Thursday, 26 September 2013

Hertz - problems in hiring volumes

I wrote about Hertz back in late July after the Q2 numbers and was cautious (emphasis added):

'...the company got themselves in a bit of a mess on the issue of forward pricing guidance on the conference call.  The official line is flat pricing and 20% volume growth in the worldwide rental car business.  Some analysts suggested this was an unlikely combination of numbers.  It left me with the feeling that something has to give to really drive revenue forward'

Well judging by the statement just released by the company, something has given...volumes:

'We are revising full year 2013 guidance primarily because of weaker than anticipated volume generated by the Hertz brand in the U.S. airport car rental market, our largest business...Weaker volume impacts not only revenues, but also generates related fleet issues, including lower utilization and the inability of the used car market to absorb our excess vehicles at current market prices'.

The net impact of all of this is a c. 5-6% reduction in adjusted pre-tax profit hopes (mid-point to mid-point) for the full year as shown below using a presentation that Hertz have uploaded to their website.  The estimated EPS decline is slightly higher than this as the share count has increased too:

I thought this presentation slide from the company was also very helpful.  Whilst I am not surprised by the news, the continued uptick in US pricing is one positive.  Unfortunately it is dwarfed by other factors.  

I talked in my July report about the scope for a return to the US$22s.  This would still be my view. 

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