In the heart of Detroit, a financial storm has gathered around Hertz Global, the renowned rental car company. Following a tumultuous first quarter, shares of Hertz saw a staggering drop of over 20% in early trading, primarily triggered by a disappointing earnings report and the announcement of a $250 million stock offering. As the dust settled, the decline moderated to a still sobering 15% to 18% by the conclusion of the company’s quarterly earnings call, a stark contrast to the mere 3% dip observed just before the call began.
The financial figures released were less than reassuring. Hertz reported an adjusted loss per share of $1.12, significantly worse than the anticipated loss of 97 cents. Automotive revenue also fell short of expectations, coming in at $1.81 billion against a forecasted $2 billion. This performance is reflective of broader challenges facing the rental car industry, exacerbated by diminished consumer confidence and a decline in U.S. tourism.
During the call, CFO Scott Haralson emphasized the need for strategic action, unveiling the stock offering as a means of deleveraging. “The combination of an improved earnings profile, refinancing levers, and the ATM optionality gives us a number of alternatives for addressing upcoming maturities,” he stated, signaling a proactive approach to financial recovery. However, the specifics regarding timing and the eventual number of shares to be offered remain uncertain, leaving investors anxious about the company’s trajectory.
Investor concerns are compounded by Hertz’s decision to reduce its fleet size, which is intended to address lower booking rates and the adverse impact of auto tariffs that President Trump has imposed. Such tariffs have driven up prices for both new and used vehicles, further squeezing the rental car market. “We prioritized fleet and cost actions at the top of the list,” noted Hertz CEO Gil West, acknowledging the immediate necessity for cost control while simultaneously addressing revenue transformations. The company’s revenue fell by 13% year-over-year, largely due to an 8% reduction in fleet capacity compared to the same quarter last year.
This reduction is part of Hertz’s “Back-to-Basics Roadmap,” aimed at optimizing vehicle utilization and, as West articulated, creating “more demand than we can satisfy” to bolster profits. In a bid to reassure stakeholders, the company touted several achievements, including a notable $92 million year-over-year improvement in direct operating expenses. The goal remains ambitious: bringing depreciation per unit below $300 by the second quarter and achieving positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by the third quarter of 2025.
Despite these efforts, analysts remain wary. Barclays analyst Dan Levy expressed skepticism about demand, noting, “While HTZ is accelerating its transition strategy and has some benefits on depreciation, we believe the risk ahead is on demand. On balance, we see the result as net negative.” This sentiment is particularly salient given that Hertz’s stock had soared by 90% earlier this year, largely fueled by the significant investment from Bill Ackman’s Pershing Square Capital Management, which now holds a 19.8% stake in the company.
As Hertz navigates these turbulent waters, the path forward will require not only deft financial maneuvers but also a keen understanding of market dynamics and consumer behavior. The rental car industry, like many others, faces an uncertain future, and how Hertz adapts to these challenges will be critical in determining its long-term viability. Investors and industry watchers alike will be closely monitoring the company’s next moves as it strives to stabilize its operations and restore confidence among its stakeholders.
