Business Overview Herc Holdings Inc. (HRI) is one of the leading equipment rental suppliers in North America, with a rich history spanning over 60 years. As the company celebrates this milestone, it has continued to demonstrate its ability to adapt and thrive in an ever-changing industry landscape.
Herc Holdings Inc. was incorporated in Delaware in 1965 and operated as a wholly-owned subsidiary of Hertz Global Holdings until June 30, 2016. On that date, Hertz Holdings completed the spin-off of its global vehicle rental business through a dividend to stockholders. As part of the spin-off, Hertz Holdings changed its name to Herc Holdings Inc. and became an independent public company that trades on the New York Stock Exchange under the symbol "HRI".
With over 59 years of experience in the equipment rental industry, Herc offers a broad portfolio of equipment for rent. The company conducts substantially all of its operations through its wholly-owned subsidiary, Herc Rentals Inc. In addition to its principal business of equipment rental, Herc also sells used equipment, new equipment, parts and supplies, and offers certain services and support to its customers.
Following the spin-off from Hertz in 2016, Herc faced the challenge of establishing its own infrastructure, systems, and processes separate from the former parent company. The company has also had to navigate a cyclical equipment rental industry that is heavily dependent on the levels of capital investment and maintenance expenditures by its customers, which can be impacted by broader economic conditions.
Despite these challenges, Herc has worked to position itself as one of the leading equipment rental suppliers in North America. The company has focused on growing its core equipment rental business, expanding its specialty fleet, and pursuing strategic acquisitions to strengthen its market presence and capabilities. Herc has also invested in technology and operational initiatives to drive efficiency and enhance the customer experience.
Today, Herc Holdings operates a network of 451 locations across 44 states in the United States and five provinces in Canada. The company's rental fleet consists of a diverse range of equipment, including aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, and lighting equipment. In addition to its core rental business, Herc Holdings also sells used rental equipment, new equipment, parts, and supplies, as well as offers various services such as repair, maintenance, and equipment management.
Financial Performance Herc Holdings' financial performance has been strong in recent years, with the company demonstrating resilience and adaptability in the face of market challenges. In the fiscal year 2024, the company reported total revenues of $3.57 billion, a 9% increase compared to the previous year. This growth was driven by an 11% increase in equipment rental revenue, which reached $3.19 billion.
The company's net income for the full year 2024 was $211 million, or $7.40 per diluted share, which was impacted by a $194 million loss on assets held for sale related to the Cinelease business. On an adjusted basis, excluding this one-time item, Herc Holdings' earnings per share stood at $12.88, a 5% increase from the prior year.
For the fourth quarter of 2024, Herc reported revenue of $757 million, representing a year-over-year growth of 12.2%. However, the company recorded a net loss of $46 million in Q4, primarily due to the aforementioned loss on assets held for sale related to the Cinelease business, which is being actively marketed for sale.
Liquidity and Financial Position Herc Holdings' balance sheet remains solid, with a net debt position of $3.95 billion as of December 31, 2024. The company's strong cash flow generation, with $314 million in free cash flow in 2024, has enabled it to maintain financial flexibility and invest in the business.
As of the end of 2024, Herc Holdings had $83 million in cash and cash equivalents. The company's liquidity position is further bolstered by a $3.5 billion senior secured asset-based revolving credit facility, of which $1.84 billion was available as of December 31, 2024. This provides Herc with ample financial flexibility to pursue growth opportunities and navigate potential market challenges.
The company's debt-to-equity ratio stood at 0.6032, while both its current ratio and quick ratio were 1.38, indicating a healthy short-term liquidity position. Operating cash flow for the full year 2024 was robust at $1.23 billion, underscoring the company's strong cash-generating capabilities.
Growth Strategies and Diversification Herc Holdings' growth strategy has been centered around expanding its geographic footprint and diversifying its equipment rental offerings. In 2024, the company opened 23 new greenfield locations and completed 9 strategic acquisitions, adding 28 more branches to its network. These investments have strengthened the company's presence in key metropolitan areas and enhanced its ability to serve both local and national accounts.
The company has also been focused on growing its specialty equipment rental business, which includes power generation, climate control, remediation and restoration, and professional-grade tools. In 2024, the specialty fleet accounted for approximately 20% of the company's total equipment fleet, providing a higher-margin revenue stream and helping to diversify the business.
Herc Holdings' diversification efforts have also extended to its customer base, with the company maintaining a well-balanced mix of local and national accounts. In 2024, local accounts represented 55% of the company's equipment rental revenue, while national accounts, including large-scale "mega projects," accounted for the remaining 45%. This diversified customer base helps mitigate exposure to any single market, with no single customer accounting for more than 3% of equipment rental revenue during the year.
Operational Excellence and Sustainability Herc Holdings has a strong focus on operational excellence, with a continuous improvement program called "E3 OS" that has driven productivity enhancements, logistics efficiencies, and pricing optimization. The company has also made significant investments in its information technology and digital platforms, delivering more value to customers through improved service and transparency.
In addition to its operational initiatives, Herc Holdings is committed to sustainability and has set ambitious environmental, social, and governance (ESG) goals. The company aims to reduce its Scope 1 and 2 greenhouse gas emission intensity by 25% and its non-toxic waste intensity to landfill by 25% by 2030, compared to a 2019 baseline. Herc Holdings has also prioritized safety, with all of its branches achieving at least 98% "perfect days" in 2024, defined as days with no OSHA recordable incidents, no DOT violations, and no at-fault motor vehicle accidents.
Product Segments and Revenue Streams Herc Holdings' business model is diversified across several product segments and revenue streams:
1. Equipment Rental Segment: This is the core of Herc's business, generating the majority of its total revenues. In 2024, equipment rental revenue grew 11% to $3.19 billion, driven by a 9.3% increase in the volume of equipment on rent and a 3.2% improvement in pricing. The rental equipment fleet includes a variety of asset types such as aerial, earthmoving, material handling, trucks and trailers, air compressors, compaction, and lighting equipment.
2. Sales of Rental Equipment, New Equipment, Parts and Supplies: Herc also generates revenue from the sale of used rental equipment, as well as new equipment, parts, and supplies. Sales of rental equipment totaled $311 million in 2024, a 10% decrease compared to the prior year, as the company optimized its fleet mix and age. The margin on sales of rental equipment improved to 28% in 2024, up from 27% in 2023. Sales of new equipment, parts, and supplies amounted to $37 million in 2024, relatively flat compared to the prior year.
3. Service and Other Revenue: This segment primarily includes revenue from equipment management and support services for rental customers. In 2024, service and other revenue totaled $31 million, an 11% increase year-over-year. These value-added services enhance customer relationships and provide a source of stable, recurring revenue.
Geographic Presence Herc Holdings operates primarily in North America, with a strong focus on the United States market. In 2024, the United States represented 92.9% of total revenue, highlighting the company's dominant presence in this key market. The remaining revenue is generated from operations in Canada, where Herc has a presence in five provinces.
Industry Landscape The equipment rental industry is highly fragmented, but Herc has established itself as one of the largest participants with an estimated 4% market share by revenue. The industry has generally experienced growth in line with broader economic and construction activity trends, with a 5-year compound annual growth rate (CAGR) of 6-8% pre-pandemic. Herc's position as a leading player in this growing industry provides a solid foundation for continued expansion and market share gains.
Outlook and Guidance Looking ahead, Herc Holdings is well-positioned to continue its growth trajectory. The company's 2025 guidance, excluding the Cinelease business, calls for equipment rental revenue growth of 4% to 6%, driven by the annualization of recent acquisitions, contributions from new greenfield locations, and the ramp-up of existing large-scale projects. Adjusted EBITDA is expected to be between $1.575 billion and $1.65 billion, representing a year-over-year increase of 1% to 6%.
Additional guidance for 2025 includes: - Gross fleet CapEx of $700 million to $900 million, with a higher proportion allocated to specialty equipment compared to 2024. - Net CapEx of $400 million to $600 million. - Continued positive rental rate growth to offset inflationary pressures.
Herc expects to continue outpacing overall industry rental revenue growth in 2025, driven by strength in mega projects, specialty solutions, industrial/commercial maintenance projects, recent acquisitions, and greenfield locations. The company has also announced that it will no longer report specific rental rate metrics, instead providing more directional updates on pricing.
Challenges and Risks However, the company is not without its challenges. Herc Holdings operates in a highly competitive industry, with pricing pressure and the need to continuously invest in its rental fleet to maintain a competitive advantage. The company is also exposed to macroeconomic and industry-specific risks, such as fluctuations in construction and industrial activity, as well as rising interest rates, which can impact demand for its services.
Conclusion Herc Holdings' long history, diversified business model, and focus on operational excellence have positioned the company as a leading player in the North American equipment rental industry. The company's strategic investments in geographic expansion, specialty equipment, and sustainability initiatives have laid the foundation for continued growth and resilience in the face of market challenges. As Herc Holdings celebrates its 60th anniversary, investors can look forward to the company's ongoing efforts to create value and capitalize on the evolving opportunities in the equipment rental sector.