Third-quarter revenues and profits remained fairly solid for H&E Equipment Services, largely as a result of the company’s strong presence in the industrial and petrochemical markets.
Revenues increased 3 percent to $278.6 million compared with $270.6 million in last year’s third quarter, with the company’s mid-Atlantic acquisition contributing $38.8 million in the current quarter compared to $10.1 million in last year’s third quarter, during which the acquired company was only with H&E for the final month.
Rental revenues increased 3.4 percent to $78.2 million for the third quarter, compared with $75.6 million in the year-ago quarter. Third-quarter 2008 equipment rental revenues include $4.5 million of rental revenues from the mid-Atlantic region compared to $1.3 million in last year’s third quarter, making the year-over-year comparison virtually flat.
EBITDA decreased 2.9 percent to $67.2 million compared to $69.2 million of EBITDA a year ago, with the mid-Atlantic region contributing $3.4 million in the current quarter and $1.7 million a year ago.
Income from operations decreased 12.3 percent to $37.2 million compared to $42.4 million in last year’s third quarter, with the mid-Atlantic region contributing $1.8 million of income compared to $1 million a year ago. Net income decreased to $17.6 million, or $0.50 per diluted share compared to $20.2 million in the year-ago quarter or $0.53 per diluted share.
“Our strong presence in regions with exposure to petrochemical, oil patch, mining and energy sectors and our integrated business model are clearly helping to minimize the impact to our business from the numerous macroeconomic issues occurring in the country today,” said John Engquist, H&E Equipment Services’ president and CEO. “There is no doubt the non-residential construction industry has slowed as a result of the unstable credit markets and other economic factors, yet our strong presence in the industrial sector resulted in solid financial performance during the third quarter.
“We believe our business is very well positioned to navigate the current conditions in the market. We have a strong balance sheet, are well capitalized and our debt carries a low interest rate and maturity dates well into the future. While we expect a difficult market to continue during the remainder of this year and into 2009 due to tight credit markets and economic slowdown, we are confident in our ability to make the necessary adjustments to maximize our financial performance.”
“Although we are not seeing revenue growth as a result of the deterioration in the overall economy, our margins for this quarter improved on a sequential basis at the gross profit, EBIT, EBITDA and earnings per share level,” added Leslie Magee, H&E’s chief financial officer. “Our product support business continues to show strength. This segment of our business has historically performed very well during periods of economic softness. We remain committed to reducing our capital fleet expenditures which will generate additional free cash flow. We plan to use excess cash to reduce debt and/or repurchase shares. With a challenging business climate, weakening visibility into future market demand, and times of uncertain access to our credit, our focus continues to be cash generation and maintaining a strong conservative balance sheet.”
Gross margin on rentals decreased to 50.3 percent from 52.9 percent in the third quarter of 2007 because of increased depreciation costs, declines in rental rates and time utilization, and the impact from the mid-Atlantic rental operations. On average, and excluding rates in the mid-Atlantic region, rental rates dropped 2 percent compared to last year’s third quarter, while time utilization decreased to 67.4 percent compared with 70.7 percent in the year-ago period.
At the end of the third quarter, the original acquisition cost of the company’s rental fleet was $806.3 million, up $26.4 million from $779.9 at the end of the third quarter of 2007. Dollar utilization was 38.8 percent compared to 41.9 percent for last year’s third quarter.
The company lowered its expectations for the full year, now expecting 2008 revenue in the range of $1.08 billion to $1.09 billion. For the first nine months of 2008, total revenue has increased from $713.5 million last year to $807 million this year, a 13 percent jump. Equipment rental revenue has increased 7.7 percent year over year, from $208.4 million in the first nine months of 2007 to $224.6 million for the first nine months of 2008.
Based in Baton Rouge, La., H&E Equipment Services is No. 9 on the RER 100.