This summary is based on the third quarter fiscal 2008 earnings call conducted by H&E Equipment Services Inc. (HEES) on November 6, 2008.
Management:
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President, CEO and Director: John Engquist
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CFO and Secretary: Leslie Magee
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IR, Corporate Communications, Inc.: Kevin Inda
Key Investors Issues
- Revenue increased 3% to $278.6 million versus $270.6 million a year ago.
- Net income was $17.6 million or 50 cents a share down 2.6% from $20.2 million or 53 cents a share in the prior year.
Third Quarter Highlights
Revenue increased 3% to $278.6 million versus $270.6 million a year ago reflecting a full three months results from the Mid-Atlantic region as compared to the prior year’s quarter, which reflects one month of results from the acquisition.
- The Mid-Atlantic revenues increased to $38.8 million as compared to $10.1 million a year ago and top line revenue growth, exclusive of the Mid-Atlantic revenues declined 7.9%.
- On an organic basis, product support business reflected growth, offset by declines in rentals, new and used equipment sales.
Rental revenues increased $2.6 million 3.4% over the prior year and on an organic basis, rental revenues declined 0.9% due to weakness in the aerial market.
- Dollar return was 38.8% as compared to 41.9% for the same period in 2007, but improved over second quarter returns of 37.5%.
- Year-over-year dollar return was negatively impacted by a 2% average rate decline on new contracts, lower time utilization and the impact from the rental operations in the Mid-Atlantic.
- Average time utilization for the quarter was 67.4% as compared to 70.7% a year ago, with declines in each product line.
- Aerial utilization is down as a result of lower demand for this product, which has begun to spread in the markets other than Florida and Southern California.
Earthmoving utilization is down in most of the markets, and claims remain highly utilized that have been impacted by lower demand for boom trucks.
- Crane rental rates increased 1.4% over the prior year, due to strength in crane demand, but aerial rates declined 2.5% over the prior year, and earthmoving rental rates declined 1.1%.
- New equipment sales grew $3 million or 3.3% over the prior period with Mid-Atlantic new equipment sales at $20.5 million as compared to $3.1 million a year ago.
- Though demand for cranes remained strong, sales were limited by product availability.
- Used equipment sales decreased approximately $4.6 million or 10.3%, partially offset by a $3.5 million increase in used equipment sales from the Mid-Atlantic region.
Although demand for cranes remained strong, the firm controlled the sale of used cranes from the rental fleet to maintain [ph] adequate fleet available for rent.
- The parts and service business continues to show solid growth at 13% or $5.7 million on a combined basis due to revenue from the Mid-Atlantic and increased demand.
- Total gross profit margin decreased to 29.6% as compared to 31.0% due to a 16.9% gross margin on $38.8 million of revenues from the Mid-Atlantic operations.
- The firm experienced declines in rental gross margins to 50.3% from 52.9% in the prior year due to lower rental rates and time utilization on a year-over-year basis.
Income from operations decreased to $37.2 million from $42.4 million, with the decline in EBIT due primarily to the impact of weaker markets and increased depreciation and amortization of $2.9 million.
- Net income was $17.6 million or 50 cents a share down 2.6% from $20.2 million or 53 cents a share in the prior year on a lower effective tax rate of 36.9% versus 39.4% in the prior year.
- Interest expense increased $0.5 million to $9.5 million over the prior year as a result of maintaining higher average borrowings under the senior secured credit facility.
- The firm has repurchased a total of 3.6 million shares of $55.4 million of common stock in the open market since the initiation of our buyback program.
- SG&A cost increased $4 million to $45.6 million and as a percentage of revenues, SG&A cost was 16.3% as compared to 15.4% a year ago.
Gross fleet capital expenditures were $51 million and net fleet capital expenditures were $22 million.
- Fleet at the end of the quarter was $806.3 million, which has increased $3.1 million since the beginning of the year, with a fleet age at the end of September of 31.2 months compared to 33.4 months a year ago.
- The firm has a senior secured credit facility of $320 million ABL facility, which matures in August of 2011 and had $207 million of excess availability.
- It also has a $250 million of senior unsecured notes that carry a coupon of 8.375% and a maturity date of 2016.
Florida and Southern California continue to be the most challenging markets, and the firm downsized its fleets and reduced overhead in Florida and Southern California to adjust these businesses to current market conditions.
- The Mid-Atlantic region continues to be negatively impacted by strong ties to the earthmoving markets and this is partially offset by the strength of their crane markets.
- Earthmoving markets are down significantly across the footprint with the exception of earth moving businesses with exposure to oil and gas exploration and production.
- Strong presence in the Gulf Coast and Intermountain regions continues to provide the company with the exposure to the petrochemical oil patch, energy and mining sectors.
Fiscal 2008 Outlook:
– The firm reconfirming its guidance for EBITDA and EPS and lowered revenue guidance to adjust for expected delays in fourth quarter crane shipments.
- It expects revenues in the range of $1.08 billion to $1.09 billion.
- It expects EBITDA in the range of $247 million to $253 million and EPS in the range of $1.60 to $1.68 based on an estimated effective tax rate of 37% and an estimated 35.6 million diluted common shares outstanding.
