#Carmageddon and Uber did it. For Carl Icahn, it just doesn’t let up.
Shares of Hertz Global Holdings plunged 18% in late trading on Monday to $12.25 after it reported another fiasco quarter, missing even the terribly low analysts’ expectations.
On Sunday I postulated: “Expectations for Q1 are so low that it will be hard to report ‘worse than expected’ numbers.” But buffeted by all sides, Hertz managed unexpectedly to pull it off.
Global revenues in the first quarter fell 3.4% year-over-year to $1.9 billion. In the US, revenues fell 3.8% to $1.35 billion.
Its “total revenue per unit per month,” a key industry metric, fell 5% globally to $889. In the US, it fell 8% to $928.
Despite the deteriorating revenue metrics, the average number of vehicles in the fleet rose 4% to 478,000 in the US and 2% internationally to 150,400. More vehicles translate into higher costs.
On the revenue side, Hertz is getting hammered by rideshare companies. Corporations and non-expense-account tourists are shifting their ground transportation spending to rideshare companies, particularly Uber, from taxis and rental cars. Here are the numbers that I pointed out yesterday.
On the expense side, Hertz is getting hammered by declining used vehicle values: Depreciation expense – the way a rental car company tries to align the value of its fleet with reality – jumped 14% to $701 million globally. In the US, it soared 19% to $499 million. In the US per unit per month, net depreciation jumped 15% to $348.
Depreciation is a non-cash event. But when the vehicle is sold at auction, the difference between the original cost of the new vehicle and the proceeds from the sale becomes a cash event. So yes, in the end, depreciation should parallel the cash expense. But the timing may be different.
For all its troubles, Hertz booked a net loss of $223 million in the first quarter, up from a net loss of $51 million a year ago.
Investors have been fleeing. And shares are now down 77% from their high last July, a month after the spinoff of its equipment leasing unit, which split the company and its shares in two. So these shares have been around for less than a year.
Compared to the wipe-out of November 9, this afternoon’s plunge is practically tame: back then, its shares plummeted 52% in one fell swoop to $17.20. Carl Icahn, who’d been hyping and buying these misbegotten shares all along, bought another 15 million shares during that plunge. He has lost money with relentless brutality. If he still owns the shares, he took another hit just now. But then he might consider it just another buying opportunity.
Hertz also has debt problems – and that might worry bottom fishers and “buying opportunity” seekers. It is junk-rated and had $14 billion in debt at the end of Q1, including “net vehicle debt” of $9.9 billion. It has a wave of bond maturities coming next year. It must be able to sell new bonds or talk a bank into lending it more money in order to redeem the maturing debt. It must be able to do so at survivable rates.
But some of its deteriorating metrics have already breached debt covenants, and it has been forced to negotiate with its creditors to amend the covenants to avoid technical default. This tango will only speed up.
Hertz is up against some special competition: Uber, which burns a lot more cash and is a hero, while Hertz gets keelhauled. Read…. Answers Emerge: This is How Badly Uber Eats into Hertz