Hertz Falls After Trimming Revenue Outlook on Price Pressure

  • Full-year U.S. measure may fall as much as 1.5 percent
  • Rental-car company reaffirms forecast for annual Ebitda

Hertz Global Holdings Inc. fell the most in more than six weeks after the company lowered its forecasts for U.S. rental-car revenue because an oversupply of vehicles is pressuring its prices.

Annual revenue measured in available car days will be unchanged to 1.5 percent lower than a year earlier, compared to its earlier outlook of 1.5 percent to 2.5 percent growth, the Estero, Florida-based company said in a statement Monday. Hertz also said it expects to report that first-quarter revenue on that basis fell 2.5 percent to 3.5 percent.

“The pricing pressure experienced late in 2015 further intensified in the first quarter of 2016,” Chief Executive Officer John Tague said in the statement. “We believe that industry capacity will likely moderate as seasonal demand improves,” setting the stage for a better peak season this summer.

The shares slid 10 percent to $8.72 at 2:05 p.m. New York time, the steepest decline today in the Russell 1000 Index. The stock dropped as much as 11 percent, the most intraday since Feb. 24.

Challenges in integrating the purchase of its smaller rival, Dollar Thrifty, may have limited Hertz’s ability to reduce its large fleet size coming into this year, said Hamzah Mazari, an analyst at Sterne Agee with a neutral rating on the stock. Weakness in the used-car market doesn’t help either, he said. While the peak summer season may improve the company’s outlook, investors need more confirmation the company can overcome the pricing challenges before getting more bullish, Mazari said.

“Given the fact that the car-rental names have had to cut numbers and pricing has been difficult, this is sort of a show-me story,” he said. “The market will have to see it to believe it.”

The company said it expects full-year adjusted profit of 95 cents to $1.10 a share. The average of analysts estimates compiled by Bloomberg was $1.04. Hertz also reaffirmed its outlook for $1.6 billion to $1.7 billion of annual earnings before interest, taxes, depreciation and amortization.

In February, Hertz reported fourth-quarter earnings that beat analyst estimates as the company’s cost-cutting and fleet management efforts paid off, despite pricing competition. Hertz on Monday reaffirmed its expectation for $350 million of incremental savings this year.

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