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HERC HOLDINGS INC (HRI)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered mixed results: total revenue rose 7% to $861M, equipment rental revenue up 2.8% to $739M, but adjusted EBITDA margin compressed to 39.4% and adjusted EPS was $1.30; GAAP EPS was a loss of $0.63 driven by $74M transaction costs related to the H&E acquisition (including a $64M termination fee paid to United Rentals) .
  • Versus S&P Global consensus, revenue modestly beat while EPS and EBITDA missed: $861M vs $847M revenue*, $1.30 vs $2.21 EPS*, and $339M vs $362M adjusted EBITDA*; misses reflect seasonality, insurance cost headwinds, and lower fixed-cost absorption amid acquisitions/greenfields .
  • Guidance was affirmed: FY25 equipment rental revenue growth 4–6%, adjusted EBITDA $1.575–$1.650B, net rental capex $400–$600M, gross capex $700–$900M (excluding Cinelease) .
  • Management highlighted a “tale of two trends”: strength in national-account mega projects (data centers, manufacturing onshoring, LNG) and continued pressure in interest-rate-sensitive local markets; dollar utilization rebounded in March and early April, normalizing flow-through into Q2 .
  • Near-term stock reaction catalysts: confirmed revenue resilience and guidance maintenance vs. EPS/EBITDA misses due to one-time transaction costs; improving utilization cadence; integration progress on H&E (HSR refiling, S-4 amendments), with closing later completed June 2, 2025 .

What Went Well and What Went Wrong

What Went Well

  • National accounts and mega projects supported revenue growth; management expects to “outperform the overall equipment rental market again this year” and to capture 10–15% of mega project opportunities .
  • Equipment rental revenue reached a record $739M (+2.8% YoY), and total revenue hit a record $861M (+7% YoY), with incremental contributions from 2024 acquisitions and higher used equipment sales .
  • Dollar utilization and flow-through normalized in March and into April, with expectations for typical seasonal build from Q1→Q2 and Q3→Q4; pricing described as “stable” amid industry discipline .

What Went Wrong

  • Adjusted EBITDA margin fell to 39.4% (−280 bps YoY) on seasonality (lowest revenue quarter), higher insurance expense YoY, and lower fixed-cost absorption due to greenfield/acquisition mix; one less calendar day also weighed on margin .
  • GAAP EPS was a loss of $0.63 due to $74M transaction costs (including $64M termination fee paid to United Rentals on behalf of H&E) and non-deductible tax impacts tied to the acquisition .
  • Dollar utilization declined to 37.6% from 39.7% YoY; local account growth remained constrained by higher-for-longer interest rates even as infrastructure/maintenance projects provided some offset .

Financial Results

Headline metrics (sequential trend)

MetricQ3 2024Q4 2024Q1 2025
Total Revenue ($USD Millions)$965 $951 $861
Adjusted EBITDA ($USD Millions)$446 $438 $339
Adjusted EBITDA Margin (%)46.2% 46.1% 39.4%
Adjusted EPS ($USD)$4.35 $3.58 $1.30
GAAP EPS ($USD)$4.28 $(1.62) $(0.63)

Revenue breakdown

Revenue Category ($USD Millions)Q3 2024Q4 2024Q1 2025
Equipment Rental$866 $839 $739
Sales of Rental Equipment$81 $96 $105
Sales of New Equipment, Parts & Supplies$9 $9 $11
Service & Other Revenue$9 $7 $6
Total Revenue$965 $951 $861

KPIs and balance sheet

KPIQ3 2024Q4 2024Q1 2025
Dollar Utilization (%)42.2% 40.6% 37.6%
Net Leverage (x)2.7x 2.5x 2.5x
Net Debt ($USD Millions)$4,049$4,015$4,006
Liquidity ($USD Billions)~$1.9 ~$1.9 ~$1.9
Fleet OEC ($USD Billions)~$7.1 ~$7.0 ~$6.9
Average Fleet Age (Months)46 46 47
Dividend per Share ($USD)$0.665 (Q3) $0.665 (Q4) $0.70 (Q1 paid Mar 4)

Actual vs. S&P Global consensus (Q1 2025)

MetricConsensus Q1 2025Actual Q1 2025
Revenue ($USD Millions)847.2*861
Adjusted EBITDA ($USD Millions)361.9*339
Adjusted/Normalized EPS ($USD)2.21*1.30

Values with asterisk retrieved from S&P Global.

Notable performance vs estimates:

  • Revenue: modest beat (+$13.8M, ~+1.6%)* .
  • EPS: miss (−$0.91, ~−41%)* driven primarily by non-recurring H&E transaction costs and seasonality .
  • Adjusted EBITDA: miss (−$22.9M, ~−6.3%)* due to lower fixed-cost absorption, higher insurance expense, greenfield/acquisition mix and one less calendar day .

Guidance Changes

MetricPeriodPrevious Guidance (Feb 13, 2025)Current Guidance (Apr 22, 2025)Change
Equipment Rental Revenue GrowthFY 2025 (ex-Cinelease)4% to 6% 4% to 6% Maintained
Adjusted EBITDA ($USD Billions)FY 2025 (ex-Cinelease)$1.575 to $1.650 $1.575 to $1.650 Maintained
Net Rental Equipment Capex ($USD Millions)FY 2025 (ex-Cinelease)$400 to $600 $400 to $600 Maintained
Gross Capex ($USD Millions)FY 2025 (ex-Cinelease)$700 to $900 $700 to $900 Maintained
Interest ExpenseFY 2025—Roughly flat YoY, rate dependent New qualitative assumption
Tax RateFY 2025—~25%; first-time cash taxpayer New qualitative assumption
Free Cash FlowFY 2025—Expect FCF positive New qualitative assumption
DividendQ1 2025$0.665 prior quarter $0.70 declared, +5% Raised in Q1

Earnings Call Themes & Trends

TopicQ3 2024 (Q-2)Q4 2024 (Q-1)Q1 2025 (Current)Trend
Mega projects (data centers, LNG, chips)Double-digit growth; specialty cross-sell; targeting outsized share Accelerating into Q4; record rental revenue Pipeline robust; goal to capture 10–15% of opportunities Strengthening
Local vs. national mixLocal 56% of rental revenue; local softness from rates Higher-for-longer rates pressuring local markets Local constrained; national robust; slide shows 53% local, 47% national National gaining share; local stable-to-soft
Pricing discipline+2.3% YoY in Q3 +2.1% YoY in Q4 Pricing “stable”; industry not over-fleeted Stable/slightly decelerating
Supply chain/used equipment marketReturn to normal delivery; proceeds at 42% OEC in Q3 Normalizing used market; strong Q4 proceeds Used market stabilized; Q1 proceeds ~45% of OEC Stabilizing
Dollar utilization / flow-throughSlight uplift; acquisitions weigh; sequential improvement Seasonal cadence implied for Q4 Rebounded in March/early April; flow-through back to ~40–50% range Normalizing into Q2
Tariffs/macroInterest-rate timing issue in local markets Higher-for-longer interest rates noted No direct tariff impact expected in 2025; orders secured; watch indirect effects Macro headwinds persistent; tariff risk low near term
Technology (ProControl)Leveraging data and proprietary tech —Advancing ProControl; elevating digital capabilities Ongoing investment
H&E acquisition—Announcement/tender commenced in March HSR refiling; S-4 amended; integration planning underway Progressing; closed June 2

Management Commentary

  • “As expected, the 2025 operating landscape continues to be a tale of two disparate economic trends... Our national account business is growing... other more interest-rate sensitive projects continue to be on hold, restricting overall local account growth” — Larry Silber, CEO .
  • “With utilization snapping back in March and incremental upside from 2024 acquisitions and strong mega project activity, we delivered equipment rental revenue growth... excluding Cinelease...” — Larry Silber .
  • “We don’t expect any direct impact [from tariffs] to our procurement costs in 2025... we source the vast majority of our fleet domestically and orders... have already been secured” — CEO .
  • “REBITDA margin and flow-through were under pressure... from 1 less calendar day... and a greater contribution this year from less efficient acquisitions and greenfields versus last year” — CFO .
  • “Our goal is to capture 10% to 15% of [mega project] opportunities” — COO .

Q&A Highlights

  • Utilization cadence: Dollar utilization recovered to prior-year levels in March and carried into April; expect normal seasonal build from Q1→Q2 and Q3→Q4 .
  • Pricing discipline: Management sees stable pricing; industry not over-fleeted despite mixed external indicators .
  • Margin drivers: ~150 bps margin headwind in seasonally lowest revenue quarter equated to ~$10M; one fewer calendar day and higher insurance costs also weighed .
  • Capex phasing: No signal of caution; Q2–Q3 are “big CapEx” adds; expect ~45% of capex guide by end of Q2 .
  • Macro/recession: Guide assumes “no-growth local market” and growth in infrastructure/mega projects; a recession would warrant revisiting guide .
  • H&E synergy assumptions: Revenue synergies phased over 3 years (20% year 1, 60% year 2, balance year 3); 10% customer churn dis-synergy assumed (60% in year 1, 40% in year 2) .
  • Margins on mega projects: Not margin-dilutive due to specialty mix offsetting general rental volume pricing .
  • Deleveraging plan: Pro forma leverage to just north of ~3.5x at close; target back inside 2–3x in 24 months via capex flex, fleet aging, dispositions, and variable cost actions if macro softens .

Estimates Context

  • Q1 2025 actuals versus S&P Global consensus: revenue beat (+1.6%); EPS miss (−41%); adjusted EBITDA miss (−6.3%)*, largely due to seasonality, higher insurance expense, lower fixed-cost absorption from greenfields/acquisitions, and significant one-time transaction costs impacting earnings quality .
  • Implications: Street models may trim near-term EPS/EBITDA for Q2 on margin flow-through caution, but utilization normalization and affirmed guidance support FY targets; potential estimate revisions should adjust for non-recurring transaction costs and improving utilization run-rate*.

Values marked with asterisk retrieved from S&P Global.

Key Takeaways for Investors

  • Revenue resilience amid local-market softness: Q1 revenue +7% YoY to $861M with equipment rental revenue +2.8% YoY; incremental contributions from acquisitions and higher used equipment sales .
  • Earnings quality impacted by one-time deal costs: $74M transaction expenses (including $64M termination fee) drove GAAP EPS loss; adjusted EPS $1.30 vs consensus $2.21* — expect Street to normalize for non-recurring items .
  • Margins to improve seasonally: Dollar utilization and flow-through normalized in March/April; expect typical seasonal build, supporting sequential margin recovery into Q2 .
  • Mega project engine intact: Management continues to target 10–15% share; specialty mix helps preserve margin; pipeline remains robust .
  • Balance sheet/liquidity solid: Net leverage 2.5x, net debt ~$4.0B, liquidity ~$1.9B; dividend increased to $0.70 .
  • Guidance affirmed: FY25 equipment rental revenue growth 4–6% and adjusted EBITDA $1.575–$1.650B maintained; expect FCF positive and tax rate ~25% (first-time cash taxpayer) .
  • Integration progress lowers execution risk: HSR refiling, S-4 amended; integration office established; post quarter, acquisition closed on June 2, potentially accelerating scale and synergy realization .