Hertz Global Holdings, Inc (NYSE:HTZ) reported third quarter 2016 net income from continuing operations of $44 million, or$0.52 per diluted share, compared with net income from continuing operations of $217 million, or $2.38 per diluted share, during the same period last year. On an adjusted basis, the Company reported net income for the third quarter 2016 of $134 million, or $1.58 per diluted share, compared with net income of $182 million, or $2.00 per diluted share, in the third quarter 2015.
Total revenues for the third quarter 2016 were $2.5 billion, a 1% decline versus the third quarter 2015. Income from continuing operations before income taxes for third quarter 2016 was $108 million versus $256 million in the same period last year.
Adjusted corporate earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter 2016 were $329 million versus $430 million in the same period last year, a decline of $101 million.
“We are making progress in foundational aspects of our long-term business improvement plan, implementing new systems, improving customer service levels and launching new products,” said John Tague, president and chief executive officer. “However, our near-term financial performance continues to be uneven. A customary vehicle depreciation rate review near the close of the third quarter resulted in a substantial depreciation adjustment, particularly on compact and mid-sized vehicles, that together with rental volume at the low end of our expectations as well as higher net operating and administrative expenses impacted our performance.
“While we remain on pace to deliver $350 million of cost reduction in 2016, we fell short from a timing perspective on our internal stretch target for cost reduction. Considering this and the potential for an additional depreciation rate adjustment in the fourth quarter, we are updating our 2016 outlook and taking incremental actions to reduce costs and drive revenue.”
OPERATIONAL AND BUSINESS HIGHLIGHTS
Third quarter 2016 operational and business highlights include:
- U.S. rental revenues decreased 2% year-over-year, driven by a 1% increase in volume, and a 3% decline in rate per day (Total RPD) compared to the same period last year.
- U.S. vehicle utilization was 82% for the third quarter, a decrease of 60 basis points versus the same period last year due to a higher number of vehicles out-of-service due to manufacturer recalls.
- Cost savings of approximately $90 million were achieved during the third quarter 2016, maintaining a pace to reach the Company’s previously announced 2016 full-year cost savings target of $350 million.
- U.S. RAC net depreciation per unit per month increased 14% in the quarter, due to lower than expected residual values, primarily in compact and mid-sized vehicles, a higher mix of non-program vehicles, and higher vehicle acquisition costs year-over-year. Throughout the year, the Company has been shortening hold periods of its compact vehicles and is cycling these vehicles out of its fleet more quickly to adjust overall fleet mix to optimal levels.
- The Hertz brand is improving the rental experience for its customers through its new Ultimate Choice format, which has rolled out in five airport locations and is expected to be available in 30 of the major U.S. airports by the end of second quarter 2017. Ultimate Choice gives customers the ability to choose among any available vehicles in their rental class, which in addition to enhancing customer experience also drives improved vehicle utilization and lower operating costs.
- The Company began rolling out electronic rental agreements and returns for its Hertz, Dollar and Thrifty customers. Simplifying the rental transaction saves customers time and provides greater convenience through access to digitally available rental contracts. This capability is expected to be available globally by early 2017.
- Worldwide customer satisfaction improved year-over-year for the Hertz, Dollar and Thrifty brands by more than 7 points in the third quarter 2016, the seventh consecutive quarter of year-over-year improvements for these brands. Customer satisfaction for both Dollar and Thrifty in the U.S. reached record levels in the third quarter of 2016. Year-to-date 2016 customer satisfaction for the Hertz, Dollar and Thrifty brands is at an all-time high.
Total U.S. RAC revenues were $1.7 billion in the third quarter 2016, a decrease of 2%, versus the same period last year. Transaction days increased by 1% while pricing, as measured by Total RPD, decreased by 3% year-over-year, which was a 5 percentage point sequential year-over-year improvement from the second quarter 2016. Approximately 2% of the pricing decline in the third quarter was due to the impact of transaction days counting methodology related to the integration of Dollar and Thrifty to the Hertz counter system and non-rental related declines in areas such as fuel-related ancillary revenue.
Third quarter U.S. RAC depreciation of revenue earning vehicles and lease charges, net increased $63 million, or 16%. Of the $63 million, $39 million was the result of a downward revision of forward projections of residual values based on third party data, particularly on compact and mid-sized vehicles that currently make up a higher percent of the Company’s fleet year-over-year with the remainder attributable to a higher mix of non-program vehicles and higher vehicle acquisition costs year-over-year. Net vehicle depreciation per unit per month increased 14% versus the same period last year to $304, due to lower than expected residual values on compacts and mid-sized vehicles.
Third quarter 2016 adjusted corporate EBITDA for U.S. RAC was $199 million, or a margin of 12%, which is an $85 million decline versus the same period last year.
The Company’s International RAC segment revenues were $683 million in third quarter 2016, a decrease of 1% from the third quarter 2015. Excluding a $13 million unfavorable foreign currency impact, revenues increased 1% driven by a 2% increase in transaction days and a 1% decrease in Total RPD. The decline in the International RAC Total RPD reflects a change in business mix with fewer higher yielding long-haul transactions, due to the previously conveyed concern regarding terrorist attacks in the Europe market, partially offset by strong growth in the intra-European leisure market.
Net depreciation per unit per month increased 1% from the prior year as a decline in residual values was partially offset by improved fleet management processes, including strategic procurement and greater use of alternative disposition channels.
Third quarter 2016 adjusted corporate EBITDA for International RAC was $151 million, or a margin of 22%, which is a 150 basis point decline versus third quarter last year.
All Other Operations, which is primarily comprised of the Company’s Donlen leasing operations, reported a 2% increase in total revenues for third quarter 2016. Adjusted corporate EBITDA for the All Other Operations segment was $18 million in third quarter 2016, which was flat year-over-year.
HERTZ GLOBAL UPDATES 2016 FULL YEAR GUIDANCE
The Company expects that fourth quarter 2016 results will be affected by factors similar to those seen in the third quarter, including higher vehicle depreciation due to lower residual values. In light of these factors, the Company has updated the following full-year 2016 guidance:
SHARE REPURCHASE ACTIVITY
During the third quarter 2016, the Company repurchased approximately 2 million shares of its common stock at an aggregate purchase price of approximately $100 million under its previously disclosed share repurchase program.
RESULTS OF THE HERTZ CORPORATION
The GAAP and Non-GAAP profitability metrics for Hertz Global’s operating subsidiary, The Hertz Corporation, are materially the same as those for Hertz Global. (Original Source)
Shares of Hertz Global are falling nearly 50% to $17.90 in early trading Tuesday. HTZ has a 1-year high of $53.14 and a 1-year low of $6.95. The stock’s 50-day moving average is $39.67 and its 200-day moving average is $84.67.
On the ratings front, HTZ stock has been the subject of a number of recent research reports. In a report released today, Deutsche Bank analyst Chris Woronka downgraded HTZ to Hold. Separately, yesterday, Credit Suisse’s Anjaneya Singh reiterated a Hold rating on the stock and has a price target of $48.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Chris Woronka and Anjaneya Singh have a yearly average return of 0.7% and 10.3% respectively. Woronka has a success rate of 47% and is ranked #1923 out of 4181 analysts, while Singh has a success rate of 59% and is ranked #625.
Overall, 3 research analysts have assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $57.00 which is 171.4% above where the stock opened today.
Hertz Global Holdings, Inc. is an equipment rental companies in the North American equipment rental industry. The company was headquartered in Estero, FL.