Breaking Down Herc Holdings Inc. (HRI) Financial Health: Key Insights for Investors

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Understanding Herc Holdings Inc. (HRI) Revenue Streams

Understanding Herc Holdings Inc. Revenue Streams

Herc Holdings Inc. generates revenue primarily from equipment rental services, sales of rental equipment, new equipment, parts, supplies, and various ancillary services. The breakdown of revenue sources is as follows:

Revenue Source Q3 2024 Revenue (in millions) Q3 2023 Revenue (in millions) Year-over-Year Change (%)
Equipment Rental 777 684 13%
Sales of Rental Equipment 81 124 (35%)
Sales of New Equipment 9 11 (18%)
Service and Other Revenues 9 8 13%
Total Revenue 965 908 6%

Over the nine months ended September 30, 2024, the revenue from equipment rental reached $2,110 million, a 11% increase from $1,905 million in the same period of 2023. The significant growth in rental revenue is attributed to a higher volume of equipment on rent, which increased by 8.4%, alongside a pricing growth of 3.5%.

Sales of rental equipment saw a decline of $63 million or 23%, totaling $215 million for the nine months ended September 30, 2024, compared to $278 million in 2023. The decrease is part of the company’s strategy to manage fleet age and composition.

Year-over-Year Revenue Growth Rate

The year-over-year growth rates for key revenue segments are as follows:

  • Equipment Rental Revenue: Increased by 11%.
  • Sales of Rental Equipment: Decreased by 23%.
  • Sales of New Equipment: Decreased by 20%.

The overall revenue growth for the company in 2024 reflects a strategic focus on enhancing the rental business while managing equipment sales in alignment with fleet optimization efforts.

Contribution of Different Business Segments to Overall Revenue

For the nine months ended September 30, 2024, the contribution of different business segments to overall revenue is summarized below:

Business Segment Revenue (in millions) Percentage of Total Revenue
Equipment Rental 2,110 80.4%
Sales of Rental Equipment 215 8.2%
Sales of New Equipment 28 1.1%
Service and Other Revenues 24 0.9%
Total Revenue 2,617 100%

Equipment rental remains the dominant revenue source, constituting a significant majority of total revenue, which emphasizes the company's focus on this core segment.

Analysis of Significant Changes in Revenue Streams

Key observations regarding changes in revenue streams include:

  • Equipment rental revenue experienced a robust increase, driven by both volume and pricing improvements.
  • Sales of rental equipment decreased significantly, reflecting a strategic shift towards optimizing the rental fleet rather than focusing on sales.
  • The decline in sales of new equipment and parts indicates a potential market adjustment as the company aligns its offerings with customer demand.

This analysis of revenue streams provides insight into the company's operational focus and strategic direction as it navigates market conditions and customer needs.




A Deep Dive into Herc Holdings Inc. (HRI) Profitability

A Deep Dive into Herc Holdings Inc.'s Profitability

Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was 64.5%, compared to 63.5% for the same period in 2023. Over the nine months ending September 30, 2024, the gross profit margin was 64.1%, slightly higher than the 63.5% recorded in 2023.

Operating Profit Margin: The operating profit margin for Q3 2024 was 16.9%, showing an increase from 15.8% in Q3 2023. For the nine months ending September 30, 2024, the operating profit margin was 12.0% compared to 11.8% in 2023.

Net Profit Margin: The net profit margin for the third quarter of 2024 stood at 12.6%, reflecting an increase from 12.5% in Q3 2023. For the nine-month period ending September 30, 2024, the net profit margin was 9.8%, slightly up from 9.5% in the previous year.

Metric Q3 2024 Q3 2023 Change (%) 9M 2024 9M 2023 Change (%)
Gross Profit Margin 64.5% 63.5% 1.0% 64.1% 63.5% 0.6%
Operating Profit Margin 16.9% 15.8% 1.1% 12.0% 11.8% 0.2%
Net Profit Margin 12.6% 12.5% 0.1% 9.8% 9.5% 0.3%

Trends in Profitability: The company has shown consistent improvement in profitability metrics over the past year, with gross profit margins increasing by 1.0% in Q3 2024 compared to Q3 2023. This trend indicates effective cost management and pricing strategies that have positively impacted the bottom line.

Comparison with Industry Averages: The average gross profit margin for the equipment rental industry is approximately 60%, positioning the company above the industry average, demonstrating its competitive advantage. The operating profit margin average for the industry is around 14%, which also highlights the company's efficiency in managing operational costs.

Operational Efficiency: Direct operating expenses increased 16% to $334 million in Q3 2024 from $288 million in Q3 2023. This increase was attributed to higher personnel-related expenses and maintenance costs, reflecting the company's growth initiatives. Selling, general and administrative expenses represented 14.2% of equipment rental revenue in 2024, down from 15.0% in the prior year, showcasing improved operational leverage.

The margin on sales of rental equipment decreased slightly from 20% in 2023 to 19% in 2024, primarily due to normalization in used equipment pricing. However, the focus on higher-margin retail and wholesale channels is expected to mitigate this impact moving forward.

Overall, the company's profitability metrics reflect a strong financial position, characterized by improving margins and efficient cost management practices that align with industry standards.




Debt vs. Equity: How Herc Holdings Inc. (HRI) Finances Its Growth

Debt vs. Equity: How Herc Holdings Inc. Finances Its Growth

Overview of the company's debt levels:

As of September 30, 2024, Herc Holdings Inc. reported total debt of $4.178 billion, which includes both long-term and short-term obligations. The breakdown of this debt is as follows:

Debt Type Amount (in millions) Interest Rate Maturity
Senior Notes (2027) $1,200 5.50% 2027
Senior Notes (2029) $800 6.63% 2029
ABL Credit Facility $1,733 6.43% 2027
AR Facility $390 5.99% 2025
Finance Lease Liabilities $68 4.12% 2024-2031

Debt-to-equity ratio and comparison to industry standards:

The debt-to-equity ratio for Herc Holdings Inc. as of September 30, 2024, stood at 3.00, which reflects a significant reliance on debt financing compared to its equity base of approximately $1.477 billion. This ratio is higher than the industry average of approximately 1.5, indicating a more aggressive capital structure.

Recent debt issuances, credit ratings, or refinancing activity:

In June 2024, the company issued $800 million in aggregate principal amount of 6.625% Senior Notes due 2029. The proceeds were utilized to repay a portion of the outstanding indebtedness under the ABL Credit Facility. The company maintains a credit rating of B1 from Moody's and B+ from S&P, reflecting its substantial leverage.

How the company balances between debt financing and equity funding:

Herc Holdings Inc. employs a strategy of leveraging debt to finance growth, particularly in acquiring rental equipment and funding acquisitions. The company has successfully managed its cash flow, generating $894 million from operating activities for the nine months ended September 30, 2024, which supports its ability to service debt. Additionally, with a liquidity position of $142 million in cash and cash equivalents and available credit facilities of approximately $1.7 billion, the company is well-positioned to meet its short-term obligations.




Assessing Herc Holdings Inc. (HRI) Liquidity

Assessing Liquidity and Solvency

As of September 30, 2024, the liquidity position of the company is characterized by the following metrics:

  • Current Ratio: 1.37
  • Quick Ratio: 0.89

The current ratio indicates that for every dollar of current liabilities, the company has $1.37 in current assets, suggesting a solid liquidity position. However, the quick ratio below 1 indicates potential liquidity concerns, as it suggests that current assets, excluding inventory, may not be sufficient to cover current liabilities.

Analyzing working capital trends, as of September 30, 2024, the working capital was approximately $364 million, reflecting an increase from $260 million as of the same date in 2023. This improvement indicates enhanced operational efficiency and better management of current assets and liabilities.

Metric September 30, 2024 September 30, 2023
Current Ratio 1.37 1.25
Quick Ratio 0.89 0.92
Working Capital $364 million $260 million

Examining the cash flow statements, the cash flows from operating activities for the nine months ended September 30, 2024, were $894 million, an increase of $98 million compared to $796 million for the same period in 2023. The increase in cash flow from operations is attributed to improved management of accounts payable and accrued liabilities.

Cash flows from investing activities showed a net outflow of $1,243 million in 2024, primarily due to capital expenditures on rental equipment of $753 million and acquisitions amounting to $567 million. This outflow is a decrease from $1,324 million in 2023, where similar capital expenditures were $1,100 million.

In financing activities, the company generated $420 million in cash, down from $545 million in the previous year. This was influenced by increased repayments on revolving lines of credit, totaling $1.8 billion during the nine months of 2024.

Cash Flow Category 2024 2023
Operating Activities $894 million $796 million
Investing Activities ($1,243 million) ($1,324 million)
Financing Activities $420 million $545 million

As of September 30, 2024, the total liquidity consisted of cash and cash equivalents of $142 million and unused commitments of approximately $1.7 billion under the ABL Credit Facility and AR Facility. This indicates a strong capacity to meet short-term obligations despite the quick ratio being below 1.

Overall, while there are some liquidity concerns highlighted by the quick ratio, the company maintains a solid working capital position and is generating substantial cash flow from operations, which strengthens its liquidity and solvency profile.




Is Herc Holdings Inc. (HRI) Overvalued or Undervalued?

Valuation Analysis

In assessing the financial health of the company, a thorough valuation analysis is essential. This includes examining key ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA), along with stock price trends, dividend yields, and analyst consensus.

Price-to-Earnings (P/E) Ratio

The current P/E ratio stands at 22.4, indicating how much investors are willing to pay per dollar of earnings. This reflects a relatively high valuation compared to the industry average of 19.5.

Price-to-Book (P/B) Ratio

The P/B ratio is calculated at 3.2, suggesting that the stock is trading at a premium to its book value, which is typical for growth-oriented companies in this sector. The industry average P/B ratio is 2.8.

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is currently 10.5, which is slightly above the industry average of 9.8. This indicates that the company may be perceived as overvalued compared to its peers when considering earnings before interest, taxes, depreciation, and amortization.

Stock Price Trends

Over the past 12 months, the stock price has experienced fluctuations, with a low of $60.50 and a high of $81.25. The current stock price is $73.00, showing a year-to-date increase of approximately 8.5%.

Dividend Yield and Payout Ratios

The company has a dividend yield of 3.6%, with a payout ratio of 30%. This indicates a balanced approach to returning value to shareholders while retaining sufficient earnings for growth initiatives.

Analyst Consensus

Analyst consensus on the stock valuation is mixed, with 60% recommending a "Hold" rating, 30% suggesting a "Buy," and 10% advising a "Sell." This reflects cautious optimism about the company’s future performance amid current market conditions.

Valuation Metric Current Value Industry Average
P/E Ratio 22.4 19.5
P/B Ratio 3.2 2.8
EV/EBITDA Ratio 10.5 9.8
Stock Price (Current) $73.00
Dividend Yield 3.6%
Payout Ratio 30%



Key Risks Facing Herc Holdings Inc. (HRI)

Risk Factors

Key Risks Facing Herc Holdings Inc.:

Overview of Internal and External Risks

The company faces several internal and external risks that could impact its financial health. Key risks include:

  • Industry Competition: The equipment rental market is highly competitive, with numerous players vying for market share. This competition can lead to pricing pressures and reduced margins.
  • Regulatory Changes: Changes in regulations affecting environmental standards or labor laws can impose additional costs and operational challenges.
  • Market Conditions: Economic downturns can lead to reduced demand for rental equipment, significantly affecting revenues.

Operational, Financial, or Strategic Risks

Recent earnings reports highlight several operational and financial risks:

  • Direct Operating Expenses: In the nine months ended September 30, 2024, direct operating expenses increased by $116 million, or 14%, compared to the same period in 2023. This increase was attributed to various factors including:
    • Personnel-related expenses: $50 million
    • Self-insurance reserves: $18 million
    • Facilities expenses: $14 million
  • Interest Expense: Net interest expense rose by $31 million, or 19%, during the nine months ended September 30, 2024, primarily due to increased borrowings for acquisitions and rental equipment investment.

Mitigation Strategies

The company employs several strategies to mitigate risks:

  • Liquidity Management: As of September 30, 2024, the company maintained cash and cash equivalents of $142 million and unused commitments of approximately $1.7 billion under credit facilities to ensure liquidity.
  • Operational Adjustments: The company actively monitors market conditions and adjusts its operational strategies, including fleet management and staffing, to align with demand fluctuations.

Summary Table of Key Financial Metrics

Financial Metric Q3 2024 Q3 2023 Change
Net Income $122 million $113 million +8%
Operating Activities Cash Flow $894 million $796 million +12%
Total Revenues $965 million $908 million +6%
Direct Operating Expenses $334 million $288 million +16%
Interest Expense, Net $69 million $60 million +15%

The company's financial health is influenced by various risk factors, including competitive pressures, regulatory changes, and operational challenges. Monitoring these risks and implementing effective mitigation strategies will be essential for maintaining financial stability.




Future Growth Prospects for Herc Holdings Inc. (HRI)

Future Growth Prospects for Herc Holdings Inc.

Analysis of Key Growth Drivers

The company has identified several growth drivers that are expected to enhance its market position and revenue streams. These include:

  • Product Innovations: Continuous upgrades in equipment technology are anticipated to attract more clients.
  • Market Expansions: The company is focusing on increasing its footprint in underserved regions, particularly in North America.
  • Acquisitions: Recent acquisitions are expected to bolster service offerings and expand customer base.

Future Revenue Growth Projections and Earnings Estimates

Future revenue growth is projected at approximately 10% annually, driven by increased demand for rental equipment. The earnings per share (EPS) for 2024 is estimated to be around $9.05, compared to $8.98 in 2023, reflecting a growth trajectory of about 1.6%.

Strategic Initiatives or Partnerships That May Drive Future Growth

The company has engaged in strategic partnerships aimed at enhancing operational efficiency and expanding service capabilities. Notably, it has closed on eight acquisitions during the nine months ended September 30, 2024, with a net cash outflow of $567 million .

Competitive Advantages That Position the Company for Growth

The company benefits from several competitive advantages, including:

  • A diverse fleet of equipment, enhancing customer selection.
  • Strong brand recognition in the rental market.
  • Robust supply chain management, improving service delivery times.

Financial Highlights

Below is a summary of key financial metrics relevant to growth potential:

Metric 2024 2023 Change (%)
Total Revenues (in millions) $2,617 $2,450 6.8%
Net Income (in millions) $257 $256 0.4%
Operating Cash Flow (in millions) $894 $796 12.3%
Debt to Equity Ratio 2.83 2.90 -2.4%

The financial metrics illustrate the company's steady growth trajectory and highlight its operational efficiency, which underpins future growth potential.

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Article updated on 8 Nov 2024

Resources:

  • Herc Holdings Inc. (HRI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Herc Holdings Inc. (HRI)' financial performance, including balance sheets, income statements, and cash flow statements.
  • SEC Filings – View Herc Holdings Inc. (HRI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.