Operational Thoughts:
- The footprint in geographic diversity continued to provide opportunity for the company due to a strong presence in geographic regions with tremendous exposure to the industrial sector.
- Demand for products and services remained strong in the Gulf Coast and Intermountain regions due to the petrochemical, oil patch, energy and mining sectors.
- Increased construction cost such as steel, asphalt, plastic, wallboard, and fuel have presented new challenges to the construction markets.
In particular, the Florida, Southern California and Mid-Atlantic regions remain very challenging.
- Due to an ongoing credit crisis and skyrocketing construction cost, the firm believes the non-residential construction markets may be negatively during the second half of this year.
- It is currently taking steps to adjust the business to prepare for what will be a more challenging environment in the second half.
- These steps include a measured fleet reduction to adjust to current market demand.
- Reduced capital spending will generate significant free cash flow, which the firm will use to pay down debt and/or repurchase shares.
Fiscal 2008 Outlook:
- The outlook for the overall economy in the non-residential construction markets has progressively weakened.
- The firm now expect revenues in the range of $1.094 million to $1.108 billion.
- It expects EBITDA in the range of $247 million to $255 million and EPS in the range of $1.57 to $1.71 based on an estimated 35.8 million diluted common shares outstanding.
Key questions and answers from the second quarter earnings call conducted by H&E Equipment Services Inc. (HEES) 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?
