UPDATE 2-H&E Equipment Q2 profit dives, to cut jobs; shares fall

* Sees headcount reduction going forward

* To close satellite branch in Q3

* Q2 EPS $0.01 vs yr-ago $0.45

* Rental rates down for the quarter

* Shares fall 10 pct (Adds conference call details, updates share movement)

BANGALORE, Aug 5 (Reuters) - Equipment services company H&E Equipment Services (HEES.O) said it would cut its headcount going forward, after second-quarter profit tumbled 98 percent, hurt by a severely weakened non-residential construction market and lower equipment rental rates.

The company -- which cut its employee base by 3 percent in the first quarter -- is also planning to close one of its satellite branches in Salt Lake City, Utah in the third quarter, Chief Executive John Engquist said on a conference call with analysts.

"There will be some headcount reductions going forward. Some of it will be just through hiring freezes. But we're looking at that on a daily basis and looking at it by region," Engquist said.

Engquist attributed the decline in second-quarter results to the further softening of its non-residential and industrial end-markets.

At the end of the first quarter, about half of H&E's revenue came from the industrial sector, which includes the energy and mining industries, while the non-residential construction sector contributed 40 percent. The remaining 10 percent of revenue came from residential construction.

"We also believe that with commodity prices stabilizing, the industrial sector could recover ahead of the non-residential construction," Engquist said.

The company is also banking on increased government spending to help drive business.

"Little of the budgeted money has been spent and we are hopeful that stimulus spending will accelerate and eventually benefit the markets we serve," the CEO said.

Construction of retail spaces, hotels and office building is expected to fall by more than 20 percent in 2009, with smaller -- but still double-digit -- declines next year, according to a forecast by the American Institute of Architects in July. [ID:nN12469936]

Engquist said the weakened demand for construction equipment was creating excess capacity in the marketplace, impacting price and utilization.

In the second quarter, H&E equipment rental revenues fell by more than a third to $50.1 million, while rental rates on new contracts slumped almost 16 percent.

For the quarter ended June 30, the company reported net income of $263,000, or 1 cent a share, compared with $16.1 million, or 45 cents a share, a year ago.

Revenue fell 36 percent to $180.2 million.

Analysts on average were expecting H&E to earn 13 cents a share, excluding items, on revenue of $215.1 million, according to Reuters Estimates.

Shares of the company were trading down 9 percent at $10.00 in Wednesday afternoon trade on Nasdaq. They had touched a low of $9.87 earlier in the session.

For the alerts, please double-click [nWNBB9374] [nWNBB9707] . (Reporting by Biswarup Gooptu in Bangalore; Editing by Ratul Ray Chaudhuri, Anne Pallivathuckal)