Revenues decreased 8.8 percent for H&E Equipment Services in the first quarter of 2020, posting $285.9 million compared to $313.6 million a year ago, with the COVID-19 pandemic the primary cause of the drop. Equipment rental revenue for the first quarter of 2020 were $174.5 million compared to $176.1 million in the first quarter, a 0.9-percent decline.
New equipment sales decreased 47.8 percent to $30.9 million in the first quarter compared to $59.1 million a year ago. Used equipment sales increased 5.3 percent to $31.2 million in the first quarter compared to $29.6 million in the first quarter of 2019. Gross margin was 36.9 percent compared to 36.3 percent a year ago. The increase in gross margin was largely the result of a shift in revenue mix to rentals.
Total equipment rental gross margins were 41.3 percent in the first quarter of 2020 compared to 44.3 percent a year ago. Rental gross margins were 46.1 percent in the first quarter of 2020 compared to 48.7 percent last year. The decrease was primarily because of lower time utilization.
Average time utilization (based on original equipment cost) was 64.3 percent compared to 70.0 percent in the year-ago quarter. The size of the company’s rental fleet based on original acquisition cost increased 3.3 percent from a year ago, to $1.9 billion.
Average rental rates decreased 0.4 percent compared to a year ago and declined 1.9 percent sequentially from Q419. Dollar utilization was 33.1 percent in the first quarter compared to 35.2 percent a year ago.
Average rental fleet age at March 31, 2020, was 37.7 months compared to an industry average age of 47.5 months, the company said.
“Our results for the quarter were impacted by the ongoing rebalancing of supply and demand, seasonality and the COVID-19 outbreak,” said Brad Barber, CEO and president of H&E Equipment Services. “Demand in our end-user non-residential and other construction markets in January and February of this year was slightly softer than our expectations, pressuring physical utilization. Wet weather was an added headwind during the quarter across a large portion of our operating footprint. In March, weather improved, but the economic realities of COVID-19 began to emerge and additional pressure became evident in our end-user markets.
“Consequently, total revenues declined 8.8 percent, or $27.7 million, from a year ago. Most of this decline was attributable to a 47.8 percent, or $28.2 million, decrease in new equipment sales. Demand for new cranes and earthmoving equipment was down significantly from a year ago as customers began to delay large capital purchases due to the uncertainty surrounding the COVID-19 outbreak. Despite a 570-basis-point decline in physical utilization and pressure on rates, total rental revenue declined 0.9 percent, or $1.6 million, from a year ago. Adjusted EBITDA declined 1.7 percent, but margins improved by 250 basis points largely due to a shift in revenue mix from a year ago.”
Barber talked about the larger impact of COVID-19 on the business.
“While this year began like many other years, we are now dealing with the unprecedented realities of COVID-19. We care about our employees, customers and the communities we serve nationwide, so we took quick and strict action based on CDC and WHO recommendations to combat illness in our workforce and to lessen business interruption for our company and customers. We have been designated an essential business and our branches remain open to serve our customers. However, the economic impact of COVID-19 has been pervasive across the markets we serve, resulting in project delays and cancellations, which have created significant pressure on rental fleet utilization that has continued into the second quarter.
“The ongoing and evolving COVID-19 pandemic and related governmental restrictions, such as stay-at-home orders, present unprecedented challenges for all of us in 2020. We remain focused on managing our business for long-term success and driving value for our stockholders. We have a solid balance sheet and ample liquidity. We are confident in the talent we have at all levels in our company to see us through the difficulties presented by COVID-19.”
H&E Equipment Services, based in Baton Rouge, La., is No. 7 on the new soon-to-be-released RER 100.
