Equipment rental company Herc Holdings (NYSE:HRI) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 14.4% year on year to $951 million. Its non-GAAP profit of $3.58 per share was 9.2% below analysts’ consensus estimates.
Is now the time to buy Herc? Find out by accessing our full research report, it’s free.
Herc (HRI) Q4 CY2024 Highlights:
- Revenue: $951 million vs analyst estimates of $928.1 million (14.4% year-on-year growth, 2.5% beat)
- Adjusted EPS: $3.58 vs analyst expectations of $3.94 (9.2% miss)
- Adjusted EBITDA: $438 million vs analyst estimates of $428.2 million (46.1% margin, 2.3% beat)
- EBITDA guidance for the upcoming financial year 2025 is $1.61 billion at the midpoint, below analyst estimates of $1.69 billion
- Operating Margin: 26.5%, up from 21.5% in the same quarter last year
- Free Cash Flow Margin: 3.8%, down from 15.8% in the same quarter last year
- Market Capitalization: $5.90 billion
"In 2024, despite a more challenging market than anticipated, we delivered another year of record results, significantly outperforming industry revenue growth by leveraging the strength of tenured customer relationships, the value derived from strategic capital-allocation priorities and our diversified position across products, geographies and end markets," said Larry Silber, president and chief executive officer.
Company Overview
Formerly a subsidiary of Hertz Corporation and with a logo that still bears some similarities to its former parent, Herc Holdings (NYSE:HRI) provides equipment rental and related services to a wide range of industries.
Specialty Equipment Distributors
Historically, specialty equipment distributors have boasted deep selection and expertise in sometimes narrow areas like single-use packaging or unique lighting equipment. Additionally, the industry has evolved to include more automated industrial equipment and machinery over the last decade, driving efficiencies and enabling valuable data collection. Specialty equipment distributors whose offerings keep up with these trends can take share in a still-fragmented market, but like the broader industrials sector, this space is at the whim of economic cycles that impact the capital spending and manufacturing propelling industry volumes.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Herc’s sales grew at an excellent 12.3% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Herc’s annualized revenue growth of 14.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. 
We can dig further into the company’s revenue dynamics by analyzing its most important segment, Equipment rentals. Over the last two years, Herc’s Equipment rentals revenue (aerial, earthmoving, material handling) averaged 12.2% year-on-year growth.
This quarter, Herc reported year-on-year revenue growth of 14.4%, and its $951 million of revenue exceeded Wall Street’s estimates by 2.5%.
Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.
Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Herc has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 19.1%. This result isn’t too surprising as its gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Herc’s operating margin rose by 11.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.
In Q4, Herc generated an operating profit margin of 26.5%, up 5 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Herc’s EPS grew at an astounding 32.7% compounded annual growth rate over the last five years, higher than its 12.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Diving into the nuances of Herc’s earnings can give us a better understanding of its performance. As we mentioned earlier, Herc’s operating margin expanded by 11.1 percentage points over the last five years. On top of that, its share count shrank by 3.1%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Herc, its two-year annual EPS growth of 6.9% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.
In Q4, Herc reported EPS at $3.58, up from $3.24 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Herc’s full-year EPS of $12.89 to grow 17.3%.
Key Takeaways from Herc’s Q4 Results
We enjoyed seeing Herc exceed analysts’ revenue expectations this quarter, driven by a beat in Equipment rentals revenue . On the other hand, its full-year EBITDA guidance missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 1.6% to $210.99 immediately following the results.
Big picture, is Herc a buy here and now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
