- Equipment hire giant shows less rate of profit decline in first quarter
- No change in full-year guidance after two mild warnings in 2024
- Estimates and guidance do assume better second half
- Outcome of US election and Federal Reserve policy meetings could have an influence
“Ashtead’s first-quarter results are not particularly flashy, but the absence of any further profit warnings is giving the shares a lift, as profit momentum seems to be bottoming out,” says AJ Bell investment director Russ Mould. “This fits with management’s narrative that last year’s stumbles were due to one-off factors, rather than an economic malaise in the key American market, but investors will keep watching macroeconomic indicators from areas such as manufacturing and housebuilding to help them judge where the FTSE 100 member’s sales, profits and share price may go next.
“Equipment hire specialist Ashtead saw a strong rebound in sales and profits in the wake of the pandemic and then received another boost in the form of the fiscal stimulus provided by America’s Biden administration and its introduction of the CHIPS and Inflation Reduction Acts – Ashtead gets more than 80% of its sales and over 90% of its profits from its US operations.
“However, revenue momentum slowed in the fiscal year that ended in April 2024, partly due to the strong base for comparison, partly due to the impact of the screen and actors’ strikes in Hollywood and partly due to a benign hurricane season, according to management. There also has to be a possibility that corporations are slightly sitting on their hands when it comes to major capital projects, as they await the result of November’s Presidential election and see whether it is Kamala Harris or Donald Trump who takes over in the White House in January.
“Group-wide sales slowed again to just 2% year-on-year in the first quarter, with rental equipment revenue growth of 7% (compared to 9% in the final three months of the last fiscal year).
Source: Company accounts. Fiscal year to April.
However, this seems consistent with chief executive Brendan Horgan’s guidance for rental sales growth of between 5% to 8% this year, assuming improved activity as the year wears on, and analysts continue to forecast 5% total sales growth for the year to April 2025.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Fiscal year to April.
“Helped by cost efficiencies and the Sunbelt 4.0 strategic plan, profit momentum improved in the first quarter. Pre-tax income fell 7% year-on-year, a lesser rate of decline than the 10% exhibited in the final period of fiscal 2024.
Source: Company accounts. Fiscal year to April.
“However, that does still leave Ashtead with some work to do in the final three quarters of the year if it is to meet analysts’ forecasts of broadly flat earnings in fiscal 2025, at around $2.1 billion before tax, even if management seems confident in the company’s ability to live up to those expectations.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Fiscal year to April.
“Ashtead’s self-help programmes mean it is taking nothing for granted, but some supportive economic tailwinds would no doubt be welcome (including interest rate cuts from the US Federal Reserve).
“Going into Tuesday’s update, the monthly manufacturing purchasing managers’ index from the Institute of Supply Management had come in below 50 on twenty occasions in the previous twenty-one months, to suggest the US economy was not quite firing on all cylinders, or, at least, that it was relying on private consumption to do the heavy lifting.
Source: LSEG Refinitiv data, US Institute for Supply Management
“Renewed weakness in new homes sales, which have consistently ebbed since May 2023, thanks to a 30-year mortgage rate that peaked at 7.50% last November, is also a trend to be watched, even if interest rate cuts from the US Federal Reserve could again help here.
Source: LSEG Refinitiv data, US National Association of Housebuilders
“This environment may explain why Ashtead is currently running with a reduction in its capital expenditure budget for fiscal 2025. Generally speaking, the more optimistic Ashtead’s managers feel, the more kit they will buy so that they can hire it out, but Mr. Horgan is reaffirming guidance for 2025 of $3.0 to $3.3 billion, compared to last year’s $4.3 billion in spending.”
Source: Company accounts, management guidance. Fiscal year to April.
