Essex holds out for upturn following Q1 results

By Euan Youdale24 May 2010

Lower utilization rates pushed down rental revenue at US-based Essex Rental. Corp during the first quarter of 2010.

The figure for all rental related revenue stood at US$7.3 million, compared to $15.3 million ahcieved in the quarter ending March 31, 2009. The total includes revenue from equipment rentals, repair and maintenance, and transportation services, but excludes used rental equipment sales.

Equipment revenue represented 61.7% for the quarter, down from 70.4% in the previous corresponding quarter. Rental income was also hit by a 23% decrease in the average monthly crane rental rate to $17,562 compared to $22,794 for the first quarter 2009.

This was attributed to, "anaemic demand due to the weakening economy and the difficult commercial credit environment compounded by the expiration of existing rental agreements executed at higher rental rates in the prior year and earlier," said a company spokesman.

Crane utilization rate, on a day's method, was 30%, compared to 57.2% in 2009, with the lowest rate coming in January 2010. Since then the company has experienced a steady increase in utilization.

Rental earnings before interest, tax and amortization expenses (EBITDA) were $1.4 million for the quarter, compared to $7.7 million in the previous corresponding period.

"During the quarter, we continued to take advantage of opportunities to liquidate rental equipment with lighter lifting capacities and lower utilization rates and invested in rental equipment that we believe will be in greater demand with higher rental rates as utilization improves," said Ron Schad, Essex president & CEO.

The company sold two used cranes with, it said, an average lifting capacity of 175 tonnes at an average price of more than 120% of orderly liquidation value. In contrast, Essex bought a 400 tonne capacity crane with attachments.

The underlying value of Essex rental equipment is was recently appraised at $265 million, said the company. "This is significantly in excess of the $138.4 million of our total debt obligations outstanding as of March 31, 2010," said Schad. "We continue to remain optimistic about the opportunities that we are seeing in certain areas of the crawler crane rental sub-markets, including the petrochemical turnaround repair and expansion, levee construction and wind power sub-markets."

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