Hertz's stock gains even as losses mount, value of car fleet keeps falling

By Tomi Kilgore

Depreciation per vehicle per month tripled, as resell market 'normalized' from previous peak pricing

Shares of Hertz Global Holdings Inc. turned lower Thursday, after the rental-car company reported another wider-than-expected loss, but said it expects the rapid depreciation of its vehicles to slow as it pushes to complete its "fleet refresh."

Chief Executive Gil West said on the post-earnings call with analysts that a substantial portion of Hertz's (HTZ) car fleet was acquired during a period of "peak pricing," so resale values have dropped as the car market normalized.

"We are accelerating our fleet rotation, enabling us to lower our depreciation and maintenance cost, improve our customer experience and increase pricing power," West said, according to a FactSet transcript. "I'm pleased with the progress we're making and look forward to completing the fleet rotation as soon as practical."

Read: Hertz to sell 10,000 more EVs than planned, and stock suffers record plunge.

New Chief Financial Officer Scott Haralson followed by saying he expects the fleet refresh will push a little more than $1 billion of depreciation through the company's bottom line, from the third quarter of this year through "probably" the end of 2025.

"The timing of that excess depreciation may be a bit lumpy depending on how quickly we can rotate, but we want that to happen as soon as possible," Haralson said.

Also read: Hertz's stock sinks as CFO and COO to leave after less than a year in the roles.

He said in the near term, larger depreciation amounts would be a good thing because it means high-depreciation-cost vehicles were being sold off and lower ones were being brought in quicker.

The stock (HTZ) was down 0.6% in morning trades but has swung between a maximum gain of 7.4% and a maximum decline of 2.7% since the opening bell.

The company swung to a net loss of $865 million, or $2.82 a share, from net income of $139 million, or 44 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted per-share losses of $1.44 compared with the FactSet loss consensus of $1.25. That's the third straight quarter Hertz has reported a wider-than-expected loss.

Related, from June: Hertz's stock and bonds fall after company warns of much bigger quarterly loss as it unwinds EV fleet.

Vehicle depreciation increased $706 million from a year ago, after increasing $588 million in the first quarter.

Depreciation per unit per month (DPU) was $600, triple last year's DPU of $197 and up from $592 in the first quarter.

CFO Haralson said that, as of June 30, over 30% of Hertz's fleet was at a DPU of $325 or less, while the rest was at a DPU of about $660.

"The deals we are consummating today for vehicles to be delivered later this year and into 2025, have DPU rates below $325," Haralson said. "We are executing the refresh at the utmost urgency and we will accelerate this as fast as economically and logistically possible."

Revenue fell 3.4% to $2.35 billion, below the FactSet consensus of $2.46 billion. That snapped a three-quarter streak of revenue beats.

Hertz's stock has plunged 61% year to date, while shares of rival Avis Budget Group Inc. (CAR) have tumbled 44.5% and the S&P 500 has gained 15.2%.

-Tomi Kilgore

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08-01-24 1111ET

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