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HEES Earnings Up Y/Y; At Par with Estimates

Zacks Equity Research

H&E Equipment Services Inc.’s (HEES) second-quarter 2013 earnings of 31 cents per share improved 3% year over year and were in line with the Zacks Consensus Estimate. Earnings improved on the back of strong demand for rental equipment as well as new and used equipments.
Total revenue increased 17% to $245 million, falling short of the Zacks Consensus Estimate of $246 million. Rental revenues rose 19% year over year to $83.7 million on the back of higher rates and a larger fleet. New equipment sales increased 13% to $73 million and used equipment sales increased 47% to $34.7 million. Parts sales increased 7% to $26 million and service revenues remained flat at $13.8 million with the year-ago quarter.

Cost and Margins
Cost of sales increased 17% to $170 million in the quarter. Gross profit went up 17% to $75.4 million. Gross margin remained flat year over year at 30.7%. Rental gross margins dipped to 47.1% in the quarter from 42.4% in the prior-year quarter affected by higher depreciation expense that in turn was driven by the increase in fleet. Rental rates were 7.3% higher than the year-ago period rates.
Gross margins on new equipment sales were 11.4%, up from 10.9% in the year-ago quarter. Gross margins on used equipment sales were 30.3% compared with 30.5% a year ago. Gross margins on parts sales declined to 27.3% from 28% in the quarter due to revenue mix. Gross margins on service revenues were 63.3% for the second quarter of 2013 compared with 62.8% in the second quarter of 2012.
Selling, general and & administrative expenses increased 14% to $47 million. Adjusted operating profit increased 24% to $28 million and operating margin expanded 60 bps to 11.5%. EBITDA (earnings before interest taxes, depreciation and amortization) increased 22% to $63.3 million. EBITDA margin in the quarter was 25.8% compared with 24.7% in the year-ago quarter.
Financial Updates
Cash and cash equivalents were $4.2 million as of Jun 30, 2013 compared with $8.9 million as of Dec 31, 2012. Total debt amounted to $733 million as of Jun 31, 2013 compared with $690 million as of Dec 31, 2012.
Rental Fleet
As of Jun 30, 2013, the original acquisition cost of H&E Equipment Services’ rental fleet was $954.3 million versus $809.3 million as of Jun 30, 2012. Dollar utilization was 35.8% compared with 35.6% for the second quarter of 2012. Dollar returns improved reflecting higher rates and strong time utilization.
H&E Equipment Services continues to capitalize on improving market conditions, particularly the soaring demand for rental equipment. The distribution business also performed well with strong double-digit revenue growth witnessed in both new and used equipment sales.
H&E Equipment Services continued to have a positive outlook for 2013 given that the construction industry is in the early stages of a multi-year expansion cycle. H&E Equipment Services will continue to step up its fleet investment during the year, based on current and expected demand levels. Furthermore, with its increasing exposure in the industrial sector, H&E Equipment Services is well positioned to increase its market share, realize economies of scale and drive operational efficiencies throughout 2013.
Baton Rouge, La.-based H&E Equipment Services rents, sells and provides parts and service support for hi-lift or aerial work platform equipment, crane, earthmoving equipment and industrial lift truck categories. It offers heavy construction and industrial equipment for rent on a daily, weekly and monthly basis. H&E Equipment Services Inc. retains a Zacks Rank #3 (Hold).
Peer Performance
Among H&E Equipment’s peers, Astec Industries, Inc. (ASTE) reported second-quarter 2013 earnings of 48 cents per share, up 17% from 41 cents in the year-earlier quarter. The results missed the Zacks Consensus Estimate of 55 cents.

On the other hand, Terex Corp. (TEX) posted second-quarter 2013 adjusted earnings of 65 cents per share, down 13% from 75 cents earned in the year-ago quarter, but ahead of the Zacks Consensus Estimate of 54 cents. Caterpillar Inc.’s (CAT) earnings also slumped 43% to $1.45 per share and were nowhere near the Zacks Consensus Estimate of $1.70.

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