Alta Equipment Group’s new- and used-equipment sales dipped in the second quarter as the equipment sales market weakened despite revenue growth.
STATE OF PLAY: While the equipment dealer experienced growth in several areas, some concerns remain as new equipment sales moderate and interest rates remain high, Chief Executive Ryan Greenawalt said during the company’s Aug. 7 earnings call.
“Overall, our business rebounded well this quarter from the seasonally challenged first quarter and in the face of moderating market environment for new equipment sales,” he said. “While we benefited from a return to normal seasonality and a strong quarter from our Material Handling segment and our product support business lines, market unit volumes in our Construction Equipment segment remain under pressure due to uncertainty regarding interest rates and the election outcome, especially affecting small to mid-sized contractors.”
NOTEWORTHY: The problems affecting some contractors in the construction market led to smaller margins and lower equipment sales, although the “wait and see approach” from some contractors represented a revenue shift, Chief Financial Officer Tony Colucci said during the earnings call.
“The glut of new equipment supply on the market has led to a lack of discipline in certain product categories and regions on Construction Equipment pricing, which has impacted our gross margins and volumes in the quarter,” he said. “Important to note, and this gets to the diversity of our revenue streams, that while some customers take a wait-and-see approach to the next purchase, this dynamic will help our product support department as hours continue to accrue on aging customer equipment. “
The shift in new- and used-equipment demand also resulted in a shift to new and used inventory and backlog management, Colucci said.
WHAT THEY’RE SAYING: Alta’s earnings performance indicates some concern around the construction segment moving forward, but record product support revenue helped offset the concern, according to a D.A. Davidson research note.
“ALTG’s Construction Equipment segment appears to be actively grappling with oversupplied downstream inventories across the value chain, amidst lower overall out-the-door sales and price competition, as customer demand appears to be constrained as a function of macro concerns, particularly among small- and mid-sized contractors,” according to the research note. “That said, product support revenue remained solid, growing 10% YoY to a new quarterly record level.”
The company’s growth being dependent on mergers and acquisitions, a shortage of technicians to maintain product support and a reliance on Hyster-Yale and Volvo represent potential concerns for Alta moving forward, according to the research note. Hyster-Yale and Volvo account “for upwards of 35% of,” the company’s total equipment sales, the note said.
BY THE NUMBERS: Alta Equipment’s construction and material handling revenue experienced a year-over-year rise in Q2 despite declining new and used equipment sales, according to the company’s earnings presentation. Alta Equipment reported:
- Total revenue reached $488.1 million, up 4.2% YoY;
- New and used equipment sales revenue of $251.5 million, down 1.2% YoY;
- Rental revenue of $53.7 million, up 8.3% YoY;
- Construction segment revenue of $294.9 million, up 4.8% YoY;
- Material handling revenue of $175.6 million, up 3.8% YoY; and
- Master Distribution, the company’s environmental processing equipment distribution segment, revenue fell 22% YoY to $16.7 million.
MARKET REACTION: Shares of Alta Equipment Group (NYSE: ALTG) were up 21.73% or $1.78 from market open to $6.41 as of market close today. Alta Equipment Group has a market capitalization of $271.48 million.
THE BOTTOM LINE: Alta Equipment maintains a favorable outlook for the company’s construction and material handling segments ahead of 2024, Colucci said.
“Deliveries of new construction equipment to customers in North America is down meaningfully in the first half of 2024, which runs counter to expectations of a flat to modest growth year in equipment sales when we entered 2024,” he said. “The dip in the market has impacted the new use equipment line in the Construction segment and at Ecoverse more than our internal risk adjusted models expected, and we suspect pressure will continue to be evident in the second half of 2024.”
Alta acquired Ecoverse Industries in Q4 2022, which the company used to form its Master Distribution segment.
Visit the Equipment Finance News Lender Directory here. The directory lists banks, captives and independent lenders. Lenders are invited to add and update their own company details to the directory to provide dealers with the most up-to-date information available.
