H&E Equipment Services Inc., Baton Rouge, La., has released its results for the second quarter of 2015, which ended June 30. The company's board of directors declared a regular quarterly cash dividend of 27.5 cents per share of common stock, a 10% increase from the first quarter.
Second-quarter Highlights:
Revenues were $262.4 million versus $280.4 million a year ago.
Second-quarter net income was $11.5 million, compared to $15.7 million for the same period last year. The effective income tax rate was 40.9% compared to 38.0% in the second quarter last year.
EBITDA increased 1.0% to $79.4 million from $78.7 million, yielding a margin of 30.3% of revenues, compared to 28.1% of revenues a year ago. The net growth in EBITDA was driven by the rental segment while offset by year-over-year declines in the distribution business.
Rental revenues increased 9.9%, or $9.8 million, to $108.6 million due to fleet expansion. Average rental rates increased 0.9% compared to a year ago.
Gross margins were 32.9% versus 31.8% a year ago.
Average time utilization (based on original equipment cost) was 70.3% compared to 72.7% a year ago and 67.5% in the first quarter of 2015. Average time utilization (based on units available for rent) was 67.7% compared to 67.0% last year and 64.2% last quarter. Inclement weather and weakness in the oil and gas markets in the current quarter resulted in underutilization compared to historically high spring trends.
Despite pressure in rates from inclement weather and the oil and gas markets, achieved positive year-over-year rental pricing in the second quarter. Average rental rates increased 0.9% compared to a year ago and were flat compared to the first quarter of this year.
Dollar utilization was 34.2% as compared to 36.3% a year ago reflecting lower time utilization.
Average rental fleet age at June 30, 2015 was 32.3 months, down from 32.5 months at the end of the last quarter and younger than the industry average age of 42.4 months.
John Engquist, H&E Equipment Services’ chief executive officer, said, “The extreme rainfall and subsequent flooding that occurred in May throughout the central United States had a significant impact on our operations as construction activity slowed significantly for nearly a month in many of our regions. Despite this unanticipated challenge and ongoing softness in the oil patch, rental revenues increased nearly 10% from a year ago."
Engquist added, "Most market indicators remain positive and we believe the recovery in the commercial construction markets will continue to accelerate throughout the remainder of this year and into 2016. Activity in June picked up significantly and this momentum is continuing into July. Increased commercial construction activity in other markets continues to offset the demand declines related to oil and gas. Overall, we are pleased with the trends in our rental business and overall momentum in the commercial construction markets as we head into the second half of this year.”
Engquist concluded, “Due to the unusually wet spring and ongoing softness in the oil and gas markets and the resulting delayed seasonal ramp, we are adjusting our annual guidance announced in our first quarter earnings release and conference call. For 2015, we now expect our revenues to range from $1.030 billion to $1.052 billion and EBITDA in the range of $319 million to $335 million.”
Financial discussion
Revenue
Total revenues decreased 6.4% to $262.4 million in the second quarter of 2015 from $280.4 million in the second quarter of 2014. Equipment rental revenues increased 9.9% to $108.6 million this quarter compared with $98.8 million in the second quarter of 2014. New equipment sales decreased 28.9% to $64.4 million from $90.6 million in the second quarter of 2014. Used equipment sales decreased 7.9% to $28.9 million compared to $31.4 million in the second quarter of 2014. Parts sales were $28.4 million in each of the three month periods ended June 30, 2015 and 2014. Service revenues decreased 2.1% to $15.8 million compared to $16.1 million a year ago.
Gross profit
Gross profit decreased 3.0% to $86.4 million in the second quarter of 2015 from $89.1 million in the second quarter of 2014. Gross margin was 32.9% for the quarter ended June 30, 2015 compared to 31.8% for the quarter ended June 30, 2014.
On a segment basis, gross margin on rentals in the second quarter of 2015 was 46.7% compared to 48.4% in the second quarter of 2014 due primarily to lower time utilization and higher rental expense as a percentage of equipment rental revenues compared to a year ago. On average, rental rates increased 0.9% compared to the second quarter of 2014. Time utilization (based on OEC) was 70.3% in the second quarter of 2015 compared to 72.7% a year ago.
Gross margin on new equipment sales was 11.8% in the second quarter as compared to 12.3% in the second quarter a year ago primarily due to mix of new equipment sold. Gross margin on used equipment sales was 32.2% compared to 32.9% a year ago. Gross margin on the sale of rental fleet equipment, which was approximately 82.1% of used equipment sales for the second quarter ended June 30, 2015 and 88.4% in the second quarter ended June 30, 2014, increased to 37.2% from 35.4% in the second quarter a year ago. Gross margin on parts sales decreased to 27.3% from 29.4% a year ago primarily due to revenue mix. Gross margin on service revenues increased to 67.3% from 64.2% in the prior year due primarily to revenue mix.
Rental fleet
At the end of the second quarter of 2015, the original acquisition cost of the Company’s rental fleet was $1.3 billion, an increase of $164.3 million from $1.1 billion at the end of the second quarter of 2014 and an increase of $38.1 million from $1.2 billion at the end of 2014. Dollar utilization was 34.2% compared to 36.3% for the second quarter of 2014. Dollar returns decreased on lower physical utilization.
Selling, general, and administrative expenses
SG&A expenses for the second quarter of 2015 were $54.4 million compared with $51.9 million last year, a $2.5 million, or 4.9%, increase. For the second quarter of 2015, SG&A expenses as a percentage of total revenues were 20.7% as compared to 18.5% a year ago.
Income from operations
Income from operations for the second quarter of 2015 was $33.0 million, or 12.6% of revenues, compared with income from operations of $37.9 million, or 13.5% of revenues, a year ago.
Interest expense
Interest expense for the second quarter of 2015 was $13.7 million compared to $12.9 million a year ago.
Net income
Net income was $11.5 million, or $0.33 per diluted share, in the second quarter of 2015, compared to net income of $15.7 million, or $0.45 per diluted share, a year ago. The effective income tax rate in the second quarter of 2015 was 40.9% compared to 38.0% a year ago.
EBITDA
EBITDA for the second quarter of 2015 increased 1.0% to $79.4 million compared to $78.7 million a year ago. EBITDA, as a percentage of revenues, was 30.3% compared to 28.1% a year ago.
2015 outlook
“We believe our business outlook remains positive due to the expected strength in the commercial construction markets,” said Engquist. “Due to the inclement weather during the second quarter and continued softness in the oil and gas markets and the resulting delayed seasonal ramp, we are adjusting our annual guidance announced in our first quarter earnings release and conference call,” Engquist concluded.
Revenue – The Company now expects 2015 revenue in the range of $1.030 billion to $1.052 billion.
EBITDA – The Company now expects 2015 EBITDA in the range of $319 million to $335 million.
The Company has no current intent to provide this type of guidance for periods beyond 2015.
Increased dividend
In addition, the Board of Directors declared a regular quarterly cash dividend to be paid to its stockholders of 27.5 cents per share of common stock, an increase of 10% from the first quarter, to be paid on September 9, 2015 to stockholders of record as of the close of business on August 24, 2015.
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