Herc Rentals Posts Modest Fourth Quarter and Full Year Increases
Herc Holdings reported equipment rental revenue of $457 million for the fourth quarter of 2019 compared to $447.7 million for the fourth quarter of 2018, a 2.1-percent increase. Total revenue for the fourth quarter was $540.1 million, compared to $543.7 million a year ago, essentially flat. Herc reported net income of $35.1 million, or $1.20 per diluted share, compared to $33.3 million, or $1.16 per diluted share in Q418.
For the full year equipment rental revenue was $1,701.8 million, compared to $1,658.3 million in 2018, a 2.6-percent jump. The $43.5 million increase was primarily related to improvement in pricing and increases in transportation revenue, partially offset by strategic reductions in re-rent revenue and lower volume. Total revenues for 2019 landed just shy of $2 billion at $1,999 million compared to $1,976.7 million in 2018, a 1.1-percent increase. The company attributed the increase to the hike in equipment rental revenue, partially offset by lower planned sales of rental equipment of $13.4 million, and lower sales of new equipment, parts and supplies, service and other revenue.
“We generated $172.0 million in free cash flow in 2019, a positive swing of nearly $180 million from last year,” said Larry Silber, president and CEO. “Our strategic initiatives continue to deliver strong year-over-year pricing and we achieved major improvements in operating efficiency and dollar utilization in the fourth quarter and full year. We focused on quality of earnings throughout the year, and fourth quarter adjusted EBITDA margin rose 320 basis points to 39.7 percent, the highest fourth quarter margin we have achieved since the spin-off in 2016.
“Our disciplined capital management initiatives reduced our net leverage ratio significantly in three-and-a-half years, to just 2.8x as of December 31, 2019. Targeted branch openings, controlled fleet additions, and self-help initiatives are expected to drive future profitability. Leading economic indicators continue to suggest positive momentum in our end markets and support our favorable outlook.”
Average fleet at original equipment cost was up 0.7 percent in the fourth quarter and overall pricing improved 3.3 percent in the fourth quarter of 2019, compared to the year-ago period. Adjusted EBITDA increased 8.1 percent to $214.4 million in the fourth quarter compared to $198.4 million in Q418.
Net cash provided by operating activities jumped 13.7 percent to $635.6 million compared to $559.1 million in the previous year. Free cash flow rose to $172 million in 2019 compared to negative cash flow of $7.9 million in 2018.
Dollar utilization increased 80 basis points to 40.5 percent in the fourth quarter of 2019, compared to the prior-year period, reflecting improved pricing and customer and fleet mix diversification.
For the full year, pricing increased 4 percent, Herc said. Direct operating expenses decreased $14.1 million to $771.1 million compared to $785.2 million in 2018. The 1.8-percent decline in expenses was primarily because of initiatives to reduce expenses, particularly in re-rent, maintenance and transportation. The savings were partially offset by increases in new facilities costs, personnel and personnel-related expenses and lower professional fees, partially offset by higher personnel-related expenses.
Results in 2019 included restructuring expense of $7.7 million associated with the closure of underperforming branches.
Net income for the full year was $47.5 million compared to $69.1 million in 2018. Adjusted net income for the year was $91.6 million compared to $67.8 million in 2018. Adjusted EBITDA for 2019 increased 8.2 percent to $&41 million compared to $684.8 million for the previous year. Adjusted EBITDA margin increased to 37.1 percent compared with 34.6 percent in 2018.
Herc reported net fleet capital expenditures of $414.2 million in 2019. As of Dec. 31, 2019, the company’s total fleet was approximately $3.82 billion at OEC. Average fleet age improved to about 45 months on Dec. 31, compared to approximately 46 months as of Dec. 31, 2018.
Silber has positive expectations for 2020. “We expect adjusted EBITDA in 2020 to grow between approximately 3 percent to 7 percent over 2019,” he noted. “We plan a moderate increase in net fleet capital expenditures in 2020 over last year to improve our mix with modest fleet growth. We also expect to continue to generate substantial positive free cash flow this year, which will be primarily used to reduce net leverage.”
Herc Rentals, headquartered in Bonita Springs, Fla., is No. 3 on the RER 100.
About the Author
Michael Roth
Editor
Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a professional journalist. Roth has visited hundreds of rental centers and industry manufacturers, written hundreds of feature stories for RER and thousands of news stories for the magazine and its electronic newsletter RER Reports. Roth has interviewed leading executives for most of the industry’s largest rental companies and manufacturers as well as hundreds of smaller independent companies. He has visited with and reported on rental companies and manufacturers in Europe, Central America and Asia as well as Mexico, Canada and the United States. Roth was co-founder of RER Reports, the industry’s first weekly newsletter, which began as a fax newsletter in 1996, and later became an online newsletter. Roth has spoken at conventions sponsored by the American Rental Association, Associated Equipment Distributors, California Rental Association and other industry events and has spoken before industry groups in several countries. He lives and works in Los Angeles when he’s not traveling to cover industry events.