Hertz shares slump as losses widen in CEO's debut quarter
Hertz Global Holdings Inc. lost almost twice as much as expected in the CEO's first quarter at the helm as rental prices tumbled and the company's fleet took a big hit from falling used-car values.
Hertz has been slammed with a one-two punch: it's making less money on each car it rents out and it's getting lower prices when it goes to sell the used cars in its fleet. Those two challenges led the Florida-based rental-car company on Monday to report a net loss from continuing operations of $223 million, compared with a loss of $52 million during the same quarter last year.
On an per-share basis, the company's adjusted loss was $1.61 per share, far exceeding the average analysts estimate for a loss of 84 cents.
The company has been hit harder than other rental firms because its fleet had a lot of compact cars and family sedans, which are out of favor with U.S. drivers. Hertz has been trying to change over its rental car fleet faster than normal and get more roomy SUVs to meet changing customer demands. To get there, Hertz has to sell its older models into a market in which used car prices are tumbling, setting it up for a loss now but perhaps positioning it for a stronger performance ahead.
"They are taking the poison pill right away," Hamzah Mazari, senior analyst with Macquarie Capital Inc., said in a phone interview. "They are rightsizing the fleet even though they are taking a big hit. If they do it now, they should get better pricing on the cars they rent later."
U.S. used-car values have been tumbling as a glut of vehicles returns to the market after their leases end, driving down the National Automobile Dealers Association Used Car Guide's price index in March to the lowest since September 2010.
Hertz said net vehicle depreciation per car rose 15 percent in the first quarter. Even as its cars were losing value at a faster rate, Hertz sold 21 percent more vehicles than it did a year ago, which added to losses.
Kathryn Marinello, who became CEO on Jan. 3, cited "headwinds related to used car residual values" and said the company's restructuring will take time to pay off.
The stock on Tuesday tumbled 14 percent to close at $12.80 in New York to its lowest point since March 2009. It was already down about 31 percent this year as of Monday's settlement, ahead of its earnings release.
"We are placing significant emphasis on fleet quality, the customer experience, brand development and systems transformation," Marinello said in a company statement announcing the results. "While our performance doesn't yet reflect our investments and may continue to be uneven, we are seeing signs of progress."
Marinello, a former director at General Motors, took over when John Tague, a former United Airlines executive, retired after less than three years in charge. Mark Frissora, the CEO of Caesars Entertainment Corp., left Hertz in 2014 in the wake of accounting problems at the company and shortly after billionaire Carl Icahn took a large stake.
Hertz didn't give an earnings forecast, which Mazari said might help it move faster on restructuring since it can endure bigger losses.
"They haven't given guidance so they have a free pass," he said. "By the end of the second quarter, we should be out of the woods."
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