Herc Holdings Raises Guidance as H&E Fleet Fixes Take Hold
Herc Holdings posted $1.072 billion in equipment rental revenue for the second quarter, up 23% from a year earlier, as dollar utilization improved for the first time since its H&E Equipment Services acquisition.
Herc Holdings (HRI), the equipment rental company that absorbed H&E Equipment Services in a deal that has weighed on margins for the better part of two years, reported signs on Monday that the integration is turning a corner. Equipment rental revenue rose 23% year over year to $1.072 billion in the second quarter, a deceleration from the 33% pace posted in the first quarter but still built on the added scale from H&E's fleet, with growth increasingly driven by mega-project volume and cross-selling rather than the acquisition alone.
The more telling number sat below the top line. Dollar utilization, the measure of how much revenue Herc extracts from its fleet relative to its value, rose to 39.3% from 38.3% a year earlier. That reversed four straight quarters of year-over-year declines, including drops to 36.4% in the first quarter, 37.5% in the fourth quarter of 2024, and 39.9% in the third quarter of 2024, each below its prior-year comparison. Herc has spent that stretch working excess H&E fleet into productive use, and the second quarter marked the first evidence that effort is paying off.
Not every cost line moved the same direction. Direct operating expenses climbed to 45.8% of equipment rental revenue from 43.6% a year earlier, extending a run of deterioration that reached 46.2% in the first quarter and stretches back five consecutive quarters to the H&E close. Adjusted EBITDA margin held roughly flat at 40.4% versus 40.9%, though that figure is down from 43% as recently as the fourth quarter of 2024, a compression attributed to fuel cost inflation rather than lingering integration drag.
Net income swung to a $19 million profit from a $35 million loss a year earlier, helped by easier comparisons against acquisition and impairment charges taken in 2024. Adjusted earnings told a different story: adjusted EPS fell to $1.43 from $1.97, the fourth straight quarter of year-over-year declines in adjusted profitability, following drops to $0.21 in the first quarter and $2.22 in the third quarter of 2024 that was itself down 40% from $4.35 a year earlier. Transaction expenses tied to the H&E deal, which ran as high as $73 million in the second quarter of 2024, have fallen to $3 million, evidence that the cash costs of integration are largely behind the company even as the operating drag persists.
SG&A offered a cleaner signal. The expense ratio improved to 14.5% of equipment rental revenue from 14.6% a year earlier and to 14.7% for the first half from 15.2%, reversing increases logged in the fourth and third quarters of 2024 and marking the first sign of the cost synergies Herc had promised when it announced the acquisition.
Cash generation strengthened alongside the operational improvement. First-half free cash flow nearly doubled to $202 million from $103 million a year earlier, as operating cash flow rose to $591 million from $412 million even as rental capital expenditure increased to $557 million from $421 million. Net leverage nonetheless rose to 3.95 times from 3.76 times, with net debt at $7.9 billion versus $8.3 billion a year earlier, an increase attributed to the full trailing-twelve-month effect of H&E-related dis-synergies working through the balance sheet despite the decline in absolute debt.
Herc raised its full-year 2025 outlook across every major line, its first increase after only reaffirming guidance in the first quarter. The company now expects equipment rental revenue of $4.375 billion to $4.475 billion, up from $4.275 billion to $4.4 billion, and adjusted EBITDA of $2.05 billion to $2.125 billion, up from $2.0 billion to $2.1 billion. It also lifted planned net rental capital expenditure to $850 million to $950 million from $500 million to $800 million, and gross capital expenditure to $1.25 billion to $1.4 billion from $800 million to $1.1 billion.
The capex increase signals that Herc is leaning further into fleet investment just as utilization data suggests that strategy is beginning to show results, even as the company continues working through the higher operating-expense ratio left over from the H&E deal.