3rd Sep 2024 10:22
(Alliance News) - Ashtead Group PLC on Tuesday remained optimistic for the year ahead, despite a mixed set of results, as weaker market conditions threaten to take a toll.
For the three months ended July 31, the industrial equipment rental company posted pretax profit of USD544.4 million, down 6.9% from USD584.6 million a year prior.
By contrast, revenue rose 2.2% to USD2.75 billion from USD2.70 billion, with rental revenue increasing 6.9% to USD2.54 billion from USD2.38 billion.
Earnings before interest, tax, depreciation, and amortisation grew 4.8% to USD1.29 billion from USD1.23 billion, while operating costs were largely unchanged at USD1.47 billion.
Reflecting on the quarter, Chief Executive Officer Brendan Horgan stressed that Ashtead was in a "position of strength", with both the "operational flexibility and financial capacity" to capitalise on the growth opportunities ahead.
AJ Bell's Russ Mould, however, had a somewhat different interpretation of Ashtead's start to the year.
"Sometimes when a company has been under pressure it's enough that things haven't got any worse. That has proved to be the case with Ashtead's latest quarterly results," Mould explained.
Ashtead expects full-year rental revenue to grow between 5% and 8%, with capital expenditure between USD3.0 billion to USD3.3 billion. In the previous financial year, it produced 10% rental revenue growth, with capital expenditure at USD4.31 billion.
"While the three-month period could hardly be characterised as stellar, the equipment hire company is sticking with its full-year forecasts. Ashtead has been able to eke out some growth and the hit to profit is largely linked to lower levels of used equipment sales, which is not its core business," Mould added.
Looking ahead, Ashtead placed particular emphasis on projects in North America, and on its 'Sunbelt 4.0' strategic growth plan, which launched in April.
"In North America, the increasing proportion of mega projects and the strength of our Specialty businesses has more than offset the lower activity levels in local commercial construction markets," CEO Horgan explained.
Nevertheless, a reliance on 'mega projects' in the US could still be cause for concern, cautioned Mould, particularly considering their links to incumbent President Joe Biden's infrastructure programme.
A Donald Trump-led White House, as opposed to Democrat VP Kamala Harris, could propel these programmes into precarity, leading to "greater reliance on the local commercial construction markets".
"In turn, this might make achieving the relatively ambitious growth targets associated with the Sunbelt 4.0 five-year plan, unveiled earlier this year, more difficult," argued AJ Bell's Mould.
"Increasing the volume of locations, a key plank of Sunbelt 4.0, into a market experiencing headwinds could leave Ashtead exposed. Although an expanding footprint in 'speciality' rentals – including areas such as power, flooring and climate control – would add some useful diversification."
During the recent quarter, USD53 million was spent on the bolt-on acquisitions of RentalMax LLC in May and Wave Equipment Ltd in June, to expand Ashtead's footprint and diversify its end markets.
Separately on Tuesday, Ashtead said Chief Financial Officer Michael Pratt plans to retire in September 2025 after 21 years with the company.
WestRock Co's former CFO, Alex Pease, will join Ashtead Group in October as CFO designate.
US packaging firm WestRock recently merged with Ireland's Smurfit Kappa to form Smurfit WestRock PLC.
Shares in Ashtead Group were up 4.0% at 5,574.00 pence each in London on Tuesday morning.
By Holly Beveridge, Alliance News senior reporter
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