Herc Holdings has released its full year 2018 earnings, reporting double-digit increases in rental revenue and total revenue.
The company, which operates through its Herc Rentals subsidiary, saw a 12.7-percent increase in total revenue, to $1.98 billion in 2018, along with a 10.6-percent increase in equipment rental revenue to $1.65 billion.
For the fourth quarter, equipment rental revenue increased 8 percent to $448 million, total revenues climbed 10.6 percent to $544 million, average fleet at original equipment cost (OEC) increased 4.4 percent and overall pricing improved 2.9 percent.
Adjusted EBITDA increased 11.6 percent to $198.4 million in the fourth quarter compared to $177.8 million in the comparable period in 2017.
Despite the strong performance, net income fell 84 percent for the quarter to $33.3 million, and 75 percent for the full year to $160.3 million.
“We intend to continue to drive rental revenue growth through our urban market strategy, fleet and customer diversification initiatives, and the strong market environment,” says Larry Silber, president and chief executive officer.
“During the year, we raised our adjusted EBITDA guidance twice, and our 2018 results came in at the high end of the updated range we provided in November. Dollar utilization of 39.7 percent for the fourth quarter was the highest recorded since we became a stand-alone public company.
“Solid market demand supported the uplift in pricing of 2.9 percent in the quarter, our 11th consecutive quarter of year-over-year pricing improvement.”
Equipment rental revenue in the fourth quarter of 2018 increased 8 percent or $33.2 million to $447.7 million compared to $414.5 million in the prior-year quarter.
The gain reflected strong growth in rental revenue from local accounts and ProSolutions and ProContractor categories over the prior year.
Total revenues increased 10.6 percent to $543.7 million in the fourth quarter compared to $491.7 million in 2017.
The $52 million year-over-year improvement included an increase in equipment rental revenue of $33.2 million and in sales of rental equipment of $18.3 million. The company says it’s “benefited from a strong used equipment market as it continued to focus on improving equipment mix and reducing fleet age.”
Pricing increased 2.9 percent in the fourth quarter of 2018 compared to the same period in 2017.
And dollar utilization of 39.7 percent in the fourth quarter of 2018 increased 100 basis points compared to the prior-year period, reflecting improved pricing and customer and fleet diversification, Herc says.
Direct operating expenses were $204 million in the fourth quarter of 2018 compared to $194.2 million in the prior-year period. The 5 percent increase was driven primarily by increased personnel costs related to higher rental activity, partially offset by improved operations, the company says.
Full Year 2018 Details
Equipment rental revenue for 2018 increased 10.6 percent or $159.3 million to $1,658.3 million. That’s compared to $1,499.0 million in 2017.
The double-digit growth reflected strong growth in rental revenue from local accounts and ProSolutions and ProContractor categories.
Total revenues increased 12.7 percent to $1,976.7 million for 2018 compared to $1,754.5 million in 2017. The $222.2 million year-over-year increase included an increase in equipment rental revenue of $159.3 million and in sales of rental equipment of $65.4 million.
The company says it benefited from a strong used equipment market as it continues to focus on improving equipment mix and reducing fleet age.
Pricing increased 2.9 percent for the full year 2018 compared to 2017, the press release says.
Dollar utilization grew to 37.4 percent for the full year 2018, an increase of 150 basis points over the prior year, reflecting improved pricing and customer and fleet mix diversification.
Direct operating expenses were $788.9 million compared to $719.8 million in the prior-year period.
The 9.6 percent increase was related primarily to strong rental revenue activity for 2018, which resulted in higher personnel costs and transportation expenses.
Net income was $69.1 million for 2018 compared to $160.3 million in the comparable prior-year period. The results included net tax benefits of $20.8 million in 2018, and $207.1 million in 2017, related to the previously mentioned 2017 Tax Act.
Adjusted EBITDA for 2018 increased 17 percent to $684.8 million, compared to $585.4 million in the prior year.
The increase was primarily due to strong equipment rental revenue growth and improved results from a higher volume of sales of rental equipment.
Capital Expenditures – Fleet
The company reported net fleet capital expenditures of $499.1 million for 2018.
Gross fleet capital expenditures were $771.4 million, and disposals were $272.3 million.
As of December 31, 2018, the company’s total fleet was approximately $3.78 billion at OEC.
Average fleet at OEC increased 4.4 percent in the fourth quarter and 4.8% for the full year 2018 compared to the prior-year periods.
Average fleet age declined to approximately 46 months as of December 31, 2018, compared with approximately 49 months as of December 31, 2017.
2019 and a robust market
“The continued robust market demand along with our improved operating efficiencies support our expectation for year-over-year growth in adjusted EBITDA of approximately 7 percent to 11 percent in fiscal 2019,” says Silber.
“Our 2019 net capital spending is expected to be lower than 2018 as we continue to improve the quality and age of the fleet by disposing of non-preferred brands and older equipment. By staying focused on disciplined capital management, we intend to continue to lower our net leverage by the end of the year.”