Revenues Continue Drop in Third Quarter for Canadian Equipment Rental Corp.
Canadian Equipment Rental Corp. posted $4.2 million in revenue in the third quarter compared to $6.5 million for the same period in 2015, a 35-percent drop, with unseasonably wet weather delaying projects according to the company. The uncertain and challenging economic environment resulting from the decline and instability of commodity prices has caused CERC customers to reduce 2016 capital expenditure programs and delay investment decisions, impacting utilization and rates of the company’s General Rentals and Energy Services segments.
In response to the difficult times, CERC management has reduced headcount, including many senior positions. It has also reduced labor hours, consolidated operating facilities and reduced discretionary spending to align the cost structure to the current level of activity.
“The third quarter of 2016 was challenging for the company as the combination of intense competition, a challenging price environment and unseasonably wet weather delaying projects, all negatively impacted revenues and earnings and resulted in a third quarter covenant breach with our senior lenders,” said CERC president Austin Fraser. "The recently announced sale of our Waste Management division … is a material step forward in our commitment to reduce our balance sheet leverage. We are currently executing on our commitment to our lenders to sell down underutilized equipment. The company is seeing strong demand for our oilfield rental equipment going into the winter drilling season, which is in turn improving pricing and is a positive sign for our energy service division.”
The company said the third quarter of 2016 showed improvements in equipment utilization compared to the previous quarter, but at historically low rental rates. It also said it is too early to assess if the increase in drilling activity is the start of a longer-term trend in increased demand.
CERC also announced that it has completed the sale of 100 percent of the shares of its MCL Waste Systems & Environmental subsidiary to GFL Environmental Inc. for about $12 million in cash.
The continued sale of under-utilized equipment has resulted in the company having a younger fleet of oilfield accommodation and power generation units. The company said it is expanding its market reach from beyond its traditional energy services and general commercial customers to new segments such as industrial facilities and pipeline construction. The assets acquired in the Summit Star Energy Services acquisition this quarter are experiencing full utilization, CERC said, and are steps towards diversifying revenue streams.
Weak equipment rental volume and lower rental pricing continue in the general rental area, although the division maintained a positive gross margin percentage of 46 percent excluding severance and depreciation.
