Herc Holdings (NYSE:HRI), Inc. announced record-breaking third quarter results in its 2023 earnings call, driven by heightened rental rates and volume growth. The company reported record highs in total revenue, which according to InvestingPro Data, reached $3.072 billion and adjusted EBITDA, with an 8% increase in rental revenue and significant rental EBITDA margin improvement. Herc also revealed plans to consider alternatives for its studio entertainment business, Cinelease.
Key Takeaways:
- Herc Rentals expanded its network by adding eight new locations and making acquisitions in Southern California and Houston.
- Despite supply chain challenges, the company remains confident about its fleet planning for 2024.
- The company sold $124 million worth of used fleet, adjusting fleet investments and disposals to meet demand.
- Herc Holdings experienced robust revenue growth from both local and national accounts in Q3 2023.
- The company expects to sell around $800 million of fleet by the end of the year.
- Herc Holdings achieved a record adjusted EBITDA margin of 49.3% and a 12% growth in net income in the quarter.
- The company revised its adjusted EBITDA forecast range for 2023 to $1.45 billion to $1.5 billion, indicating growth of 18% to 22%.
- Herc Holdings anticipates the next three periods to be the strongest in the industry's history, with $306 billion worth of nonresidential infrastructure projects planned for 2023.
Herc Holdings continues to capitalize on a burgeoning large project pipeline, expecting to secure a significant share of the market's growth. According to InvestingPro Tips, the company operates with a significant debt burden but has been aggressively buying back shares. However, the company experienced performance impacts due to labor strikes at Cinelease, particularly in the Studio Entertainment sector. Despite these strikes ending and the fleet being moved to other customers, the company expects minimal impact on Q4 results.
The company's customer mix in Q3 comprised 58% of rental revenue from local accounts, while 36% was associated with non-residential construction. Herc Holdings has revised its adjusted EBITDA forecast range for 2023, forecasting continued growth. The company will host an Investor Day on November 2nd to outline new guideposts for future growth.
Herc Holdings expects to benefit from a robust pipeline of nonresidential infrastructure projects in 2023, supported by federal funds from various acts. Despite a slight anticipated decrease in dollar utilization in Q4 2023 due to the impact of studio entertainment and the absence of significant weather events, demand remains strong across both local and national accounts. The company is also considering divesting its Cinelease business, expecting strong demand for it.
The company's capital allocation strategy for the coming year is still under review, with more details to be provided at their Investor Day on November 2. They expect to outperform market growth, projecting industry growth of around 10.5% in 2023 and mid-single digits in 2024. The call concluded with the company expressing its optimism for the future and openness to further questions. As per InvestingPro Data, the company has a market cap of $2.920 billion and a P/E ratio of 8.41, indicating it's trading at a low earnings multiple.
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