Herc Holdings Inc. (HRI) Earnings & Analysis

Latest quarter

Herc reported third-quarter revenue of $1.4 billion, above the $1.3 billion consensus. Adjusted earnings per share, as counted by the consensus, were $3.91, above the $3.08 estimate.

The company reported revenue of $1.3 billion a year earlier and diluted earnings per share of $3.10 in the latest quarter, compared with $0.90 a year earlier. Its filing said equipment rental revenue rose 12%, driven primarily by more equipment on rent, particularly on large projects, as well as delivery and refueling revenue and acquisition synergies. Sales of rental equipment fell 44% after elevated disposals in the prior-year quarter following the H&E acquisition.

Herc reported an operating margin of 18.2%, up from 16.0% a year earlier. The filing said direct operating expenses rose as a share of rental revenue, partly because of higher fuel and delivery costs, while selling, general and administrative expenses declined as a share of rental revenue. Free cash flow was −$69.0 million, compared with $30.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Lawrence Silber said national accounts were leading revenue growth, supported by large projects in data centers, infrastructure, manufacturing and energy. He said the integration of H&E had expanded Herc’s sales force, scale and available fleet. President Aaron Birnbaum added that relationships with large general contractors and the scale gained from H&E had improved Herc’s position on major projects.

Silber said equipment rental revenue increased nearly 12% while average fleet value grew less than 2%, with dollar utilization up 360 basis points. He said specialty revenue grew by double digits and specialty equipment represented 20% of fleet value at original equipment cost, up from 17% a year earlier. Birnbaum attributed the utilization improvement partly to specialty equipment and timing, and said pricing had begun to improve as the year progressed.

Asked about pricing, Silber said fuel and freight inflation gave Herc an incentive to raise rates, but that the extent of any pricing inflection would depend on recovery in the spot market. Birnbaum described the local market as stable while large projects were expanding, and said H&E had added scale in local markets.

On H&E synergies, Birnbaum said the company had expanded its specialty network and sold more equipment to customers who had not typically rented it from H&E. He said Herc put H&E’s spot-market business onto its pricing tools within months and was bringing contract rates into line over a three-year period while seeking to retain customers.

Executive W. Humphrey said EBITDA growth would be central to reducing leverage, while Herc would continue providing capital to support customers. Discussing next year’s investment, he said the company was still working through its overall gross fleet capital expenditure plan and would provide it in February. Silber said he would become executive chairman at the start of next year, when Birnbaum would become CEO of Herc Rentals.

Guidance

Herc raised its FY2026 equipment rental revenue outlook to $4.475 billion to $4.550 billion from $4.375 billion to $4.475 billion. It also raised its adjusted EBITDA range to $2.10 billion to $2.15 billion from $2.05 billion to $2.125 billion.

The company increased its gross capital expenditure outlook to $1.45 billion to $1.60 billion from $1.25 billion to $1.40 billion. Its net rental equipment capital expenditure range rose to $1.0 billion to $1.1 billion from $850 million to $950 million.