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06.03.2017

Tough first year for Herc

Herc Rentals – previously Hertz Equipment – has reported its full year and fourth quarter results which show small declines in revenues while last year’s modest profits have turned into losses.

Total revenues for the year were 7.5 percent lower at $1.55 billion with falls in all sectors of the business, however rental revenues were down just over four percent due to lower sales in the Oil & Gas market and overseas. Last year’s pre-tax profit of $156.9 million however was converted to a loss this year of $4.9 million due to costs associated with the separation from the Hertz car business, lower revenues and substantially higher interest costs, 2015 profits were also inflated by a $50.9 million gain from the sale of the French and Spanish business.

Moving on to the fourth quarter revenues declined four percent to $405.2 million due to the same reasons as the full year, although rental revenues were less than two percent down due to a lower impact from the oil market. The company made a pre-tax loss of $7.4 million compared to a profit of $55.1 in 2015 due to higher interest costs. Rental rates in ‘key markets’ increased 1.5 percent, and overall pricing increased half a percent in the fourth quarter,

Capital expenditure on the fleet over the year was $468.3 million down from $600 million in 2015 with sales of used equipment from the fleet of $115 million -taking the total value of the rental fleet to $3.56 billion at original equipment cost and the average fleet age as of the end of the year was 48 months.

Chief executive Larry Silber said: "This year was a critical milestone in our ongoing business transformation process. Our strategy, which includes a number of initiatives, programs and actions, is beginning to show results on behalf of our customers, employees and shareholders. In the fourth quarter, we achieved growth in equipment rental revenues in our key markets of 6.2 percent and improved pricing in those markets by 1.5 percent compared with the prior year.”

"The ongoing shift in our fleet mix is positioning our business for long-term success. The rollout of our ProContractor ToolsTM and ProSolutionsTM equipment and services expands and diversifies our fleet and enhances our ability to provide a wide array of equipment to meet our customers' equipment needs. In addition, new and upgraded technologies, including our ProControlTM telematics system that rolled out in the fourth quarter, further enhances the value we offer customers. We remain confident in our business strategy, our people and the growth opportunities ahead.”

"Our 2017 guidance is based on a 3.5% growth rate in the North American equipment market and the anticipated positive impact of our strategic initiatives. We plan to continue to adjust our fleet mix as we grow the fleet during the year and drive improvement in our utilization rates. We are confident that we have the right strategy and the right fleet plan to take advantage of market growth while improving our profitability and achieving adjusted EBITDA growth."

Vertikal Comment

While these numbers are not great, they are also not too bad considering that for most big rental companies 2016 was a challenging year. The company has had to cope with converting to a standalone publicly quoted business, which can be challenging and distracting at the same time. The underlying results are not that bad and we could see a decent bounce back in 2017. The challenge now is that the fleet is aging a little which really requires some heavier capital expenditure this year.

The young company is a little vulnerable against a larger United Rentals and an aggressive and well organised Sunbelt Rentals /Ashtead. However it has potential to outperform United and make gains on Sunbelt, Herc is not a company to watch- It will be an interesting year.

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