Equipment rental company Herc Holdings (NYSE: HRI) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 35.1% year on year to $1.30 billion. On the other hand, the company’s full-year revenue guidance of $3.8 billion at the midpoint came in 14.2% below analysts’ estimates. Its non-GAAP profit of $2.22 per share was 4.1% below analysts’ consensus estimates.

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“As we continue to execute on our strategic priorities, the third quarter marked a pivotal step in unlocking the value of our acquisition of H&E Equipment Services,” 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.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Herc’s sales grew at an incredible 18% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Herc’s annualized revenue growth of 12.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

Herc also breaks out the revenue for its most important segment, Equipment rentals. Over the last two years, Herc’s Equipment rentals revenue (aerial, earthmoving, material handling) averaged 11.9% year-on-year growth.

This quarter, Herc reported wonderful year-on-year revenue growth of 35.1%, and its $1.30 billion of revenue exceeded Wall Street’s estimates by 1.4%.

Looking ahead, sell-side analysts expect revenue to grow 19.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.

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Operating Margin

Herc’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 18.4% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Herc’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Herc generated an operating margin profit margin of 21.4%, down 2.3 percentage points year on year. Since Herc’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Herc’s EPS grew at an astounding 24.7% compounded annual growth rate over the last five years, higher than its 18% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Herc, its two-year annual EPS declines of 15.2% mark a reversal from its (seemingly) healthy five-year trend. We hope Herc can return to earnings growth in the future.

In Q3, Herc reported adjusted EPS of $2.22, down from $4.35 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Herc’s full-year EPS of $8.97 to shrink by 9.5%.

Key Takeaways from Herc’s Q3 Results

It was good to see Herc narrowly top analysts’ revenue expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed and its EPS fell short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 1.3% to $135 immediately following the results.

Should you buy the stock or not? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.