Key questions and answers from the second quarter earnings call conducted by H&E Equipment Services Inc. (HEES: chart) on August 7, 2008.
Jamie Cook (Credit Suisse):
Can you give me an update for the full year, what you are expecting sort of J.W. Burress to contribute on a revenue and EBIT basis versus where we were before?
John Engquist: I think the second quarter they were in the $40 million range on revenue, which was a big increase for them from the first quarter. Their equipment sales and rental purchase conversions were very strong.
Jamie Cook (Credit Suisse):
Should we see margins down as well?
John Engquist: I do not anticipate margin deterioration there.
Jamie Cook (Credit Suisse):
Any idea when you think these inventory issues sort of work themselves through?
John Engquist: It is not going to take long because the aerial manufacturers are being very disciplined in their approach right now. I do not see them doing anything to try and force equipment into the marketplace and keep factories running.
Jamie Cook (Credit Suisse):
Comment on what is really pulling down the rental rate?
John Engquist: The bulk of our rate pressure is coming out of Florida, Southern California and the Mid-Atlantic. Those are the toughest markets. We have seen a lot of rate pressure on our boom trucks.
Our rough terrain crane rates are up around 6%. So the pressure we’re seeing there is in boom trucks and that’s because the drivers of the boom truck business are residential markets and commercial construction markets.
Henry Kirn (UBS):
On the crane market, how far out do the orders extend to and how much longer do you think the cycle can last?
John Engquist: Just don’t try and relate the boom truck markets to the rough terrain and lattice boom markets because they are totally different drivers. Manitowoc is looking for growth in their crane business through 2010 and we concur with that.
The drivers of our hydraulic crane business, rough terrains, ATs, and lattice boom cranes, it’s petrochemical, it’s oil patch, it’s energy.
Henry Kirn (UBS):
As you look at your overall fleet today and toward where you are looking to go by the end of the year, where are you looking to go for fleet age and original equipment cost by the end of the year?
John Engquist:We will not be de-fleeting in cranes. If anything subject to availability, we will grow our crane fleet somewhat, but we will be significantly reducing our capital spending on our aerial fleet and our earthmoving fleets.
Our original plan called for some modest fleet growth to the $10 million to $25 million or $30 million this year, and now we are looking at maybe bringing our fleet down $25 million or $30 million. And that’s primarily in the area of aerials and earthmoving equipment.
Seth Weber (Banc of America Securities):
On the rental fleet, how much of the crane fleet is actually boom trucks versus rough terrains or crawlers?
John Engquist: The total rental fleet is something north of 60% aerials.
Seth Weber (Banc of America Securities):
Are you trying to lock in equipment at lower rates?
John Engquist: Typically when you go on a big project that’s going to last a long time and you lock equipment up, you can afford to take a lower rental rate. You end up for a given period of time with a 100% time utilization.
