indicators continue to validate an accelerating recovery in the commercial construction markets in spite of the ongoing weakness in the oil and gas industries. As we cautioned on our fourth quarter earnings call, a decline in new equipment sales, specifically cranes, was expected due to decreased oil and gas activities. While we did experience some decline in rental demand due to the softness in the oil patch, increased commercial construction activity in other markets helped mitigate the decreased activity and our strong fleet management systems and transferrable fleet mix allowed us to quickly and efficiently redeploy portions of our fleet into other regions.”

“We believe the healthy momentum in the commercial construction markets and significant industrial expansion in Louisiana and Texas will continue to drive further growth in 2015, especially in the back half of the year. Given the recent drop in the price of oil and gas and the difficulty investors may have in understanding the impact of such change on the trends in our business, we are providing 2015 guidance for revenue and EBITDA. We have no current intent to provide this type of guidance for periods beyond 2015. For 2015, we expect our revenues to range from $1.065 billion to $1.088 billion and EBITDA from $334 million to $352 million.”

Vertikal Comment

With its historic base in the oil and gas belt, H&E was bound to feel some impact from the fall in the oil price, especially in comparison to its record year in 2014. However the extreme weather in the East has delivered a double whammy, so all things considered it does appear to have come through this reasonably well - so far.

While the year will still have its challenges, the company is in a reasonable state to continue to make progress, build on its position and strengthen its balance sheet, ready for an anticipated pick up in a year or so or when the oil price eventually recovers. At that point it could well benefit from some catch up spending and activity.