Hertz (HTZ) Loss Wider Than Expected, Revenues Miss In Q4

Hertz Global Holdings Inc. (NYSE:HTZ) released dismal fourth-quarter 2016 results, wherein the company suffered a loss alongside posting soft revenues. Fleet and service issues hampered the results.

Well, Hertz has been disappointing for a while now. Shares of this Zacks Rank #4 (Sell) company have underperformed the Zacks categorized Transportation Services industry in the last six months. Evidently, Hertz has crashed 60.4% in the last six months, compared with the industry’s decline of 28.7%.

Q4 Highlights

The company posted a quarterly adjusted loss of 71 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 54 cents and also the year-ago loss of 29 cents. Results were hurt by weak sales and increased expenses.

On a reported basis, Hertz Global posted a loss per share of $5.28 compared with a loss of 43 cents earned in the prior-year quarter.

Total revenue slipped 1% year over year to $2,009 million, mainly due to soft revenues at the International rental car segments, which was largely hurt by unfavorable currency movements. Additionally, the company’s top line lagged the Zacks Consensus Estimate of $2,028.7 million. This also marked the company’s second consecutive top-line miss.

Corporate earnings before interest, taxes, depreciation and amortization (EBITDA), on an adjusted basis, slumped 87% to $12 million, with the margin contracting 400 basis points (bps) to 0.6%.

Segment Performance

Hertz now reports under U.S. Rental Car (U.S. RAC), International Rental Car (International RAC) and All Other Operations segments.

Revenues for the U.S. RAC segment remained nearly flat year over year at $1,417 million in fourth-quarter, as a 1% rise in transaction days was offset by a 1% decrease in pricing – as measured by Total Revenue per Transaction Day (RPD). However, pricing represented a 2 percentage point improvement from the preceding quarter.

Quarterly revenues for the International RAC segment came in at $441 million, down about 6% year over year, including negative foreign currency impact. Excluding currency impact, revenues dropped 4%, owing to a 5% reduction in Total RPD, somewhat compensated by a 1% improvement in transaction days.

Revenues for the All Other Operations segment rose 4.1% to $151 million. This segment mainly houses Hertz’s Donlen leasing operations.

Financial Update

Hertz, which shares space with Avis Budget Group, Inc. (NASDAQ:CAR) , ended the year with cash and cash equivalents of $816 million, total debt of $13,541 million and shareholders’ equity of $1,075 million.

Further, the company generated $2,529 million as cash from operating activities, while delivering adjusted free cash flow of $258 million in 2016.

Outlook

Hertz remains focused on solving issues related to fleet and services, which were the main deterrents in 2016. In this regard, management plans to upgrade its fleet quality and mix in the U.S., alongside providing employees with the required tools and training to offer improved services to customers. That said, the company remains keen on making investments in fleet, services, marketing and technology in 2017, which in turn should drive top-line growth.

Stocks to Consider

Better-ranked stocks worth considering in the same industry include Grupo Aeroportuario del Sureste, S. A. B. de C. V. (NYSE:ASR) and Hub Group, Inc. (NASDAQ:HUBG) , each with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Grupo Aeroportuario has an average positive earnings surprise of 3.6% in the trailing four quarters, with a beat in each quarter. Also, the stock has seen solid positive estimate revisions in the last seven days.

Hub Group, with long-term earnings per share growth rate of 13%, has seen positive estimate revisions over the past 30 days.

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