A bump in aftermarket parts and services revenue were silver linings in a disappointing second quarter for Custom Truck One Source.
The Kansas City, Mo.-based commercial truck dealer and services provider reported year-over-year declines in total revenue, rental revenue, equipment sales and other categories.
BIGGER PICTURE: Custom Truck One Source’s (CTOS) Q2 earnings were partly the result of a weak utility-truck market, which accounts for roughly 60% of its revenue, Chief Executive Ryan McMonagle said during the company’s Aug. 1 earnings call.
“The utility markets have been meaningfully impacted in recent quarters as supply chain issues, continued high interest rates and regulatory approval delays have all contributed to project delays, which can be seen in the low number of transmission line miles he completed, ” he said.
However, McMonagle expressed optimism about the second half of 2024, saying market conditions, infrastructure spending and construction spending are expected to improve. He noted strong demand for products such as specialty dump trucks, roll-off trucks, hydro excavators and water trucks.
BY THE NUMBERS: With the ongoing industry recession and challenges facing the utility truck sector, which includes transmission and distribution work, CTOS reported the following in Q2:
- Total revenue of $423 million, down 7.4% year;
- Aftermarket parts and services revenue of $34.4 million, up 5.8% YoY;
- Rental revenue of $100.7 million, down 14.5% YoY;
- Rental yield down 10 basis points YoY to 40%.
- Truck and equipment sales of $247.9 million, down 1.4% YoY.
- Sales order backlog of $428.2 million, down 50% YoY;
- Fleet utilization of 71.7%, down 10 percentage points YoY.
NOTABLE: Halfway through 2024, CTOS had $132.3 million of floor plan payables, a jump from $3.1 million through the first half of 2023.
FUTURE LOOK: The company aims to capitalize on growing electricity demand as data center development and onshoring manufacturing increases, McMonagle said.
“While we are not satisfied with our financial results for the first half of the year, we believe CTOS is well positioned to capitalize on the secular tailwinds we see in the end markets we serve, driven by AI and data center investment, electrification and utility grid upgrades,” he stated in the company’s earnings report. “We continue to see good demand in our infrastructure, rail and telecom end markets, which all contributed to our [truck and equipment sales] segment performance.”
While CTOS maintains a positive outlook on its TES segment, it expects subdued rental revenue due to utility market challenges. Thus, the company provided the following update to its 2024 year-end outlook:
- Total revenue between $1.8 billion and $1.98 billion, ranging from a 3% decrease YoY to a 6% increase YoY.
- TES revenue between $1.1 billion and $1.2 billion, a 6% to 20% increase YoY.
- Equipment Rental Solutions (ERS) revenue between $610 and $640, down 12% to 16% YoY.
Market Outlook: Shares of Custom Truck One Source [NYSE: CTOS] were down 7.4% from market open to $4.65 as of market close Aug. 1. It has a market cap of $972.5 million.
