H&E 4Q earnings at a glance:
- Revenues gained by 20.6 percent
- Net income hit $85.9 million
- Rental revenues climbed 10.9 percent
- New equipment sales rose 65.9 percent
- Used equipment sales up 28.8 percent
Gaining momentum in rental and distribution businesses, H&E Equipment Services is reporting a hefty 20.6 percent gain in revenues to $294.7 million for the fourth quarter of 2017.
That compares to $244.3 million for the fourth quarter of 2016, the company says.
Net income was $85.9 million in the fourth quarter, compared to net income of $12.4 million a year earlier.
“The non-residential construction markets were exceptionally strong, resulting in extremely high demand for rental equipment,” says CEO John Engquist. “Physical utilization increased nearly 400 basis points to 74.2 percent for the quarter, and we achieved a one percent increase in rates from the prior year.”
“Rental revenue increased 10.9 percent, and margins increased 330 basis points to 51 percent, compared to the year-ago quarter,” Engquist adds. “Increased demand for new cranes and earthmoving equipment drove a 65.9 percent improvement in new equipment sales.”
This quarter’s results continue the acceleration reported last October, when the improvement in new equipment was largely due to higher new crane sales, which rose by 29.6 percent, or $5.6 million, to $24.3 million for third quarter 2017, compared to that period in 2016.
Ongoing relatively low demand for cranes has posed a challenge to the new equipment sales component of the distribution business, but this company and others anticipate improvement in the crane market in 2018. And there are other positive signs.
“We expect 2018 to be a very opportunistic year for our business and industry given the current strength in the non-residential construction markets,” Engquist says.
“Oil prices are above a year ago, resulting in a rebound in exploration activity and energy-related projects.”
CEO’s outlook on infrastructure bill, company expansion
H&E bought Contractors Equipment Center of the greater Denver area.“Should the administration and Congress pass an infrastructure bill, we believe the industry could see an expanded cycle,” Engquist says. “We also believe our operating environment is positive, and we are focused on expanding our business in terms of both fleet size and geographic footprint.”
At the end of the fourth quarter of 2017, the original acquisition cost of the company’s rental fleet was $1.4 billion – an increase of $68.9 million from the end of the fourth quarter of 2016.
Engquist points to H&E’s acquisition of Contractors Equipment Center (CEC) in the Denver area. That purchase was completed in early January. That acquisition is part of H&E’s ongoing strategy of acquiring rental companies.
Last December, H&E Equipment Services moved its Sacramento-area branch to a larger, newly-constructed facility in the Sacramento city limits. The previous location was 17 miles away in Rancho Cordova, a neighboring city in Sacramento County.
The new facility – one of eight H&E branches in California – is serving customers throughout Sacramento and surrounding areas, where a lot of construction activity is underway.
H&E now has 83 locations across 22 states. It’s the largest dealer in the world for Manitowac and Grove Crane products, the company says.
Benefiting from tax reform
The effective income tax rate decreased to 84.8 percent in 2017 compared to 37 percent in 2016. Adjusted net income was $124.4 million, or $3.48 per diluted share.
H&E recorded an income tax benefit of $58.4 million in the fourth quarter of 2017, compared to income tax expense of $4.4 million in the fourth quarter of 2016, the company says.
That came from a one-time revaluation of the company’s deferred tax assets and liabilities, resulting from the decrease in the corporate federal income tax rate enacted in December, the company says.
The corporate federal income tax rate dropped from 35 percentage to 21 percent under the Tax Cuts and Jobs Act, which was enacted during the fourth quarter of 2017.
As a result, the effective income tax rate was 211.7 in the fourth quarter of 2017 compared to 26.3 percent in the year ago period, the company says in a February 22 press release.
More details on 4Q earnings:
- Adjusted EBITDA increased 15 percent to $90.7 million in the fourth quarter compared to $78.9 million a year ago, yielding a margin of 30.8 percent of revenues compared to 32.3 percent a year ago.
- Rental revenues increased 10.9 percent to $127.7 million in the fourth quarter compared to $115.2 million a year ago.
- New equipment sales increased 65.9 percent to $74.4 million in the fourth quarter compared to $44.9 million a year ago.
- Used equipment sales increased 28.8 percent to $32.1 million in the fourth quarter compared to $24.9 million a year ago.
- Gross margin was 34.2 percent compared to 34.6 percent a year ago.
- Rental gross margins were 51 percent in the fourth quarter of 2017 compared to 47.7 percent a year earlier.
- Average time utilization (based on original equipment cost) was 74.2 percent compared to 70.3 percent a year ago. Average time utilization (based on units available for rent) was 71.3 percent compared to 67.6 percent last year.
- Average rental rates increased 1 percent compared to a year ago and 0.6 percent sequentially.
- Dollar utilization was 36.2 percent in the fourth quarter compared to 34.3 percent a year ago.
- Average rental fleet age at December 31, 2017, was 34.6 months compared to an industry average age of 44.4 months.
The live broadcast of the company’s quarterly conference call Feb. 22 will be available online at www.he-equipment.com for 30 days.
To read more about H&E, click here.
