H&E Equipment Services logged record rental revenue in the fourth quarter of 2022 due in part to favorable industry conditions and successful growth for the company.
H&E recorded rental revenues of $245.0 million, up 34.6% year over year. For the full year, H&E reported rental revenues of $847.6 million, up 29.8% compared with 2021.
“Strong core fundamentals in the quarter, combined with our fleet growth, successful branch expansion program and the addition of One Source operations resulted in a 34.6% year over year increase in rental revenue to $245 million,” Brad Barber, chief executive of H&E Equipment Services, said during the company’s earnings call Wednesday. “The outcome, which was a new record for the rental business, led to a gross margin in the quarter of 53.1% or 140 basis points ahead of the year-ago quarter.”
“The fourth quarter of 2022 was one of our most productive quarters on record,” Barber said during the call. “Our excellent financial performance was due in part to resilient industry trends, which prevail throughout the period, while the supply of equipment remained constrained.”
Increased rental penetration drove revenue growth, Barber said. “Finally, growth in rental penetration should drive new demand for equipment as the combination of unfavorable fiscal conditions, including rising interest rates and lingering delays in equipment deliverability tend to encourage a shift by certain customers away from ownership of equipment.”
Industrywide rental penetration has been growing, he said. “A recent report from the American Rental Association disclosed that compared to 2021, rental penetration improved 150 basis points in 2022 to 53.8%.”
Komatsu distributorship sale boosts H&E
Baton Rouge, La.-based H&E Equipment Services closed the sale of the company’s Komatsu distributorship to Waukesha-Pearce Industries in Q4, completing the company’s move toward a purely rental business, Barber said.
“We also recognized some important strategic wins in the quarter, which included the sale of our Komatsu earth-moving distribution business in December of ’22, effectively completing our transformation to a pure-play rental business,” Barber said. “This final step allows for greater revenue stability and margin appreciation throughout the cycle.”
The sale, which closed Dec. 15, 2022, netted a $15.4 million pretax gain, Chief Financial Officer and Corporate Secretary Leslie Magee said on the company’s earnings call.
Used sales rise, new sales fall
Used-equipment sales in Q4 clocked in at $30.2 million, up 2.5% YoY. Full-year used-equipment sales came in as $90.9 million, up 32.8% from the previous year.
New-equipment sales landed at $21.5 million, up 4.5% YoY. Full-year new-equipment sales, however, fell 0.2% YoY to $92.5 million.
New-equipment sales are expected to continue to decline following the Komatsu sale, Magee said.
“The biggest thing to point out is I would say that the Komatsu business that we sold accounted for a little more than half — a little more than 50% — of our new equipment sales, so definitely keep that into account,” Magee said. “We would expect our parts and service business to decline related to the Komatsu sale, not at that same rate because the bulk of the revenue sold was new.”