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Introduction & Market Context
Herc Holdings Inc (NYSE:HRI) presented its Q1 2025 earnings on April 22, highlighting revenue growth despite facing profitability challenges in a mixed market environment. The equipment rental company announced a significant acquisition of H&E Equipment Services (NASDAQ:HEES), adding 160 locations to its network, while also revealing plans to divest its Cinelease studio entertainment business.
The company’s presentation comes as the equipment rental industry navigates divergent market conditions, with strong demand from mega projects and infrastructure spending offsetting weakness in interest rate-sensitive local markets. This follows Herc’s Q4 2024 performance where the company missed EPS expectations but beat revenue forecasts.
Quarterly Performance Highlights
Herc reported Q1 2025 equipment rental revenue of $739 million, up 2.8% year-over-year, while total revenues increased 7.1% to $861 million. However, the company posted a net loss of $18 million, a significant decline from the $65 million profit in Q1 2024, primarily due to adjustments related to the Cinelease business being classified as assets held for sale.
As shown in the comprehensive financial results table below, adjusted EBITDA remained flat at $339 million, though the adjusted EBITDA margin declined 280 basis points to 39.4%:
When excluding the Cinelease studio entertainment business, Herc’s core performance showed more resilience. Core equipment rental revenue grew 4.9% to $724 million, and core adjusted EBITDA increased 2.7% to $338 million, though core adjusted EBITDA margin still declined 250 basis points to 40.0%:
The company’s customer and revenue diversification has proven beneficial in the current environment. Revenue is split between local accounts (53%) and national accounts (47%), with the company targeting a long-term mix of 60% local and 40% national:
Strategic Initiatives
The most significant strategic development announced was Herc’s executed merger agreement to acquire H&E Equipment Services, which will add 160 locations to its network. This acquisition accelerates Herc’s growth strategy, particularly in key regions, and is expected to create substantial revenue and cost synergies:
Herc continues to optimize its fleet mix, with a focus on expanding specialty equipment offerings. The company’s fleet at original equipment cost (OEC) stands at $6.9 billion, with specialty equipment comprising 24% of the total:
The company is also divesting its Cinelease studio entertainment business, which represents approximately 4% of OEC. Management noted that owning studio real estate does not align with Herc’s core strategy, though the company will continue to provide equipment rentals to the entertainment industry through its Herc Entertainment Services division:
Detailed Financial Analysis
Herc maintained strong liquidity of $1.9 billion and a net leverage ratio of 2.5x, within its target range of 2.0x to 3.0x. The company generated $49 million in free cash flow during Q1 2025 and increased its quarterly dividend by 5% to $0.70 per share:
The company’s fleet expenditures increased from $167 million in Q1 2024 to $200 million in Q1 2025, reflecting continued investment despite market challenges. Fleet disposals in Q1 2025 generated proceeds of approximately 45% of OEC, with an average fleet age of 47 months as of March 31, 2025:
Herc’s end markets continue to show strength in key areas, with projected growth in industrial spending, non-residential starts, and infrastructure starts through 2028. Notably, mega project starts are expected to surge from $216 billion in 2024 to $547 billion in 2025, providing significant growth opportunities:
The company is well-positioned across diverse customer segments and project types, with contractors representing 37% of revenue, industrial 26%, infrastructure and government 18%, commercial facilities 14%, and other segments 5%:
Forward-Looking Statements
For 2025, Herc affirmed its outlook (excluding Cinelease), projecting equipment rental revenue growth of 4% to 6% and adjusted EBITDA between $1.575 billion and $1.650 billion. Net rental equipment expenditures are expected to be between $400 million and $600 million, with gross capex between $700 million and $900 million:
Key assumptions for 2025 include relatively flat local markets, ongoing focus on fleet efficiency, normalizing used equipment market, and positive free cash flow. The company also expects to be a first-time cash tax payer with a tax rate of approximately 25%.
Management emphasized that while local markets remain challenged by the interest rate environment, this is being offset by infrastructure projects, recent acquisitions, and continued strength in national accounts and mega projects. The company’s diversified approach across customer segments, geographies, and equipment types positions it to navigate market dynamics while pursuing long-term growth.
Despite the current profitability challenges, Herc’s strategic initiatives, including the H&E acquisition and focus on specialty equipment, are designed to enhance its competitive position and drive sustainable growth as market conditions evolve.
Full presentation:
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