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Shares of H&E Equipment Services Inc. (HEES - Snapshot Report) have jumped 23% since it reported a 29% year-on-year improvement in its third-quarter 2013 adjusted earnings to 40 cents per share on Nov 1. Earnings were also ahead of the Zacks Consensus Estimate of 25 cents per share. Earnings improved on the back of strong demand for new and used equipment as well as rental equipment.

Including one time items, earnings in the quarter nearly quadrupled to 40 cents from 11 cents reported in the year-ago quarter.

Total revenue increased 32% to $270 million, surpassing the Zacks Consensus Estimate of $241 million driven by strong performance in rental and new equipment businesses. Rental revenues rose 15% year over year to $89.4 million on the back of higher rates and a larger fleet.

New equipment sales surged 84% to $90 million driven by higher crane and earthmoving sales. Used equipment sales increased 47% to $37 million. Parts sales edged up 2% to $26.6 million, while service revenues declined 5% to $13.7 million from the year-ago quarter.

Cost and Margins
 
Cost of sales increased 38% to $190 million in the quarter. Gross profit went up 20% to $80 million. However, gross margin dipped 30 basis points to 29.7%. Rental gross margins increased to 49.6% in the quarter from 48.9% in the prior-year quarter due to higher average rental rates on new contracts, strong fleet utilization and lower rental expenses as a percentage of equipment rental revenues. Rental rates were 5.2% higher than the year-ago period rates.
 
Gross margins on new equipment sales were 10.6%, down from 11.5% in the year-ago quarter. Gross margins on used equipment sales were 26.3% compared with 26.4% a year ago. Gross margins on parts sales increased to 28% in the quarter from 26.7% in the prior-year quarter. Gross margins on service revenues were 64% for the third quarter of 2013 compared with 61.1% in the third quarter of 2012.
 
Selling, general and & administrative expenses increased 11% year on year to $47 million. Adjusted operating profit increased 36% to $33 million and operating margin expanded 30 bps to 12.3%. EBITDA (earnings before interest taxes, depreciation and amortization) increased 25% to $70 million. EBITDA margin in the quarter was 25.9% compared with 27.3% in the year-ago quarter. The decline in EBITDA margin was due to the revenue mix with a significant increase in new equipment sales compared to prior year.
 
Financial Updates
 

Cash and cash equivalents were $6.7 million as of Sep 30, 2013 compared with $8.9 million as of Dec 31, 2012. Total debt amounted to $767 million as of Sep 31, 2013 compared with $690 million as of Dec 31, 2012.
 
Rental Fleet

As of Sep 30, 2013, the original acquisition cost of H&E Equipment Services’ rental fleet was $978.9 million versus $871 million as of Sep 30, 2012. Dollar utilization was 36.7%, flat compared with the third quarter of 2012.
 
H&E Equipment Services continues to capitalize on improving market conditions, particularly the soaring demand for rental equipment. The distribution business also performed well with strong double-digit revenue growth witnessed in both new and used equipment sales.
 
H&E Equipment Services expects the momentum to continue for the balance of 2013 and in 2014. H&E Equipment Services will continue to step up its fleet investment during the year, based on current and expected demand levels. The company is set for market expansion in the industrial markets and in the commercial construction sector. Construction activity in the industrial areas, particularly the oil patch and petrochemicals industries, is currently at the highest levels seen since the last peak cycle. It is expected to grow further going forward.

Baton Rouge, LA-based H&E Equipment Services rents, sells and provides parts and service support for hi-lift or aerial work platform equipment, crane, earthmoving equipment and industrial lift truck categories. It offers heavy construction and industrial equipment for rent on a daily, weekly and monthly basis. H&E Equipment Services Inc. retains a Zacks Rank #1 (Strong Buy).
 
Peer Performance
 
Among H&E Equipment’s peers, Astec Industries, Inc. (ASTE - Analyst Report) reported third-quarter 2013 earnings of 28 cents per share, down 3% from 29 cents in the year-earlier quarter. The results missed the Zacks Consensus Estimate of 37 cents.

Terex Corp. (TEX - Analyst Report) reported adjusted earnings of 77 cents per share, a 24% increase year over year from 62 cents in the year-ago quarter, mainly due to reduced interest expense and a lower effective tax rates.

Earnings of construction and mining equipment behemoth Caterpillar Inc. (CAT - Analyst Report) slumped 43% to $1.45 per share and fell short of the Zacks Consensus Estimate of $1.68.

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