UPDATE 3-H&E Equipment cuts outlook; shares hit lifetime low

(Recasts, adds analyst comments, share movement)

Aug 7 (Reuters) - H&E Equipment Services Inc (HEES.O), which sells and rents out cranes, posted better-than-expected quarterly results, but lowered its full-year outlook and said it would reduce its fleet to "adjust to current demands and further cost cuts," sending its shares to their lifetime low.

H&E shares fell 22 percent to $9.40 in morning trade. They were down $2.29 at $9.77 in afternoon trade on Nasdaq.

The company said non-residential construction markets may be hurt during the second half of the year due to the credit crisis and increasing construction costs.

Florida, Southern California and the Mid-Atlantic regions continue to be its most challenging markets, the company said.

H&E, which also sells and rents out earthmoving equipment and industrial lift trucks, said it expects rental rate pressures in its softer markets and this is beginning to affect its other markets as well.

Analyst Seth Weber of Banc of America Securities downgraded the stock to "neutral" from "buy" citing the pressure on H&E's rental business, which is the company's most profitable segment.

"Strength from H&E's Gulf Coast and industrial exposure (energy, petrochem) and crane business has not been enough to offset secular weakness and an ill-timed acquisition," Weber said in a note to clients.

In September 2007, H&E had acquired J.W. Burress Inc, a distributor of heavy equipment in the mid-Atlantic region.

Weber, who expects trends to remain tough in 2009 due to weak U.S. construction environment, also cut his price target on the stock to $13.50 from $19.

LOWERED OUTLOOK

H&E said it expects earnings of $1.57 to $1.71 per share for the full year, down from its earlier estimates of $1.74 to $1.99 a share.

Revenue is expected to be $1.09 billion to $1.11 billion, down from its earlier forecast of $1.13 billion to $1.16 billion, the company said.

Analysts on average were expecting earnings of $1.76 a share, before items, on revenue of $1.13 billion, according to Reuters Estimates.

H&E said it expects to reduce its capital spending by the year end.

"We believe the reduction in H&E's 2008 outlook, when coupled with recent reductions in the outlooks of equipment rental competitors like United Rentals Inc (URI.N) and RSC Holdings Inc (RRR.N), is indicative of an increasingly difficult operating environment for the machinery companies," analyst Henry Kirn of UBS said in a note to clients.

Kirn kept his "neutral" rating on H&E stock.

For the second quarter, H&E earned $16.1 million, or 45 cents a share, compared with $15.2 million, or 40 cents a share, a year ago.

Revenue rose 21 percent to $282.6 million, with an 8 percent rise in equipment rental revenue.

New equipment sales were up 27 percent, helped by the strength of the crane markets and sales from the Mid-Atlantic region.

Analysts on average had expected earnings of 41 cents a share, before special items, on revenue of $269.6 million. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Gopakumar Warrier)