Herc Holdings of Bonita Springs reports strong third-quarter results

Bonita Springs-based Herc Holdings reported a strong third quarter, including profit that grew more than 260 percent over the year.

The parent company of Herc Rentals — a diversified equipment rental business — reported net income of $46.2 million, or $1.60 a share, up from $12.8 million, or 45 cents a share, a year ago.

Total revenue increased 12.8 percent over the year to $516.2 million year, compared with $457.6 million last year.

Equipment rental revenue grew 8.7 percent over the year to $449 million, up from $413.1 million. That growth was despite a spike in demand related to hurricane activity last year.

The results beat Wall Street analysts' expectations. On average, analysts expected earnings of 90 cents a share on revenue of $499.86 million, excluding any one-time charges or gains.

In a news release, Larry Silber, Herc's president and CEO, attributed the better quarterly performance to several factors, including strong market demand for its equipment, which drove pricing up 3.2 percent.

"Our initiatives to better manage costs also began to gain traction," he said.

Direct operating expenses stabilized in the quarter; and sales, general and administrative expenses shrank by $6.1 million over the year.

"Our strategic plan continues to drive growth through fleet and customer diversification," Silber said.

The company's five-year strategic plan focuses on expanding and diversifying revenue, improving operating effectiveness, enhancing customer experience and achieving more disciplined capital management.

Along with its improved operating results, Herc benefited from lower taxes in the quarter. Income taxes decreased by $6.8 million over the year, primarily due to the Tax Cuts and Jobs Act of 2017, which lowered its corporate tax rate.

Sales of rental equipment increased more than 80 percent in the third quarter, which also boosted revenue.

In a conference call with analysts Thursday, Silber said growth in new customer accounts continues to be strong. 

As part of its strategy to expand and diversify revenue, Herc has focused on doing more business in high-growth urban markets, including Southwest Florida and other parts of the state.

Local rental revenue now accounts for 60 percent of the total, Silber said.

Herc added locations in St. Louis, Atlanta and Seattle in the quarter. The company has about 275 locations, mainly in North America.

"We continue to roll out best practices across our regions, learning from those urban centers with the highest dollar utilization and profit contributions," Silber said.

Herc continues to see growing demand for its:

• ProContractor Tools, a line of rental tools for contractors, from power drills to concrete mixers;
• products and services offered in its ProSolutions line, which includes portable chillers, air-conditioning and heating units and dehumidifiers.

The company continues to invest in new equipment to improve its fleet mix. Average fleet age dropped to 46 months in the quarter, compared with 49 months a year ago.  

Looking ahead, Silber said a strong industry outlook supports the company's expectations of continued growth, including a shift from equipment ownership to rental and rising construction spending.

Based on "robust market demand" and improved operating results in the third quarter, Herc raised its financial guidance for the year.

The company now expects adjusted earnings of $675 million to $685 million before interest, taxes, depreciation and amortization, an increase of 15 to 17 percent over 2017.

Herc lowered the estimates for its capital expenditures on fleet this year. That spending is expected to be $525 million to $540 million, down from $525 million to $575 million in earlier guidance, as the company continues to focus on disciplined capital management. 

"We continue to execute on the five-year plan we laid out three years ago," Silber said, "and are focused on rate-driven revenue growth and margin expansion."  

More:Herc narrows losses, completes last step in separation from Hertz in Q2

In a research note, analyst Adam Seiden, with Barclays, said the latest financial results should "ease concerns" about Herc's "ability to capture rate and grow margins in today's environment." 

Based on the company's rental rate growth and guidance update alone, Seiden said he expected the stock to gain back most of the ground it had lost over the past month, seemingly on Herc-specific news. 

After such a strong quarter, Herc's shares surged more than 12 percent Thursday in morning trading. They closed at $38.04, up $3.68 or more than 10.7 percent.