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H&E Equipment Services, Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

H&E Equipment Services, Inc.

Filing date:

02/21/2025

TLDR:

H&E Equipment Services, Inc. reported modest revenue growth but a decline in profitability for the year ended December 31, 2024. The company is undergoing a merger with Herc Holdings Inc., which presents both opportunities and risks.

ELI5:

H&E, a company that rents and sells construction equipment, made a little more money this year, but their profits went down. They’re merging with another company, which could be good or bad for them.

Accession #:

0000950170-25-024867

Published on

Analyst Summary

  • Revenue growth was modest at 3.2%.
  • Gross profit decreased by 1.4%, indicating margin pressure.
  • Net income from continuing operations decreased significantly by 27.4%.
  • Gross profit margin declined from 46.6% to 44.5%.
  • Operating Profit Margin declined from 18.83% to 15.12%.
  • Net Profit Margin declined from 11.52% to 8.11%.
  • Return on Assets (ROA) declined from 6.41% to 4.40%.
  • Return on Equity (ROE) declined from 31.69% to 19.76%.
  • Basic EPS declined from $4.69 to $3.39.
  • Diluted EPS declined from $4.66 to $3.37.
  • Current Ratio declined from 1.05 to 0.85.
  • Quick Ratio increased from 0.74 to 0.81.
  • Cash Ratio increased from 0.02 to 0.05.
  • Debt-to-Equity Ratio decreased from 3.94 to 3.49.
  • Debt-to-Assets Ratio decreased from 0.80 to 0.78.
  • Interest Coverage Ratio declined from 4.54 to 3.14.
  • Inventory Turnover declined from 2.76 to 2.43.
  • Days Sales Outstanding (DSO) decreased from 61.40 days to 59.81 days.
  • Days Payable Outstanding (DPO) decreased from 33.47 days to 19.56 days.
  • Asset Turnover declined from 0.56 to 0.54.
  • Price-to-Earnings Ratio (P/E) is 28.95.
  • Price-to-Book Ratio (P/B) is 5.77.
  • Price-to-Sales Ratio (P/S) is 2.37.
  • Enterprise Value to EBITDA (EV/EBITDA) is 7.49.
  • Revenue Growth is 3.22%.
  • Net Income Growth is -27.35%.
  • EPS Growth is -27.72%.

Opportunities and Risks

  • Merger Integration: Successfully integrating H&E with Herc is a significant risk. Integration challenges could disrupt operations and negatively impact financial performance.
  • Economic Downturn: A decline in construction and industrial activities could reduce demand for equipment rentals and sales, impacting revenue and profitability.
  • Competition: The equipment rental industry is highly competitive. Increased competition could lead to pricing pressures and reduced market share.
  • Debt Levels: The company has substantial indebtedness, which could limit its financial flexibility and increase vulnerability to economic downturns.
  • Climate Change Regulations: Increasingly stringent environmental regulations could increase operational costs and reduce demand for certain types of equipment.
  • Merger Synergies: The merger with Herc could create synergies and cost savings, improving profitability and market position.
  • Infrastructure Spending: Increased government spending on infrastructure projects could drive demand for equipment rentals and sales.
  • Fleet Management: Effective fleet management practices can optimize utilization and improve profitability.
  • Technological Innovation: Investing in technology, such as digital customer platforms, can enhance customer service and improve operational efficiency.

Potential Implications

Company Performance

  • Monitor Merger Progress: Closely track the progress of the merger with Herc, paying attention to integration plans and potential synergies.
  • Assess Economic Conditions: Continuously evaluate macroeconomic conditions and their potential impact on the construction and industrial sectors.
  • Manage Fleet Efficiency: Implement strategies to improve rental equipment dollar utilization and optimize fleet age.
  • Diversify Supplier Base: Explore opportunities to diversify the supplier base to mitigate supply chain risk.

Stock Price

  • The pending merger creates uncertainty. A more definitive assessment can be made once the merger is complete and the combined entity’s strategy is clear.

H&E Equipment Services, Inc. (HEES) – 10-K Filing Analysis

Executive Summary

This report analyzes H&E Equipment Services, Inc.’s 10-K filing for the year ended December 31, 2024. The company, a major player in the equipment rental industry, is currently undergoing a merger process with Herc Holdings Inc. (Herc). The analysis focuses on financial performance, key risks, and the implications of the pending merger. While revenue growth was modest, profitability declined slightly. The pending merger introduces both opportunities and risks. A hold rating is recommended pending the completion of the merger and further clarity on the combined entity’s strategy.

Company Overview

H&E Equipment Services, Inc. (HEES) is an integrated equipment services company. The company operates primarily in the Pacific Northwest, West Coast, Intermountain, Southwest, Gulf Coast, Southeast, Midwest, and Mid-Atlantic regions. HEES rents, sells, and provides parts and service support for construction and industrial equipment. Recent developments include a terminated merger agreement with United Rentals, Inc. and a new merger agreement with Herc Holdings Inc., expected to close mid-year 2025.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management acknowledges the impact of economic factors on the business, including inflation and supply chain disruptions. They highlight the company’s transition to a pure-play rental company. The MD&A discusses the pending merger with Herc, outlining the terms and conditions. Forward-looking statements are prevalent, emphasizing the uncertainties surrounding the merger and future performance.

Financial Statement Analysis

Income Statement

Metric 2024 (USD Thousands) 2023 (USD Thousands) Change (%)
Total Revenues 1,516,583 1,469,216 3.2
Gross Profit 675,200 684,461 -1.4
Net Income from Continuing Operations 122,982 169,293 -27.4

Key Observations:

* Revenue growth was modest at 3.2%.
* Gross profit decreased by 1.4%, indicating margin pressure.
* Net income from continuing operations decreased significantly by 27.4%.

Balance Sheet

Metric 2024 (USD Thousands) 2023 (USD Thousands)
Total Assets 2,795,530 2,639,886
Rental Equipment, Net 1,841,855 1,756,578
Total Liabilities 2,173,050 2,105,597
Total Stockholders’ Equity 622,480 534,289

Key Observations:

* Total assets increased, driven by growth in rental equipment.
* Total liabilities also increased, reflecting higher debt levels.
* Stockholders’ equity increased, primarily due to retained earnings.

Cash Flow Statement

Metric 2024 (USD Thousands) 2023 (USD Thousands)
Net Cash Provided by Operating Activities 495,601 405,483
Net Cash Used in Investing Activities (459,042) (608,762)
Net Cash Used in Financing Activities (28,646) 130,449

Key Observations:

* Cash flow from operations improved significantly.
* Investing activities used less cash compared to the prior year, reflecting a decrease in rental equipment purchases.
* Financing activities resulted in a net cash outflow, primarily due to debt repayments and dividend payments.

Key Ratios

Ratio 2024 2023
Gross Profit Margin 44.5% 46.6%
Debt-to-Equity Ratio 3.49 3.94
Rental Equipment Dollar Utilization 38.3% 40.3%

Key Observations:

* Gross profit margin declined, indicating potential pricing pressures or increased costs.
* The debt-to-equity ratio decreased slightly, suggesting improved financial leverage.
* Rental equipment dollar utilization decreased, indicating lower fleet efficiency.

Risk and Opportunity Assessment

Risks

* **Merger Integration:** Successfully integrating H&E with Herc is a significant risk. Integration challenges could disrupt operations and negatively impact financial performance.
* **Economic Downturn:** A decline in construction and industrial activities could reduce demand for equipment rentals and sales, impacting revenue and profitability.
* **Competition:** The equipment rental industry is highly competitive. Increased competition could lead to pricing pressures and reduced market share.
* **Debt Levels:** The company has substantial indebtedness, which could limit its financial flexibility and increase vulnerability to economic downturns.
* **Climate Change Regulations:** Increasingly stringent environmental regulations could increase operational costs and reduce demand for certain types of equipment.

Opportunities

* **Merger Synergies:** The merger with Herc could create synergies and cost savings, improving profitability and market position.
* **Infrastructure Spending:** Increased government spending on infrastructure projects could drive demand for equipment rentals and sales.
* **Fleet Management:** Effective fleet management practices can optimize utilization and improve profitability.
* **Technological Innovation:** Investing in technology, such as digital customer platforms, can enhance customer service and improve operational efficiency.

Uncommon Metrics

* **Rental Equipment Dollar Utilization:** This metric, while common in the industry, is crucial for assessing fleet efficiency and revenue generation. The decrease in utilization warrants attention.
* **Average Age of Rental Fleet:** The increasing average age of the rental fleet could lead to higher maintenance costs and reduced customer appeal.
* **Percentage of Equipment Purchased from Top 5 Manufacturers:** High supplier concentration creates supply chain risk.

Conclusion and Actionable Insights

H&E Equipment Services, Inc. faces a mixed outlook. While revenue growth is present, profitability is under pressure. The pending merger with Herc presents both significant opportunities and risks.

* **Overall Assessment:** Hold. The pending merger creates uncertainty. A more definitive assessment can be made once the merger is complete and the combined entity’s strategy is clear.
* **Recommendations:**
* **Monitor Merger Progress:** Closely track the progress of the merger with Herc, paying attention to integration plans and potential synergies.
* **Assess Economic Conditions:** Continuously evaluate macroeconomic conditions and their potential impact on the construction and industrial sectors.
* **Manage Fleet Efficiency:** Implement strategies to improve rental equipment dollar utilization and optimize fleet age.
* **Diversify Supplier Base:** Explore opportunities to diversify the supplier base to mitigate supply chain risk.

Disclaimer

This report is for informational purposes only and does not constitute financial advice. Investment decisions should be based on individual circumstances and consultation with a qualified financial advisor.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Ratio/Metric: Gross Profit / Total Revenues = $675,200 / $1,516,583 = 44.52%
  • Trend: Previous year Gross Profit Margin = $684,461 / $1,469,216 = 46.59%. Percentage change = (44.52% – 46.59%) / 46.59% = -4.44%
  • Industry: The average gross profit margin for the equipment rental industry is around 45%. H&E’s gross profit margin is slightly below the industry average.

Operating Profit Margin

  • Ratio/Metric: Income from Operations / Total Revenues = $229,311 / $1,516,583 = 15.12%
  • Trend: Previous year Operating Profit Margin = $276,704 / $1,469,216 = 18.83%. Percentage change = (15.12% – 18.83%) / 18.83% = -19.70%
  • Industry: The average operating profit margin for the equipment rental industry is around 15%. H&E’s operating profit margin is in line with the industry average.

Net Profit Margin

  • Ratio/Metric: Net Income / Total Revenues = $122,982 / $1,516,583 = 8.11%
  • Trend: Previous year Net Profit Margin = $169,293 / $1,469,216 = 11.52%. Percentage change = (8.11% – 11.52%) / 11.52% = -29.69%
  • Industry: The average net profit margin for the equipment rental industry is around 8%. H&E’s net profit margin is in line with the industry average.

Return on Assets (ROA)

  • Ratio/Metric: Net Income / Total Assets = $122,982 / $2,795,530 = 4.40%
  • Trend: Previous year ROA = $169,293 / $2,639,886 = 6.41%. Percentage change = (4.40% – 6.41%) / 6.41% = -31.36%
  • Industry: The average ROA for the equipment rental industry is around 5%. H&E’s ROA is slightly below the industry average.

Return on Equity (ROE)

  • Ratio/Metric: Net Income / Total Stockholders’ Equity = $122,982 / $622,480 = 19.76%
  • Trend: Previous year ROE = $169,293 / $534,289 = 31.69%. Percentage change = (19.76% – 31.69%) / 31.69% = -37.65%
  • Industry: The average ROE for the equipment rental industry is around 15%. H&E’s ROE is above the industry average.

Earnings Per Share (EPS)

  • Ratio/Metric:

    • Basic EPS: $3.39
    • Diluted EPS: $3.37
  • Trend:

    • Previous year Basic EPS: $4.69. Percentage change = ($3.39 – $4.69) / $4.69 = -27.72%
    • Previous year Diluted EPS: $4.66. Percentage change = ($3.37 – $4.66) / $4.66 = -27.68%
  • Industry: EPS varies greatly depending on the company.

Liquidity

Current Ratio

  • Ratio/Metric: Current Assets / Current Liabilities. Current Assets = Cash + Receivables + Inventories + Prepaid Expenses = $16,413 + $248,643 + $12,976 + $11,214 = $289,246. Current Liabilities = Senior Secured Credit Facility + Accounts Payable + Accrued Expenses Payable + Dividends Payable = $199,304 + $45,149 + $94,856 + $400 = $339,709. Current Ratio = $289,246 / $339,709 = 0.85
  • Trend: Previous year Current Assets = $8,500 + $247,430 + $109,931 + $8,740 = $374,501. Previous year Current Liabilities = $181,642 + $85,486 + $87,929 + $360 = $355,417. Previous year Current Ratio = $374,501 / $355,417 = 1.05. Percentage change = (0.85 – 1.05) / 1.05 = -19.05%
  • Industry: A current ratio of 1.5 to 2 is generally considered healthy. H&E’s current ratio is below the healthy range.

Quick Ratio (Acid-Test Ratio)

  • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities = ($289,246 – $12,976) / $339,709 = 0.81
  • Trend: Previous year Quick Ratio = ($374,501 – $109,931) / $355,417 = 0.74. Percentage change = (0.81 – 0.74) / 0.74 = 9.46%
  • Industry: A quick ratio of 1 or greater is generally considered healthy. H&E’s quick ratio is below the healthy range.

Cash Ratio

  • Ratio/Metric: Cash / Current Liabilities = $16,413 / $339,709 = 0.05
  • Trend: Previous year Cash Ratio = $8,500 / $355,417 = 0.02. Percentage change = (0.05 – 0.02) / 0.02 = 150%
  • Industry: A cash ratio of 0.5 to 1 is generally considered healthy. H&E’s cash ratio is very low.

Solvency/Leverage

Debt-to-Equity Ratio

  • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $2,173,050 / $622,480 = 3.49
  • Trend: Previous year Debt-to-Equity Ratio = $2,105,597 / $534,289 = 3.94. Percentage change = (3.49 – 3.94) / 3.94 = -11.42%
  • Industry: The average debt-to-equity ratio for the equipment rental industry is around 2. H&E’s debt-to-equity ratio is high.

Debt-to-Assets Ratio

  • Ratio/Metric: Total Liabilities / Total Assets = $2,173,050 / $2,795,530 = 0.78
  • Trend: Previous year Debt-to-Assets Ratio = $2,105,597 / $2,639,886 = 0.80. Percentage change = (0.78 – 0.80) / 0.80 = -2.5%
  • Industry: The average debt-to-assets ratio for the equipment rental industry is around 0.5. H&E’s debt-to-assets ratio is high.

Interest Coverage Ratio (Times Interest Earned)

  • Ratio/Metric: Income from Operations / Interest Expense = $229,311 / $72,954 = 3.14
  • Trend: Previous year Interest Coverage Ratio = $276,704 / $60,891 = 4.54. Percentage change = (3.14 – 4.54) / 4.54 = -30.84%
  • Industry: An interest coverage ratio of 1.5 or greater is generally considered healthy. H&E’s interest coverage ratio is adequate.

Activity/Efficiency

Inventory Turnover

  • Ratio/Metric: Cost of Sales / Average Inventory. Cost of Sales = $53,674 + $45,592 + $50,359 = $149,625. Average Inventory = ($12,976 + $109,931) / 2 = $61,453.5. Inventory Turnover = $149,625 / $61,453.5 = 2.43
  • Trend: Previous year Cost of Sales = $65,183 + $33,569 + $53,290 = $152,042. Previous year Average Inventory = ($109,931 + $212) / 2 = $55,071.5. Previous year Inventory Turnover = $152,042 / $55,071.5 = 2.76. Percentage change = (2.43 – 2.76) / 2.76 = -12%
  • Industry: Inventory turnover varies greatly depending on the company.

Days Sales Outstanding (DSO)

  • Ratio/Metric: (Accounts Receivable / Total Revenues) * 365 = ($248,643 / $1,516,583) * 365 = 59.81 days
  • Trend: Previous year DSO = ($247,430 / $1,469,216) * 365 = 61.40 days. Percentage change = (59.81 – 61.40) / 61.40 = -2.59%
  • Industry: DSO varies greatly depending on the company.

Days Payable Outstanding (DPO)

  • Ratio/Metric: (Accounts Payable / Cost of Revenues) * 365 = ($45,149 / $841,383) * 365 = 19.56 days
  • Trend: Previous year DPO = ($85,486 / $784,755) * 365 = 33.47 days. Percentage change = (19.56 – 33.47) / 33.47 = -41.56%
  • Industry: DPO varies greatly depending on the company.

Asset Turnover

  • Ratio/Metric: Total Revenues / Total Assets = $1,516,583 / $2,795,530 = 0.54
  • Trend: Previous year Asset Turnover = $1,469,216 / $2,639,886 = 0.56. Percentage change = (0.54 – 0.56) / 0.56 = -3.57%
  • Industry: Asset turnover varies greatly depending on the company.

Valuation

Price-to-Earnings Ratio (P/E)

  • Ratio/Metric: Stock Price / EPS = $98.14 / $3.39 = 28.95
  • Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
  • Industry: The average P/E ratio for the equipment rental industry is around 20. H&E’s P/E ratio is above the industry average.

Price-to-Book Ratio (P/B)

  • Ratio/Metric: Market Cap / Book Value of Equity. Market Cap = 36,604,864 * $98.14 = $3,592,488,844.96 (in thousands $3,592,489). Book Value of Equity = $622,480. P/B = $3,592,489 / $622,480 = 5.77
  • Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
  • Industry: The average P/B ratio for the equipment rental industry is around 2. H&E’s P/B ratio is above the industry average.

Price-to-Sales Ratio (P/S)

  • Ratio/Metric: Market Cap / Total Revenues = $3,592,489 / $1,516,583 = 2.37
  • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
  • Industry: The average P/S ratio for the equipment rental industry is around 1. H&E’s P/S ratio is above the industry average.

Enterprise Value to EBITDA (EV/EBITDA)

  • Ratio/Metric: (Market Cap + Total Debt – Cash) / EBITDA. Market Cap = $3,592,489. Total Debt = $199,304 + $1,244,295 = $1,443,599. Cash = $16,413. EBITDA = Net Income + Interest Expense + Taxes + Depreciation & Amortization = $122,982 + $72,954 + $39,564 + $375,330 + $47,982 + $10,265 + $1,400 = $670,477. EV = $3,592,489 + $1,443,599 – $16,413 = $5,019,675. EV/EBITDA = $5,019,675 / $670,477 = 7.49
  • Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
  • Industry: The average EV/EBITDA ratio for the equipment rental industry is around 8. H&E’s EV/EBITDA ratio is slightly below the industry average.

Growth Rates

Revenue Growth

  • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($1,516,583 – $1,469,216) / $1,469,216 = 3.22%

Net Income Growth

  • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($122,982 – $169,293) / $169,293 = -27.35%

EPS Growth

  • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($3.39 – $4.69) / $4.69 = -27.72%

Other Relevant Metrics

Impact of 2-year change in useful life on results of operations as of December 31, 2024

  • The company provided an analysis of the impact of a 2-year change in the useful life of their equipment on depreciation expense. An increase of 2 years in useful life would have decreased depreciation expense by $237.6 million, while a decrease of 2 years would have increased depreciation expense by $468.9 million. This highlights the sensitivity of the company’s earnings to changes in accounting estimates.

Goodwill

  • The company’s goodwill increased from $108.2 million in 2023 to $135.2 million in 2024, primarily due to acquisitions. The company performs an annual impairment test of goodwill, and no impairment was recorded in 2024.

Segment Information

  • The company’s revenues are primarily derived from equipment rentals, sales of rental equipment, sales of new equipment, and parts, service and other. Equipment rentals accounted for the largest portion of revenues in 2024.

Fair Value Measurements

  • The company’s senior unsecured notes are classified as Level 2 fair value measurements, based on quoted prices for similar assets in active markets. The fair value of the notes was $1,145.7 million as of December 31, 2024, compared to a carrying amount of $1,244.3 million.

Stock-Based Compensation

  • The company grants restricted stock units (RSUs) to its employees. The fair value of RSUs is determined based on the market price of the company’s stock on the grant date.

Discontinued Operations

  • The company had a loss from discontinued operations in 2022, but no discontinued operations in 2023 or 2024.

Acquisitions

  • The company made several acquisitions in 2024, 2023 and 2022, which contributed to the increase in goodwill.

Commentary

H&E Equipment Services’ financial performance in 2024 shows a mixed picture. While revenue increased slightly, profitability metrics such as gross profit margin, operating profit margin, net profit margin, ROA, ROE, and EPS all decreased compared to the previous year. The company’s leverage ratios remain high, indicating a significant reliance on debt financing. Despite these challenges, the company’s ROE remains above the industry average, and the EV/EBITDA ratio is in line with industry peers.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️