H&E Equipment Services’ First-Quarter Revenue Falls 38 Percent

H&E Equipment Services last week announced results for the first quarter ended March 31. Revenues decreased 38.4 percent to $114.7 million versus $186.2 million a year ago. EBITDA decreased 71.1 percent to $11.0 million, or a 9.6-percent margin, compared to $38.1 million, or a 20.4-percent margin, a year ago.

Loss from operations was $11.9 million compared to income from operations of $11.1 million a year ago. Net loss was $12.1 million, or ($0.35) per diluted share, compared to net income of $2.2 million, or $0.06 per diluted share, a year ago.

“As we expected, the first quarter was extremely challenging as a result of the continuous softness in our end markets combined with seasonality and severe weather that occurred across much of our footprint,” said John Engquist, H&E Equipment Services’ president and CEO. “At this point, our expectations for 2010 are unchanged and therefore, we anticipate that segments of our business will continue to see low demand for our products and services. We are, however, encouraged to see improving residual values on used equipment, increased activity in our earthmoving business, which is an early cycle product, and an increase in our on rent levels that are accelerating as we move into the second quarter.”

Equipment rental revenues in the first quarter decreased 34.3 percent to $36.5 million compared with $55.5 million in the first quarter of 2009. New equipment sales decreased 57.4 percent to $27.3 million from $64.1 million in the first quarter of 2009. Used equipment sales decreased 16.5 percent to $13.4 million compared to $16.1 million in the first quarter of 2009. Parts sales decreased 24.6 percent to $19.6 million from $26.0 million in the first quarter of 2009. Service revenues decreased 25.7 percent to $11.5 million compared to $15.5 million a year ago.

Gross profit decreased 52.5 percent to $23.9 million from $50.3 million in the first quarter of 2009. Gross margin was 20.8 percent for the quarter ended March 31, as compared to 27.0 percent for the quarter ended March 31, 2009. The reduced gross margin percentage in the current quarter is primarily due to lower gross margins from the rental operations.

On a segment basis, gross margin on rentals decreased to 21.7 percent from 36.7 percent in the first quarter of 2009 because of declines in rental rates and time utilization. On average, rental rates declined 13.9 percent as compared to the first quarter of 2009. Time utilization decreased to 49.7 percent from 56.1 percent a year ago.

Gross margin on new equipment sales was 8.7 percent as compared to 13.6 percent in the first quarter a year ago. Gross margin on used equipment sales was 20.0 percent, which was down from 21.2 percent a year ago. Gross margin on parts sales decreased to 27.4 percent from 28.8 percent. Gross margin on service revenues decreased to 61.9 percent from 63.1 percent in the prior year.

At the end of the first quarter of 2010, the original acquisition cost of the company’s rental fleet was $660.0 million, down $103.2 million from $763.2 million at the end of the first quarter of 2009 and down $15.1 million from $675.1 million at the end of 2009. Dollar utilization was 22.0 percent compared to 28.7 percent for the first quarter of 2009. Dollar returns decreased reflecting lower year-over-year average rental rates and lower time utilization.

“We remain focused on maintaining the strength of our liquidity position and balance sheet,” said Leslie Magee, H&E Equipment Services’ chief financial officer. “We managed our fleet through continued reductions of $15.1 million as we entered 2010 with very weak levels of demand. Our fleet utilization bottomed in January reaching a low point of less than 48 percent of units on rent. Beginning in February, we achieved steady improvement and we are currently maintaining approximately 53 percent of our units on rent. With the continuation and acceleration of these positive trends in the utilization of our fleet since the end of the first quarter, we expect sequential improvement in our rental business moving forward.”

SG&A expenses for the first quarter of 2010 were $35.9 million compared with $39.1 million last year, a $3.2 million, or 8.2-percent decrease. The decrease was primarily attributable to lower wages, incentive pay and benefits. For the first quarter of 2010, SG&A expenses as a percentage of total revenues were 31.3 percent as compared to 21.0 percent a year ago.

Baton Rouge, La.-based H&E Equipment Services is No. 9 on the RER 100.