Strong demand and fleet productivity bolstered H&E Equipment Services’ rental revenue in the second quarter.
The equipment rental company’s rental revenue was $258.7 million for Q2, up 28.6% year over year, according to the company’s earnings release today. The company’s total revenue for Q2 also increased to $360.2 million, up 22.2% YoY.
“Since we began our transition to a pure-play rental focus in 2021, we have demonstrated consistent growth in revenues while significantly elevating operating margins,” Chief Executive Brad Barber said during the company’s earnings call. “We’re excited about the prospects for the equipment rental industry, and we’re confident in our ability to address new opportunities as we continue to effectively execute our growth plans and demonstrate operational excellence throughout our expanding footprint.”
Baton Rouge, La.-based H&E continued to expand its footprint in Q2 with the addition of six stores, raising the number of branches to 126 across 29 states as of June 30, according to the earnings presentation. The company’s rental fleet totaled $2.6 billion at the end of Q2, up 30% YoY, according to the release.
H&E’s average time utilization for its rental equipment, which is based on original equipment cost, was 69.3% compared with 67.3% in Q1 and 73.2% in Q2 2022, according to the presentation. Still, dollar utilization for its rental equipment, based on rental revenue and time usage, was 40.6% compared with 38.6% in Q1 and 40.9% in Q2 2022.
While utilization is down year over year due to unsustainable highs created by supply chain issues in the equipment industry in 2022, the company expects a return of seasonality, Barber said.
“We have not peaked on utilization today. … And we are [not] going to end back up at last year’s physical utilization, as that is just not possible, nor is it practical under the circumstances,” he said. “We have never achieved those levels before, so as we are bringing in more capital. We are happy that we are going to see a typical seasonal trend, continued incremental rate improvement and substantial fleet growth that is going to provide positive flow-through for the business.”
Overall, the company’s rental fleet equipment mix is 34% aerial work platforms, 29% material handling, 28% earthmoving and 9% other equipment, according to the presentation. H&E’s average rental rates rose 7.1% YoY and 1.1% sequentially, excluding the One Source fleet acquired in October 2022.
The average rental fleet age at the end of Q2 for H&E’s rental equipment was 42.5 months compared to an industry average of 50.3 months, according to the presentation.
H&E Equipment Services is also the fifth-largest equipment rental organization in North America, according to the 2023 RER 100 published in May by Rental Equipment Register, trailing United Rentals, Sunbelt Rentals, Herc Rentals and Home Depot Rentals.
Used equipment sales up 111%
Meanwhile, used-equipment sales in Q2 landed at $39.7 million, up 110.6% YoY due to changes in the used-equipment market as the supply chain normalizes, Leslie Magee, chief financial officer and secretary of H&E Equipment Services, said during the call.
“We have seen a moderate improvement in the availability of certain types of equipment and because of this change we were able to capture attractive opportunities in a sound used-equipment market,” she said.
New-equipment sales landed at $8.9 million, down 58.8% YoY, with the decline mostly attributed to the sale of the company’s Komatsu earthmoving distributorship, Magee said. The sale also “completed our exit from distribution activities,” she said.
Shares of H&E Equipment Services Inc. [Nasdaq: HEES] were trading at $43.97 at market close today, down $2.74 or 5.87% from market open. H&E Equipment Services has a market capitalization of $1.60 billion.