Herc NYSE: HRI said second-quarter operating momentum improved following the completion of its H&E integration in the first quarter, with pro forma equipment rental revenue returning to growth earlier than management had expected. The company raised its full-year outlook as national-account demand and mega-project activity accelerated, while acknowledging that fuel and transportation inflation pressured margins.
Chief Executive Officer Larry Silber said the company’s focus shifted to execution after completing the H&E integration. On a pro forma basis, equipment rental revenue rose 2% during the quarter despite a smaller average fleet at original equipment cost than a year earlier. Management attributed the improvement to fleet optimization, higher utilization and growing cross-selling opportunities across the combined platform.
“The revenue inflection we expected is now underway,” Chief Financial Officer Mark Humphrey said. “Demand is stronger than our original plan, and we are investing to capture that opportunity while continuing to manage fleet efficiency, costs, and capital with discipline.”
Second-Quarter Results and Margin Pressure
On a reported basis, equipment rental revenue increased about 23% year over year, while total revenue grew 20%, primarily reflecting the H&E acquisition, which had been included for only one month in the prior-year period. Adjusted EBITDA rose 19%, and adjusted EBITDA margin was 40.4%. REBITDA, which excludes equipment and parts sales, increased about 18%, with a 41.4% margin.
Adjusted net income was $48 million, or $1.43 per diluted share. The figure included $4 million of restructuring and transformation costs, including initial costs tied to a logistics transformation initiative.
Humphrey said fuel and freight inflation was the largest source of year-over-year pressure on profitability. Fuel and transportation costs increased approximately 35% from the first quarter and reduced adjusted EBITDA margin by about 150 basis points and adjusted REBITDA margin by 170 basis points in the second quarter.
Excluding fuel inflation, the company said adjusted EBITDA margin increased 90 basis points year over year and adjusted REBITDA margin improved 50 basis points, supported by operating performance and cost synergies.
Management expects fuel and transportation inflation to remain a headwind in the second half. The company’s outlook assumes a quarterly expense impact broadly consistent with the second quarter, producing about one percentage point of year-over-year adjusted EBITDA margin pressure for full-year 2026.
Fleet Investment Targets Mega-Project Demand
President Aaron Birnbaum said Herc generated 2% pro forma equipment rental revenue growth on roughly 3% less average fleet at original equipment cost. Pro forma dollar utilization rose by more than 200 basis points from the prior year, which management described as evidence that the combined fleet and revenue mix are becoming more productive.
During the second quarter, Herc added roughly $450 million of its planned 2026 fleet purchases. First-half fleet additions totaled $634 million at original equipment cost. The company also disposed of $247 million of fleet at original equipment cost during the quarter, generating proceeds of approximately 46%.
The company is increasing fleet investment in response to demand from large, multi-year projects, particularly in energy, data centers and manufacturing. Management said the increased spending is demand-driven rather than speculative, with about 70% of incremental fleet purchases expected to be specialty equipment. Herc expects much of that equipment to go directly to projects.
Herc raised its target share of the U.S. mega-project rental opportunity to a long-term range of 15% to 20%, from its earlier 10% to 15% range. Birnbaum said the company does not expect to reach a 20% share in 2026 or 2027, but sees its competitive position strengthening over the next several years due to greater fleet capacity, branch density and technology capabilities.
Management cited Dodge projections for more than $800 billion in U.S. mega-project starts during 2026. Birnbaum noted that construction value does not directly equate to rental spending, saying historically about 2% converts to equipment rental, depending on project type. Revenue from such projects is also spread over typical durations of three to five years or more.
Guidance Raised as Synergies Progress
At the midpoint of updated guidance, Herc expects full-year equipment rental revenue of $4.425 billion and adjusted EBITDA of approximately $2.09 billion. The outlook assumes roughly $900 million of net fleet capital expenditures. On a pro forma basis, the midpoint implies nearly 5% equipment rental revenue growth on flat average fleet at original equipment cost.
Free cash flow guidance was reduced to a range of $250 million to $350 million as the company increases fleet spending. Herc generated $202 million of free cash flow in the first half, ended the quarter with $2.1 billion in liquidity and reported net leverage of 3.95 times. The company also paid its regular quarterly dividend of $0.70 per share.
Herc maintained its 2026 incremental revenue synergy target of $100 million to $120 million and said it remains on track to achieve an additional $90 million in cost synergies this year, toward a fully realized $125 million target by year-end. Humphrey said revenue synergies were expected to be more weighted toward the second half, while about 55% of the incremental cost-synergy contribution is expected in the back half.
Specialty, Technology and Logistics Initiatives
Specialty revenue grew at a double-digit rate in the quarter, according to Silber. Management said it aims over the longer term for specialty operations to represent 20% to 30% of the business after the H&E acquisition reduced that mix to the mid-teens.
The company said approximately 50 specialty locations opened in the fourth quarter and first quarter are performing well, though management expects about two years for their EBITDA margins to mature to levels comparable with established locations.
Herc also continues to invest in its ProControl platform, which uses artificial intelligence and telematics to help customers manage equipment fleets. Active external ProControl users increased nearly 20% quarter over quarter, while the second quarter was the company’s highest revenue-generating e-commerce period to date.
Finally, management said its logistics transformation initiative, which began in late 2025 and expanded this year, is intended to improve routing, cost recovery, process discipline and delivery execution across the larger network. Birnbaum described the effort as a multiyear program separate from acquisition cost synergies.
About Herc (NYSE:HRI)
Herc Holdings Inc NYSE: HRI operates as a leading equipment rental provider in North America, offering a wide range of machinery and support services to construction, industrial, government and event sectors. The company's fleet includes aerial work platforms, earthmoving equipment, material handling solutions, power generation units and specialty tools, enabling clients to scale their operations without the capital expense of ownership. In addition to basic machinery rentals, Herc provides value-added services such as equipment maintenance, on-site safety training and project consulting to help customers optimize productivity and maintain compliance with industry standards.
Founded as part of Hertz Global Holdings, the equipment rental business was spun off as an independent public company in early 2016.
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