10.08.2017

Higher revenues and losses at Herc

Herc Rentals - previously Hertz Equipment - has published its second quarter and half year results.

First half revenues improved 7.5 percent to $805.2 million with improvements in both rentals and used equipment sales partially offset by lower sales of new equipment. The pre-tax loss for the period increased to $104.1 million from $4.2 million driven largely by higher interest costs and $29.3 million of write offs. Capital expenditure for the period was $160.8 million up 13 percent on the year, while sales of used equipment from the fleet totalled $88.6 million. The average age of the fleet at the end of the period was 48 months.

Looking at the second quarter, revenues were seven percent higher at $415.8 million while pre-tax losses increased to $49.8 million from a loss of $2.7 million. Average rental rates over the period improved 1.3 percent.

Chief executive Larry Silber said: "We are pleased to note that our equipment rental revenue growth accelerated in the second quarter. Demand and pricing continued to improve year over year and our initiatives to diversify our fleet and expand our customer base are driving top-line growth. Upstream oil and gas markets appear to be stabilising after more than two years of year-over-year declines. In addition, overall dollar utilisation improved to 34 percent, the first year over year improvement since the initial downturn in oil and gas markets.”

"We have accomplished a great deal in our first year as a stand alone company. We are continuing to complete the separation from our former parent and implement major initiatives to grow our business and improve our operating efficiencies. We are encouraged by improving fundamentals in the rental equipment industry and remain confident in our strategy.”

"In the quarter, we decided to discontinue the development of new information technology systems initiated prior to the spin-off. We will transition the legacy industry standard systems that we have been using and redirect our investments to upgrade and enhance their functionality. This decision puts us on a solid path to achieve what's best for the business by leveraging our existing resources.”

Vertikal Comment

While the mounting losses are not encouraging this is a year of transition from being an independent part of a global car rental business to a stand alone largely North American-based totally independent equipment rental company.

The higher revenues are encouraging, as are the higher rental rates.
The underlying trends show promise for 2018, although the company has much to do to before then. One looming issue appears to be an aging rental fleet. The company is beginning to address this, increasing capital expenditure and selling more used equipment but more needs to be done without pushing up the interest costs too much.

All in all this looks like quite a positive first half in terms of progress towards a stronger year in 2018.