Utilisation rate helps Essex Rental

By Laura Hatton25 March 2013

Higher utilisation helped improve 2012 financial performance for mobile crane rental and distribution company Essex Rental Corp in North America.

Main highlights from the report include revenues from the rental segments and the company’s utilisation rates.

Equipment rental segment revenue, which includes rental, transportation, used rental equipment sales, and repairs and maintenance of rental equipment, were $18.0 million for the fourth quarter of 2012. This figure is up 8.2% compared to the fourth quarter of 2011, where equipment rentals segment revenues were $16.6 million. The improvement is due to an increase in utilisation for all of the company’s core rental equipment groups and an increase in the associated transportation revenues, the company said.

Equipment distribution segment revenue, which includes the retail distribution of new and used equipment, but excludes the proceeds received from the sale of used rental equipment, was $0.7 million for the fourth quarter of 2012, a decrease compared to $2.1 million for fourth quarter of 2011.

Utilisation rates
Utilisation of larger tower cranes and elevator lifts increased to 56% for the fourth quarter of 2012 from 54.7% and 37.3% for the third quarter of 2012 and the fourth quarter of 2011, respectively. Self erecting tower crane utilisation increased to 41.6% for the fourth quarter of 2012 from 33.1%, and for the third quarter of 2012 this figure increased by 28.7%.

For the crawler crane segment, the company announced that utilisation rates increased in every quarter throughout 2012. In the fourth quarter of 2012, crawler crane utilisation increased to 44.8% compared to 43.4% in the third quarter of 2012 and 38.3% in the fourth quarter of 2011.

Utilisation of hydraulic heavy lift crawler cranes, which are about 70% of the value of the company’s crawler crane fleet and 50% of their entire fleet, equalled 63.8% for the fourth quarter of 2012.

Ron Schad, Essex president and CEO, said, “Utilisation across many of our remaining asset categories increased on both a quarter over quarter basis and on a sequential quarter basis. The improvement on a sequential quarter basis is particularly encouraging as our fourth quarter has historically been a soft seasonal period. While our results are encouraging, I believe that we are still in the very early stages of what will be a gradual recovery for crawler crane utilisation and rental rates.”

Rental rates
Average monthly crawler crane rental rates increased by $387 to $17,947 for the fourth quarter of 2012 from $17,560 in the third quarter of 2012. The average monthly rental rate achieved in the fourth quarter of 2012 is the highest since 2009, the company said.

Schad continued, "In the fourth quarter of 2012, we continued to experience a gradual improvement in our business. We have seen increases in activity in most of our end markets on a year over year basis, with the largest increases in the power and petrochemical sectors. The expected duration of new crawler crane orders year to date through December has increased by 9.6% compared to the prior year's orders. The increased duration is providing greater revenue visibility and if this trend continues, is likely to have a positive impact on utilization.”

The company’s parts and service segment also experienced increased revenue and improved profitability when compared on a year-over-year basis, the company said. Revenues in this non-capital intensive business line increased 22.4% to $4.6 million for fourth quarter of 2012, compared to $3.7 million for the fourth quarter in 2011. Gross profit margin increased to 34.1% for fourth quarter of 2012 compared to 10.6% in the comparable period in 2011.

Total gross profit increased 89.6% to $6.2 million for the fourth quarter 2012, compared to the $3.3 million for the fourth quarter 2011. Gross profit margin increased by approximately 12.3 percentage points to 26.9% for the fourth quarter in 2012. This increase is due to higher margins in the equipment rentals and parts and service segments.

2013 outlook
One major change to the company included the exit from the aerial work platforms and forklift market. The remaining aerial work platforms and forklifts from the company’s rental fleet were sold in January 2013. The company said it will continue to identify opportunities to sell rental fleet assets that were underutilised during historic peak demand periods and use the proceeds to reduce outstanding debt.

Schad said, "Thus far in 2013, we are continuing to experience a gradual recovery across all of our business lines as compared to the same period in 2012. For example, since the beginning of the year we have increased the number of crawler cranes on rent by approximately 10% as measured against units on rent at December 31, 2012. Rental rates continue to be firmer across all of our asset classes and where utilization warrants it, we are raising rates. We expect that our parts and service business will continue to provide a highly predictable earnings stream and believe that based on signed orders in hand, new equipment sales are likely to be meaningfully higher in the first half of 2013 compared to the same time period in 2012. Assuming a continued gradual improvement in crawler crane utilization and no material improvement in rental rates, we are expecting EBITDA before non-cash compensation expenses for the year ended December 31, 2013 to be in the range of $21 million to $26 million.

“We have recently completed the refinancing of all of our operating company debt and extended maturities to 2016 and beyond. We are extremely pleased by the long-term financial stability that the refinancing provides. Consistent with 2012, when we reduced our total indebtedness by $10.9 million, we intend to continue to focus on disposing of excess assets and using excess free cash flow to reduce debt. Our blended cost of debt based on current Libor is approximately 4.51% and we expect consolidated interest expense in 2013 to be approximately $10 million. Finally, we are projecting net capital expenditures of approximately $2 million in 2013, excluding proceeds from the sale of lattice boom crawler cranes."

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