Although Hertz Global Holdings reported a 6.1-percent year-over-year first-quarter revenue gain, the Hertz Equipment Rental Corp. division posted a 15.2-percent decrease in worldwide equipment rental revenues. First-quarter equipment rental revenues were $237 million, compared with $279.5 million for the same period a year ago.
Adjusted pre-tax loss for worldwide equipment rental was $5 million, compared with adjusted pre-tax income of $0.7 million for the first quarter of 2009. Hertz management attributed the results to reduced volume and pricing, partially offset by cost-management initiatives.
HERC’s EBITDA for the quarter was $75 million, compared with $105.8 million for the same period a year ago.
“Sequentially, year-over-year volumes declined at a much slower pace than the 2009 fourth quarter’s 24.2-percent decline,” Hertz chairman and CEO Mark Frissora told an investors’ conference call. “The positive catalyst came from momentum in the industrial sector, primarily from new petrochemical projects in Canada, after oil topped $80 a barrel, and from infrastructure projects in the Southeastern United States.”
Frissora added that the company has been tightening HERC’s cost structure by implementing long-term process improvements, rationalizing locations, and deferring major maintenance projects for under-utilized fleets.
“Now we’re working to get our equipment overhauled or tuned up in time to capture the early demand in the markets we serve,” Frissora added. “This requires more substantial investments in maintenance that until recently had been deferred. In the quarter, maintenance costs were equal to last year despite a 15-percent revenue decline. These factors drove equipment rentals worldwide corporate EBITDA margin down to 33.8 percent, still online with our expectations.”
Chief financial officer Elyse Douglas said the company reduced the equipment rentals businesses’ direct operating and SG&A cost by 6 percent in the quarter. “However, we do see demand for industrial and construction equipment beginning and picked up into the second quarter,” she said. “This is causing us to further increase maintenance spending in order to be ready for rent. First-quarter equipment fleet purchases were $31.9 million, versus disposals on a first-cost basis of $88.8 million. This compares to first-quarter 2009, where additions were $31.9 million and disposals were $220 million on a first-cost basis. And while there is some improvement in equipment residual values, prices still remain unattractive. Therefore we currently expect to sell limited amounts of equipment at auction this year.”
Worldwide equipment fleet age was 47 months, Douglas said.
HERC president Gerry Plescia told RER he felt the first quarter may be a turning point. “What was really encouraging is that in the U.S. and virtually everywhere else around the globe, in our European operations and in Canada, which was even stronger, we’re seeing business from the very first of the year through today grow from Dec. 31 levels, which is a different pattern from last year where we saw business continuing to decline month after month,” Plescia told RER. “This year the trajectory has been more normal where we see a seasonal improvement, month after month in rental volume.
“It appears the first quarter of 2010 will be the cyclical and seasonal trough of the last year and of the recession, so I think we’ll see progressive seasonal growth. From a volume perspective sometime early in the third quarter I think we may see a positive year-over-year volume move in the business, although pricing may lag that by a couple of months.”
Based in Park Ridge, N.J., Hertz Equipment Rental Corp. is No. 4 on the RER 100.
