Herc cutting capex due to Covid-19
By Thomas Allen24 April 2020
Herc Rentals has reported a rise in rental revenues in the first quarter of 2020, despite some impact on rental volumes caused by the Covid-19 pandemic, but has reduced its capital expenditure plans in response to the crisis.
Larry Silber, the company’s President and CEO, said, “We have cut variable costs and taken steps to substantially reduce our capital expenditures to conserve capital.”
Equipment rental revenue was up 2.4% to $386.5 million in the first quarter of 2020, compared to the equivalent period in the previous year. This was attributed to a strong year-on-year improvement in pricing of 2.4%, though this was partially offset by lower volumes due to Covid-19.
Herc’s adjusted EBITDA rose by 3.8% to $147.7 million in the first quarter, largely as a result of the strong rental pricing.
Silber said, “Equipment rental revenue improved year-over-year in the first quarter primarily due to positive rate growth. We controlled direct operating expenses and reduced selling, general and administrative expenses compared with last year, contributing to our growth in adjusted EBITDA [earnings before interest, taxes, depreciation and amortisation] and a 400 basis point improvement in adjusted EBITDA margin in the first quarter.”
The company’s total revenues came to $436.2 million, representing a drop from the $475.7 million recorded in the first quarter of 2019. The $39.5 million decline was attributed primarily to a reduction in sales of used and new equipment, parts and supplies compared to the previous year.
In response to the Covid-19 pandemic, Herc has implemented various safety and operating procedures based on Centers for Disease Control and Prevention’s guidelines to protect its employees and customers.
Silber said, “We are proud to be providing essential support to customers in a diverse mix of critical infrastructure sectors and nearly all of our branches are open and operating.
“Our ProSolutions team has been especially busy providing critical support to medical centers, hospitals and additional patient facilities.”
In the first quarter of 2020, Herc’s gross fleet capital expenditure was $83 million and proceeds from disposal came to $34.6 million.
As of 31 March, the original equipment cost of Herc’s fleet was approximately $3.8 billion, and the average fleet age was 46 months.
Due to the difficulty of predicting the length of the economic slowdown related to Covid-19, Herc has withdrawn its 2020 guidance.
However, Silber said, “I am proud of the ‘can do’ attitude of our Herc Rentals team as we work to navigate this challenging time together.
“Our business model is resilient and our leadership team is experienced. We remain ready to support our customers’ operations in whatever capacity we can during this uncertain time and especially when construction and business activities resume.”