H&E and the importance of US mega projects

Mega projects are helping to drive rental growth in the US, even as uncertainty grows around wider economic conditions. That much was revealed by a recent analysts call with H&E Equipment Services, which provided some revealing details.

H&E, which since 2021 has embarked on a pure-rental strategy, having sold its equipment distributorships and crane activities, is matching the growth of its largest competitors in the US and has high expectations for the role that mega projects will play in the coming years.

The company defines a mega project as one valued above US$500 million and it said they would provide “meaningful” support for US construction activity.

Bradley Barber, the company’s CEO, told analysts that such projects with a collective value of around $287 billion had started in 2023 and that more than three quarters of these were within H&E’s network coverage area.

“More importantly, and as it relates to future project visibility, the data revealed an estimated $580 billion of project value was being bid for project starts in 2023 and 2024 with an estimated 85% of these projects residing in our coverage area.

“Although this data is subject to change, it clearly implies the massive project opportunity that exists within our area of operations.”

The company is hoping that between 2023 and 2024, mega projects valued at $850 billion will be bid on.

Barber said H&E was well placed to win work on the projects; “If you were going to only be operating in 30 states, I think we can make an argument, our 30 are as good as they come. It’s where the majority of this mega project money, stimulus money, is being spent.”

No postponements

Given the wider economic environment, Barber added that “we continue to see no postponements or cancellations of our more traditional project work that exists within our territory.”

The company also provided some detail on how these projects are managed from a rental standpoint, with H&E taking the lead on some, but many more where it has a secondary or tertiary role, “but that still can mean hundreds of machines.”

“We will lead on more mega projects going forward, and we will be in the number two and number three position on others,” said Barber, “And if there’s a dynamic that does not favor our overall objectives for utilization rate and yield, then we certainly won’t participate on some projects. But we’re very selective and we’re in good position with the projects that are within our footprint.”

John Engquist, the company’s president and COO, said pricing on these big projects was more aggressive; “As we put more fleet on these jobs, obviously at lower, more aggressive pricing, there is going to be an impact to our overall rates. What that looks like, it’s difficult to say at this point.” That said, the company told analysts it was still planning on rental rate improvements going forward.

Changed fleet mix?

And do these mega projects favor particular types of equipment, such as aerial platforms or compaction machines? It seems not. The company doesn’t disclose the details of what it is buying, but told analysts that it saw no need to change the mix of fleet to account for mega projects.

“We see no shift there whatsoever,” said Barber, “We like our mix. It serves us well. We’ll continue to work on it and refine it through our fleet management practices, but the mega projects will not change how we’re investing in product.”

Helping the business address these large projects is its continued opening of new locations, either greenfield or by acquisition. The company aims to open 10 to 15 new locations each year, and currently has 132 branches in 30 states.

That network growth was initiated following its strategic shift toward rental taken in the second quarter of 2021, and since then it has grown the number of locations by 25%.

Almost as important, the fleet size by original equipment cost has grown by 50% and is now valued at $2.7 billion.

It is perhaps too early to tell, but it would seem that the company’s strategic shift in 2021 was the right decision, although its competitors may not see it that way.