Hertz Misses Quarterly Estimates While Restating First Halfby
Vehicle-depreciation errors had understated net income
Strong dollar cuts quarterly results; Ebitda forecast restated
Hertz Global Holdings Inc., the largest publicly traded U.S. rental-car company, reported third-quarter earnings that trailed analysts’ estimates as the strong dollar slowed improvement. Hertz shares fell the most in two years.
Profit excluding some items was 49 cents a share, the company said in a statement Monday. The average of eight estimates compiled by Bloomberg was 52 cents. Unfavorable foreign exchange reduced earnings by 3 cents a share, Hertz said. Revenue declined 4.6 percent from a year earlier to $2.98 billion, compared with an average projection of $3.07 billion. The company also restated its first-half results.
Since taking over as chief executive officer almost a year ago, John Tague has brought in top managers from the airline industry, as well as with expertise in accounting and revenue management. Tague has said Hertz is making progress during a transition year as he tightens up the books and steps up operations. He took the job as Hertz struggled to clear up accounting issues that would result in more than three years of restated financial results. Third-quarter net income rose 59 percent to $237 million.
“Our profit improvement in the third quarter is early evidence of the potential we see in our performance improvement plan,” said Tague said in the statement. “Our fleet efficiency, which measures our ability to match capacity with demand, rose to record levels.”
Hertz tumbled 13 percent to $16.44 in New York, the steepest closing decline since September 2013. The shares have lost 34 percent this year.
Hertz reduced its 2015 forecast for spending on non-fleet capital expenditures by $55 million to a range of $220 million to $240 million, and it reiterated its projection for $1.45 billion to $1.55 billion in adjusted earnings before interest, taxes, depreciation and amortization. The company said it will give a preliminary outlook for 2016 on Nov. 17.
Under Tague, the Estero, Florida-based company has refreshed its aging fleet, closed less profitable, off-airport locations and trimmed costs. Hertz said in July it expected to reach annualized cost savings of $300 million next year.
Regarding the accounting review, Hertz said net income was understated for the second quarter and the first half by $13 million because of depreciation errors on the sale of vehicles at retail locations.
In July, Hertz restated results from as far back as 2011 after discovering accounting problems caused by shoddy oversight of its financial reporting system. Correcting the misstatements reduced annual pretax income from 2011 to 2013 by as much as 23 percent and net income by as much as 26 percent.
That internal review found material weaknesses, caused in part by the lax oversight of former Chief Executive Officer Mark Frissora, who is now CEO of Caesars Entertainment Corp. Frissora resigned last year for “personal reasons,” the company said at the time. Investors had pushed for his removal, citing accounting and operational missteps.