Hertz Global Holdings Inc. lost half its market value after the Lee County-based rental-car company reported a third-quarter profit that badly trailed analysts’ estimates and cut its annual earnings forecast, blaming a decline in revenue and a drop in the value of its cars.
Hertz shares fell as much as 52 percent, wiping out $1.5 billion in equity value, and its bonds were among the worst performers Tuesday. Quarterly adjusted profit of $1.58 a share was far below the average estimate of $2.73 in a Bloomberg survey, and Hertz said full-year earnings may be less than a fifth of what it projected in August.
The rental company, whose largest investor is billionaire Carl Icahn, failed to adequately price the cars in its fleet and depreciate them over time before selling them in used-car auctions. The issue, which is far more pronounced at Hertz than smaller rival Avis Budget Group Inc., is the latest challenge Chief Executive Officer John Tague, a former United Airlines executive, has faced since joining in late 2014 in the wake of Icahn’s involvement.
Depreciation is the highest cost in the rental industry. You have to know how much you will be able to recover on these vehicles.
Maryann Keller, an independent consultant who once sat on the board of Dollar Thrifty Inc., which merged with Hertz in 2013
“If they had a problem with the value of their cars, that means their depreciation was not adequate,” said Maryann Keller, an independent consultant in Stamford, Connecticut, who once sat on the board of Dollar Thrifty Inc., which merged with Hertz in 2013. “Depreciation is the highest cost in the rental industry. You have to know how much you will be able to recover on these vehicles.”
No investor was hit harder than Icahn, who owns almost 16 percent of the shares, according to the latest filings. He had disclosed an 8.5 percent stake in August 2014, when the stock traded for more than $100 a share.
Hertz was the recipient of an $85 million tax credit and economic incentive package from Enterprise Florida, the state’s public-private business development organization, and the Lee County government.
The rental car giant agreed to move its corporate headquarters from New Jersey to Estero as a result of the 2013 deal.
There are more questions than answers with Hertz and it will be “extraordinarily difficult” for investors to have conviction in continued progress on a turnaround story given “these latest disappointing and surprising developments,” Deutsche Bank analyst Chris Woronka said in a research report. He cut his rating to hold from buy.