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HERC HOLDINGS INC (HRI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue beat consensus while EPS missed: Total revenues were $1.304B vs S&P Global consensus $1.291B*, and adjusted EPS was $2.22 vs $2.315*; adjusted EBITDA was $551M vs $542M*, reflecting strong national account and specialty activity but integration-related cost drag .
  • Year-over-year growth with margin compression: Equipment rental revenue +30% YoY to $1.122B, adjusted EBITDA +24% YoY to $551M, while adjusted EBITDA margin fell 390 bps to 42.3% on lower fixed cost absorption and higher auction disposition mix .
  • Integration milestone and guidance reaffirmed: Full IT systems integration completed in ~90 days; 2025 guidance reaffirmed (equipment rental revenue $3.7–$3.9B; adjusted EBITDA $1.8–$1.9B; gross capex $900–$1,100M; net rental capex $400–$600M) .
  • Operating narrative: National accounts and mega projects drove resiliency amid muted local markets; fleet right-sizing and specialty mix expansion continue into Q4 with auction channel use expected to pressure used sale margins near term .

What Went Well and What Went Wrong

What Went Well

  • Completed full systems integration, unifying ERP, pricing, CRM, logistics, BI, HCM, and ProControl for acquired branches in a “best-in-class” timeline, enabling data-driven optimization from Q4 onward (“operates from a single, unified dashboard”) .
  • Strong national account and specialty performance supported revenue growth; equipment rental revenue rose 30% YoY, and adjusted EBITDA rose 24% YoY (“another strong quarter” in national/specialty) .
  • Safety execution: Onboarded ~2,500 new team members; branches achieved ≥97% “Perfect Days”; TTM recordable incident rate of 0.93 vs industry 1.0 (“Proven safety record”) .

What Went Wrong

  • Margin compression: Adjusted EBITDA margin down to 42.3% (−390 bps YoY) and REBITDA margin down to 45.9% (−300 bps YoY), driven by auction channel mix and acquisition-related redundancies ahead of synergy realization .
  • Utilization softness: Dollar utilization declined to 39.9% (42.2% prior year), reflecting lower utilization of acquired fleet before optimization .
  • Higher interest and transaction costs: Interest expense surged to $134M vs $69M YoY; transaction expenses were $38M vs $3M YoY, contributing to net income decline to $30M from $122M YoY .

Financial Results

Summary Financials and EPS

MetricQ3 2024Q1 2025Q2 2025Q3 2025
Equipment Rental Revenue ($MM)$866 $739 $870 $1,122
Total Revenues ($MM)$965 $861 $1,002 $1,304
Net Income ($MM)$122 $(18) $(35) $30
Diluted EPS ($)$4.28 $(0.63) $(1.17) $0.90
Adjusted Net Income ($MM)$124 $37 $56 $74
Adjusted EPS ($)$4.35 $1.30 $1.87 $2.22
Adjusted EBITDA ($MM)$446 $339 $406 $551
Adjusted EBITDA Margin (%)46.2% 39.4% 40.5% 42.3%

KPIs and Margins

KPIQ3 2024Q1 2025Q2 2025Q3 2025
Dollar Utilization (%)42.2% 37.6% 38.3% 39.9%
REBITDA ($MM)$428 $307 $379 $521
REBITDA Margin (%)48.9% 41.2% 43.1% 45.9%
Avg Fleet Age (months)46 47 46 45

Revenue Composition

Revenue Component ($MM)Q3 2024Q2 2025Q3 2025
Equipment Rental$866 $870 $1,122
Sales of Rental Equipment$81 $106 $151
Sales of New Equipment, Parts & Supplies$9 $17 $18
Service & Other$9 $9 $13
Total Revenues$965 $1,002 $1,304

Consensus vs Actual (Q3 2025)

MetricConsensus*Actual
Revenue ($MM)$1,290.7*$1,304
Adjusted EPS ($)$2.315*$2.22
EBITDA ($MM)$541.9*$551 (Adjusted EBITDA)

Note: Values marked with * are retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Equipment Rental RevenueFY 2025Growth 4%–6% (ex-Cinelease) $3.7B–$3.9B (ex-Cinelease) Raised (to absolute range post-H&E)
Adjusted EBITDAFY 2025$1.575B–$1.650B (ex-Cinelease) $1.8B–$1.9B (ex-Cinelease) Raised
Net Rental Equipment CapexFY 2025$400M–$600M $400M–$600M Maintained
Gross CapexFY 2025$700M–$900M $900M–$1,100M Raised
DividendQ3 2025—$0.70 declared; paid Sept 5, 2025 Affirmed quarterly dividend

Earnings Call Themes & Trends

TopicQ1 2025Q2 2025Q3 2025Trend
Integration ProgressH&E closing targeted; integration planning underway H&E closed Jun 2; phased tech cutovers; pro forma outlook introduced Full IT integration completed; unified systems; visibility and KPI alignment in Q4 Accelerating execution
Mega Projects & National AccountsPipeline supports ~5% growth; early innings of multi-year opportunity Robust mega projects; targeting 10–15% share; mix 55% local/45% national pro forma Continued strength; mix ~48% local/52% national; more data centers/LNG/industrial Sustained strength
Local Market ConditionsMuted by high rates; stable strategy Over-indexed H&E to local weakness; stabilization efforts Local growth “tempered”; offset by government/infrastructure/MRO Gradual stabilization
Pricing DisciplineStable pricing; no big shifts H&E pricing below Herc; tools to move upward over time Continued standardization of pricing engine post integration Improving structurally
Fleet Strategy & Disposals45% proceeds/OEC; specialty mix expansion Expect $700–$800M OEC disposals back half; proceeds ~44%; specialty targeted Q3 disposals generated ~41% proceeds/OEC; average disposal age 80 months; continued into Q4 Ongoing optimization
Margin DynamicsQ1 margin compression from seasonality and insurance Lower margin acquired business; auction mix pressures Auction channel to continue in Q4; DOE+SG&A ~55% of revenue in Q3 Near-term pressure; medium-term recovery via synergies

Management Commentary

  • “We completed the full IT integration—successfully migrating all of the acquired branches onto Herc’s systems… Our combined team now operates from a single, unified dashboard.” — Larry Silber, CEO .
  • “Adjusted EBITDA increased 24%… margin was primarily impacted by… lower margin auction channel… and acquisition-related redundant costs preceding integration.” — Q3 Press Release .
  • “Our goal is to return to the top of our target range of two to three times by year-end 2027 as revenue and cost synergies drive higher EBITDA flow-through.” — Mark Humphrey, CFO .
  • “We are winning our targeted 10% to 15% share of these project opportunities… pipeline remains strong.” — Aaron Birnbaum, COO .

Q&A Highlights

  • Fleet right-sizing cadence: ~50%+ of back-half disposals completed in Q3; remainder in Q4; expect normal cadence in 2026 .
  • Mix and margins: Mega projects do not materially dilute margins due to larger, longer deployments and specialty cross-sell; auction mix continues to pressure used sale margins in Q4 .
  • Expense structure: Combined DOE+SG&A ~55% in Q3; expect slightly less efficiency in Q4 given seasonal shoulder period .
  • Salesforce and customer stabilization: Attrition normalized; re-engagement underway with data-driven CRM; early revenue synergies from introducing specialty portfolio to acquired customers .
  • Leverage path: Target net leverage back inside 2–3x range by CY2027; playbook includes capex moderation and variable cost alignment if macro weakens .

Estimates Context

  • Q3 2025: Revenue beat ($1.304B vs $1.291B*), adjusted EPS missed ($2.22 vs $2.315*), adjusted EBITDA modestly above consensus ($551M vs $541.9M*). Near-term headwinds from auction dispositions and acquisition-related costs likely weigh on EPS despite revenue outperformance .
  • Forward quarters: Consensus implies seasonal downtick in Q4 2025 and Q1 2026 EPS ($1.841* and $0.858*), consistent with Q4 auction mix commentary and typical seasonal patterns; revenue consensus trends modestly lower into Q1 2026 ($1.178B*) .
    Note: Values marked with * are retrieved from S&P Global.

Key Takeaways for Investors

  • Integration execution is a tangible catalyst: Unified systems and granular visibility should accelerate cost synergy capture and expense control into 2026, supporting margin recovery .
  • Revenue quality improving: National accounts and specialty solutions are driving growth; fleet mix optimization and specialty over-indexing bolster future margin resilience .
  • Near-term margin pressure is transient: Auction channel use to right-size fleet persists in Q4, but management plans to pivot back to higher-return wholesale/retail channels post-optimization .
  • Balance sheet path is clear: Liquidity ~$1.8B; net leverage 3.8x; deleveraging targeted by 2027 as synergies and capex discipline improve free cash flow .
  • Estimates likely to adjust on EPS: Expect sell-side to refine EPS trajectories for Q4/Q1 given auction mix and integration cost timing, while maintaining positive revenue revisions tied to national/specialty strength*.
  • Trading setup: Revenue beat vs EPS miss with reaffirmed guidance and integration milestone suggests mixed near-term reaction; watch Q4 margin cadence and auction channel impact as key stock narrative drivers .
  • Medium-term thesis: Scale, specialty expansion, and technology leadership (ProControl) position HRI to gain share through mega project cycle and recover local markets post-rate normalization .

Note: Values marked with * are retrieved from S&P Global.