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Increased Demand and Greater Rental Focus Will Drive 2022 Growth, H&E’s Barber Says

March 4, 2022
Increases in demand and general business prospects along with its own restructuring create a positive outlook for H&E Equipment Services as it looks ahead at 2022.

Increases in demand and general business prospects along with its own restructuring create a positive outlook for H&E Equipment Services as it looks ahead at 2022.

“Results were supported in part by elevated customer demand for our rental fleet that extended well into the fourth quarter with limited impact from the customary seasonal quarterly slowdown,” CEO Brad Barber told a conference call of investors. “Also embedded in our results were early benefits from the divestiture of the distribution activities in 2021. The benefits included improved revenue mix and margin appreciation as we shifted operations to greater rental intensity and additional growth through the expansion of our branch network.”

H&E’s positive results were not just in comparison with 2020. “Physical utilization in the fourth quarter of 73.1 percent was the highest level achieved in any quarter over the past three years representing a 750-basis point improvement from the year-ago quarter and 120 basis points better on a sequential quarterly basis. The measure was 449 basis points ahead of the fourth quarter of 2019,” Barber said.

Barber noted the company grew its fleet by 10 percent in 2021, with gross capital expenditures totaling $436.8 million. “We achieved this fleet growth despite manufacturing challenges driven by supply chain issues.”

Barber said H&E’s recent financial performance highlights the inherent value of the steps taken in 2021 that supported its transition to a pure-play rental business, transitioning emphasis away from the distribution business. “Our growth plan underscores H&E's ongoing focus on greater intensity in the equipment rental business following a significant reduction in our exposure to the distribution business,” he said. “These measures have allowed us to end the year with a pure focus on equipment rental operations in 23 of the 24 states we operate in.”

Barber added that discussions with customers regarding their project visibility suggested that elevated demand for H&E’s products would likely continue through 2022. “This customer feedback is consistent in each market we serve,” Barber said. “We continue to witness strength in nonresidential construction activity and believe the acceleration of activity in the industrial markets could be propelled further with the recent rise in commodity prices serving as a meaningful catalyst. Strong performance in 2021 of key industry measures and of future construction activity support the likelihood for future expansion of nonresidential and industrial activity in '22.”

Infrastructure increase will drive growth

Barber also noted that the recently passed infrastructure bill will be an additional source of future demand. “We hope to see this additional demand materialize in the second half of '22 or early '23,” he said. “Elevated utilization, improving rental rates and equipment constraints represent the features of a healthy business environment that is ripe for expansion. As such, in '22, we plan to grow H&E through significant investment in our rental fleet, further penetration of our existing markets as well as expansion into new markets.”

Towards that end, Barber said, H&E plans to add at least 10 more locations in 2022 representing further penetration into existing markets as well as expansion into new geographies.