This summary is based on the second quarter fiscal 2008 earnings call conducted by H&E Equipment Services Inc. (HEES) on August 7, 2008.
Management:
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President and CEO: John Engquist
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CFO and Secretary: Leslie Magee
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IR: Kevin Inda
Key Investors Issues
- Revenues increased 21.2% to $282.6 million versus $233.1 million a year ago.
- EBITDA increased 12.2% to $64.6 million compared to $57.6 million of EBITDA a year ago.
- Net income increased to $16.1 million, or 45 cents per diluted share, compared to $15.2 million, or 40 cents per diluted share in 2007.
Half Year Highlights:
- Sales improved 19% to $528 million.
- Net income was $26.3 million or 72 cents a share, down 3.8%.
Second Quarter Highlights
Total revenue increased to $282.6 million or 21.2% year-over-year, with $40.6 million of revenue from the Mid-Atlantic region.
- Top line revenue growth exclusive of the Mid-Atlantic revenues was 3.8% as each operating segment reflected growth on an organic basis.
- On a segment basis, rental revenues increased 8.1% over the prior year on a larger fleet and with growth across all product lines.
- Rental revenue from the Mid-Atlantic was $3.8 million resulting in a 2.7% increase in rental revenues and also with growth across all product lines on an organic basis.
- The rental business continues to be impacted by weakness in Florida, Southern California, and the Mid-Atlantic, which are all still the most challenging markets.
The firm continues to make progress on transitioning the rental operations to more of a rent-to-rent focus rather than a rent-to-sell focus.
- The Mid-Atlantic’s performance alone accounted for approximately 160 basis points of the decline in the dollar return and the remaining in dollar utilization is due to lower time utilization and rental rate.
- The average time utilization was 67.9% as compared to 69.1% a year ago.
- Utilization of the aerial fleet increased100 basis points over the prior year as a result of strength in the aerial markets outside of Florida and Southern California and the positive results from deflating these markets.
- Earthmoving time utilization continues to be negatively impacted by the Mid-Atlantic region and the utility lines.
Cranes remain highly utilized but continue to be impacted by lower demand for boom trucks.
- Rates on average and excluding any impact from the Mid-Atlantic declined 2.9% over the prior year.
- The aerial rates declined 3% over the prior year, again driven primarily by Florida and Southern California.
Crane rental rates declined 2.6% over the prior year due to lower rates on boom trucks.
- The firm continues to see positive rate increases on rough terrain cranes, but these increases were offset by rates on new rental contracts for boom trucks.
- Earthmoving rental rates declined 2%, which is primarily attributable to the utility line or smaller earthmoving equipment.
New equipment sales grew 27.4% over the prior period, including $20.4 million of new sales from the Mid-Atlantic region.
- On an organic growth, new sales of cranes and lift truck equipment increased and were partially offset by a decline in new earthmoving and aerial sales year-over-year.
- Used equipment sales increased approximately $12.5 million or 36%, including $9.5 million of the used equipment sales from the Mid-Atlantic.
- The parts and service business continues to show solid growth at 20.3% or $7.9 million on a combined basis due to increased demand in revenues from the Mid-Atlantic of $6 million.
- The total gross profit margin decreased 28.5% as compared to 30.5% due to a 15.9% gross margin on $40.6 million of revenues from the Mid-Atlantic operations.
Income from operations increased to $34.9 million though weaker markets continue to impact overall performance, but the firm is beginning to realize improved financial performance as a result of de-fleeting and previous reductions.
- The EBIT contribution from the Southern California and Florida operations combined declined year-over-year by $2.5 million.
- However, despite decline in revenues, operating margins have improved.
- Net income was $16.1 million or 45 cents a share, up marginally from $15.2 million or 40 cents a share in the prior year on a lower effective tax rate of 37% versus 37.6% in the prior year.
Interest expense increased $600,000 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 2.9 million shares of $45.8 million of common stock in the open market since the initiation of the buyback program.
- The gross fleet capital expenditures were $55.9 million and net fleet capital expenditures were $20.2 million.
