H&E Equipment Services Inc.’s HEES second-quarter 2015 earnings of 33 cents per share declined 27% year over year but beat the Zacks Consensus Estimate by a penny. The company managed to beat estimates despite the slowdown in construction activity due to extreme rainfall and subsequent flooding in central United States in May. The share price of H&E Equipment Services went north, gaining 20% since reporting results on Jul 30.
Total revenue declined 6% to $262 million but was still ahead of the Zacks Consensus Estimate of $249 million. Rental revenues increased 9.9% to $108.6 million due to fleet expansion. Average rental rates increased 0.9% from the year-ago quarter.
Equipment rental revenues increased to $109 million from $99 million in the prior-year quarter. New equipment sales dipped 29% to $64 million while used equipment sales decreased 8% to $29 million, both on a year-over-year basis. Parts sales remained flat with the prior-year quarter at $28 million. Service revenues decreased 2% to $16 million.
Cost and Margins
Cost of sales decreased 8% to $176 million in the quarter. Gross profit went down 3% to $86 million. Gross margin expanded 110 basis points to 32.9%. Rental gross margins decreased to 46.7% in the quarter from 48.4% in the prior-year quarter due to lower time utilization and higher rental expense as a percentage of equipment rental revenues. Rental rates were 0.9% higher than the year-ago period rates. Despite pressure in rates from inclement weather and the oil and gas markets, H&E Equipment Services achieved positive year-over-year rental pricing in the quarter.
Gross margins on new equipment sales were 11.8%, down from 12.3% in the year-ago quarter. Gross margins on used equipment sales were 32.2% compared with 32.9% in the prior-year quarter. Gross margin on the sale of rental fleet equipment increased to 37.2% from 35.4% in the second quarter of 2014. Gross margin on parts sales decreased to 27.3% from 29.4% in second quarter of 2014 due to revenue mix. Gross margin on service revenues increased to 67.3% from 64.2% in the prior year mainly due to revenue mix.
Selling, general and & administrative expenses increased 5% to $54 million. Adjusted operating profit decreased 14% to $32 million and operating margin contracted 110 bps to 12.2%. EBITDA (earnings before interest taxes, depreciation and amortization) increased 1% to $79 million. EBITDA margin in the quarter was 30.3% compared with 28.1% in the year-ago quarter.
Financial Updates
Cash and cash equivalents were $11.9 million as of Jun 30, 2015 compared with $15.9 million as of Dec 31, 2014. Total debt amounted to $889 million as of Jun 30, 2015 compared with $892 million as of Dec 31, 2014.
H&E Equipment Services’ board of directors declared a regular quarterly cash dividend of $0.0275 cents per share of common stock, an increase of 10% from the first quarter.
Rental Fleet
As of Jun 30, 2015, the original acquisition cost of H&E Equipment Services’ rental fleet was $1.3 billion compared with $1.1 billion as of Jun 30, 2014. Average time utilization (based on original equipment cost) was 70.3% compared with 72.7% in the prior-year quarter.
Average time utilization (based on units available for rent) was 67.7% compared with 67% last year. Underutilization compared to historical spring trends was due to inclement weather and the ongoing weakness in the oil and gas markets. Dollar utilization was 34.2% compared with 36.3% in the prior-year quarter, reflecting lower time utilization.
Guidance
H&E Equipment Services maintained a positive outlook for the balance of this year and the next as most market indicators remain positive and continued recovery is witnessed in the commercial construction markets. The company noted significant pickup in activity in June which continued in July as well.
Due to the unusually wet spring and ongoing softness in the oil and gas markets and the resulting delayed seasonal ramp, the company lowered its annual guidance. The company guided EBITDA in the range of $319 million to $335 million on the back of revenue anticipation in the band of $1.030 billion to $1.052 billion. The company had earlier projected EBITDA between $334 million to $352 million and revenues in the range of $1.065 billion to $1.088 billion.
Baton Rouge, LA-based H&E Equipment Services rents, sells and provides parts and service support for hi-lift or aerial work platform equipment, crane, earthmoving equipment and industrial lift truck categories. It offers heavy construction and industrial equipment for rent on a daily, weekly and monthly basis.
H&E Equipment Services Inc. carries a Zacks Rank #5 (Strong Sell).
Peer Performance
Caterpillar Inc.’s CAT second-quarter 2015 adjusted earnings declined 25% to $1.27 per share but beat the Zacks Consensus Estimate of $1.25 per share. Persistence of severe weakness in mining, soft construction-related sales in China and Brazil and lower new orders for oil-related applications led to the decline.
Astec Industries Inc.’s ASTE second-quarter 2015 earnings per share of 51 cents slumped 19% from 63 cents in the year-ago quarter. Earnings also missed the Zacks Consensus Estimate of 71 cents by a wide margin of 28%.
Terex Corporation TEX reported its second-quarter 2015 results on Jul 29, wherein earnings per share of 78 cents increased 2.6% from 76 cents reported in the year-ago quarter and also surpassed the Zacks Consensus Estimate of 73 cents.
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