There is more pain in midtown Manhattan today. Another hedge fund favorite (not AGN, not SUNE, not VRX etc) is down a lot – the stock is Hertz Global Holdings Inc (HTZ) another of the hedge fund hotels and the company which finally filed its financials said the results were not great. As MKM notes: Hertz closed first quarter revenues last week and today provided some transparency on its revenue outlook by lowering U.S. car rental revenue guidance to -1.5%-0% (previously 1.5%-2.5%). We believe industry fleet size is high relative to its revenue environment. 1Q pricing was extremely challenging with the worst pricing in January and a sequential improvement month to month. We believe: (1) commercial demand remains weak; (2) HTZ has stopped gifting up “soft” market share and competitors are adjusting to that; and (3) insurance replacement demand has been weak (impacting Enterprise, in our view). We are updating our estimates to reflect continued pricing weakness (specifically commercial) in 1Q16.
Hertz Global Holdings Inc – analysts react
Sterne Agee CRT opines:
Industry capacity remains high and will likely take longer (summer vs spring expectation) to get right sized. We view HTZ as a show me story on self-help and rental car fundamentals getting better. We continue to rate HTZ shares Neutral.
? Excess Capacity. Industry capacity still remains high, which is not totally surprising given Hertz was over fleeted entering the year combined with lower-than-expected residuals. We would also note that the company’s system
integration with Dollar Thrifty was completed December 2015, which likely also impacted how quickly the company could get out of its fleet.
For 1Q16, HTZ sees revenue per available car day (“RACD”) down 2.5-3.5%; there had been no prior guidance for the 1Q, as HTZ traditionally does not provide quarterly guidance. RACD is the rental car version of hotel RevPAR; it takes into account both utilization and pricing. Our expectation (prior to this morning) was for HTZ to see a 3.0% decline in 1Q pricing and a 0.1% decline in transaction days (within the U.S.). Based on our expectation that HTZ’s U.S. fleet would decline by 3.8% in the quarter, our implied RACD expectation was -0.4% and our total revenue expectation for the U.S. RAC segment was $1.473bn (-3.1%).
HTZ issued a 1Q warning related to US RAC pricing, citing excess capacity in the industry. We believe investors should continue to expect a highly competitive, deflationary environment where cost reduction and strategic realignment separate the winners from the challenged. We think HTZ gets this.