Herc Holdings (HRI) Q1 FY26 earnings call: guidance and Q&A

Asked for ground truth on the large mega project pipeline shown on Slide 11, specifically if the step-up in 2025 activity is being seen in customer conversations and if it implies better times ahead in the back half of the year.

Management confirmed that they see the mega project activity through relationships with large general contractors and national accounts, as well as through data providers. They noted that the pipeline of planned projects is deep, and while not all projects start exactly when planned, the activity is building and projects typically last 2-3 years. This activity is already factored into their full-year plan, supporting the back-half ramp.

“As you can see, there's more starts happening. Now these -- they don't all start when they say they're going to start, right? Sometimes you've heard us talk that sometimes they start 6 months away. But it is building. And once these projects do start to last for 2 or 3 years, as you know.”

asked by Rob Wertheimer · answered by Aaron Birnbaum

Inquired about the dollar utilization metric, noting it appeared better than normal seasonal sequential trends, and asked how to think about the seasonal ramp into Q2 and Q3, and if dollar utilization improvement could exceed normal seasonality.

Management stated that Q1 played out as expected, with fleet efficiency gains building through dollar utilization sequentially. They emphasized that 'normal' seasonality doesn't apply this year due to the need to climb out of a Q4 deficit and optimize the fleet. They anticipate an inflection point in Q2, leading to dollar revenue and margin expansion in the back half, but stressed that May and June will be key indicators.

“I think that sort of normal isn't really this year. The reality is, is that we had a hole to climb out of entering this year, sort of down as we exited 4Q. And so there's a big efficiency play that we needed to see collectively as a business before investing growth CapEx into the business in the May, June, July time frame.”

asked by Mircea Dobre · answered by Unknown Executive

Asked about overall pricing trends in the market, specifically if pricing can outpace inflation this year, and for more detail on the improving supply/demand dynamics suggested by strong used equipment realization values.

Management declined to comment specifically on price but expressed encouragement by the industry's fundamentals, noting that fleet in and fleet on dynamics are good. They characterized the market as 'rational and constructive' and look forward to taking advantage of it, implying a positive outlook for pricing.

“We don't comment specifically on price. But I would say that we are encouraged by the fundamentals that we're seeing in the industry. The fleet in and fleet on dynamics are good, particularly as we sort of exit and I think that the market is being both rational and constructive.”

asked by Jerry Revich · answered by Unknown Executive

Inquired about the performance gap between legacy H&E and Herc branches, specifically if it has closed and where the company stands in driving H&E branch performance towards legacy Herc levels.

Management stated that they cannot answer the question because the integration was designed to eliminate the distinction between H&E and Herc, creating a unified business. They indicated that if they could still differentiate performance, it would mean the integration was not successful, implying the gap has effectively closed through the integration process.

“I can't really answer that question for you, and that was part of this integration was to integrate this business in such that there is no longer an H&E or Herc, right? And so I think if I could still answer that question, then I would say we probably haven't done our job.”

asked by Jerry Revich · answered by Unknown Executive

Asked for clarification on the 'by design' reduction in pro forma fleet and how the company is thinking about full-year pro forma fleet growth, particularly for general rental versus specialty. Also asked about the learning curve for rolling out specialty across the H&E network and visibility to revenue synergy targets.

Management explained that the fleet reduction was part of the plan, with Q1 ending down about 1% on a pro forma basis. They expect gross CapEx to be loaded into the business in late Q2 and Q3, with a focus on specialty fleet. They are on track for 2026 revenue synergies, noting that cross-selling involves both a larger sales force and introducing specialty products to former H&E customers, a process they are comfortable with.

“I would add to, Mark, that as CapEx goes through the year, we'll be over-indexed to our specialty fleet to feed our branch optimization, our shift to grow the specialty side get back closer to what it was pre-acquisition.”

asked by Kyle Menges · answered by Aaron Birnbaum

Asked how the company manages rising fuel costs, how they pass them on to customers, and if there's any lag, as well as if hedging strategies differed between legacy Herc and H&E.

Management detailed three ways fuel costs impact the business: internal service vehicles, refueling rental equipment, and logistics. For refueling, customers are charged a fee if equipment isn't returned full. For logistics, costs are recovered through delivery fees and an indexed surcharge that moves with oil prices. They did not comment on hedging differences.

“The second piece is we do charge a fee to our customers if we have to refill the equipment when they rent it. So we give them the option, hey, bring it back full, no charge, bring him back less than full, there is a charge. So we have a fee for that. And then the logistics piece is the more complicated one because you have a lot of transactions happening every day across the entire network and we recover that by the delivery fee we charge from picking up and delivering. And also there's a surcharge that's indexed that allows us to move with the price of oil per barrel as it moves through all cycles and all times and events macro geopolitically.”

asked by Tami Zakaria · answered by Aaron Birnbaum

Requested a more detailed breakdown of specialty performance, specifically excluding mega projects, comparing it to local markets, and on a same-store basis excluding new branches.

Management declined to provide such detailed breakdowns, stating they do not segment the specialty business in that manner. They reiterated that the specialty business saw double-digit growth and is performing well across all facets, including mega projects, national accounts, and local market penetration due to increased locations.

“Yes, Steven, we don't break it out in that kind of detail nor would we just -- because it's -- then you get into sort of segmentation, and we don't do that. But generally, the specialty business has been performing well. We saw double-digit growth in the quarter.”

asked by Steven Ramsey · answered by Unknown Executive

Asked about the different flow-through dynamics in the second half, considering the ramp-up in mega projects and specialty growth, and how these factors will impact overall margin and underlying flow-through.

Management reiterated their expectation for margin expansion in Q3 and Q4. They noted that last year's Q3 and Q4 rental EBITDA margins were in the 45%-46% range, and they anticipate incremental margins to be greater than that as all initiatives combine to fuel revenue growth in the back half.

“Yes. Sure, Neil. I think as I said earlier, right, we are anticipating margin expansion inside of Q3 and Q4. And so if you sort of look back to where margin was last year, Q3 and Q4 within this 45%, 46% sort of range from a rental EBITDA perspective. And so therefore, if I'm anticipating margin expansion in that incremental margin will certainly be greater than last year's 45% or 46%.”

asked by Neil Tyler · answered by Unknown Executive