Hertz Has First Profit in a Year After Revamped Fleet Boosts Prices
David Welch, Bloomberg
Nov 09, 2017
Hertz Global Holdings Inc. reported its first quarterly profit in a year as better prices at the rental counter signaled the company’s turnaround efforts are gaining traction.
Adjusted profit was $1.42 per share in the third quarter, better than analysts’ average estimate. Daily U.S. rental-car rates improved by 2 percent during the period, according to a statement. The shares surged in after-market trading.
Chief Executive Officer Kathryn Marinello cautioned there’s still work to be done despite the early dividends from her strategy to transform Hertz’s fleet. While purchases of more popular sport utility vehicles and the selling off of lower-value cars boosted results, the CEO warned more investment is needed that’ll drag on earnings into next year.
“Our operating turnaround plan, focused on growth through enhanced fleet, service, brands and technology, is showing encouraging progress, evidence that Hertz is on the right strategic path,” Marinello said in the statement. “Higher spending levels throughout 2018 are necessary to ensure predictable, sustainable earnings performance, beginning in 2019.”
Hertz stock jumped 7.7 percent to $21.55 as of 5:15 p.m. in New York. The shares had declined 7.2 percent this year through the close of regular trading Thursday.
Hertz’s third-quarter results were “decidedly more upbeat” and said the company’s “much-needed” turnaround efforts appear to be paying off more quickly than expected, James Albertine, an analyst at Consumer Edge Research, wrote in a report to clients.
Hertz and rival Avis Budget Group Inc. have struggled over the past year amid slumping used-vehicle values and weak car-rental rates. The process of shrinking the size of their fleets to better match supply with demand has undermined profitability, and both companies remain threatened by the rise of car-sharing and ride-hailing businesses including Uber Technologies Inc.
Slower Depreciation
Hertz has endured heavy depreciation costs in recent quarters because its fleet was packed with unpopular car models. Transforming the makeup of the vehicles on its lots has helped to reduce those expenses to $306 a month per car in the third quarter, from $353 during the previous three months.
Shares of Hertz and Avis surged after Hurricane Harvey hit Texas in late August and damaged hundreds of thousands of vehicles. That storm, coupled with those that hit Florida and Puerto Rico in the following weeks, spurred bets that the destruction would both tighten supply of used cars and drive rental demand from drivers in need of temporary sets of wheels.
The stocks pared much of those gains after Avis reported disappointing earnings after the close of trading Monday and said the hurricanes ended up hurting results, rather than helping. CEO Larry De Shon gave little guidance on used-car prices and rental rates during a call with analysts Tuesday, and the stock fell 15 percent.
Hertz’s largest shareholder is billionaire investor Carl Icahn, who’s been accumulating auto repair and parts-supplier businesses and a small stake in Lyft Inc. in a long-term bet on secular change sweeping the transportation sector.
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