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Bear of the Day

Decreased volumes, and higher net operating and administrative expenses are big drags on a balance sheet, and these are just some of the issues facing the Zacks Bear of the Day, Hertz Global Holdings (HTZ - Free Report) .  

This Zacks Rank #5 (Strong Sell) company operates car rental business. The company's product and services consists of Hertz Gold Plus Rewards, NeverLost(R), Carfirmations, Mobile Wi-Fi and unique vehicles offered through the Adrenaline, Dream, Green and Prestige Collections. It operates primarily in North America, Europe, Latin America, Asia, Australia, Africa, the Middle East and New Zealand.

Recent Earnings Data

Last Tuesday, management posted Q3 16 financial results and they missed both the Zacks consensus earnings and revenue estimates.  Specifically, the company reported earnings of $1.58 per share, which was below Zacks consensus earnings estimate of $2.81.  On a year over year basis, the company saw U.S. Rental Car declines in Total revenues -2.0%, Income from continuing operations before income taxes -42%, Adjusted pre-tax income -30%, Adjusted corporate EBITDA -30%, Adjusted corporate EBITDA margins -470 bps, and Revenue per available car day -4%.

On the International Rental Car side, the company saw year over year losses in Total revenues -1.0%, Adjusted pre-tax income -6%, Adjusted corporate EBITDA -7%, and Revenue per available car day -2.0%.

Management’s Take

According to John Tague, President and CEO, “We are making progress in foundational aspects of our long-term business improvement plan, implementing new systems, improving customer service levels and launching new products. However, our near-term financial performance continues to be uneven.  A customary vehicle depreciation rate review near the close of the third quarter resulted in a substantial depreciation adjustment, particularly on compact and mid-sized vehicles, that together with rental volume at the low end of our expectations as well as higher net operating and administrative expenses impacted our performance.

"While we remain on pace to deliver $350 million of cost reduction in 2016, we fell short from a timing perspective on our internal stretch target for cost reduction.  Considering this and the potential for an additional depreciation rate adjustment in the fourth quarter, we are updating our 2016 outlook and taking incremental actions to reduce costs and drive revenue
.”

Price and Consensus Graph

As you can see from the graph below, the company’s stock price and future outlook has massively declined over the past few months.
 

HERTZ GLBL HLDG Price and Consensus

HERTZ GLBL HLDG Price and Consensus | HERTZ GLBL HLDG Quote

Declining Estimates

Due to the poor earnings data, earnings estimates have declined for Q4 16, Q1 17, FY 16 and FY 17 over the past 7 days; Q4 16 plunged from $0.48 to $0.00, Q1 17 fell from -$0.21 to -$0.46, FY 16 collapsed from $2.93 to $0.66, and FY 17 dropped from $4.38 to $3.22.  

Bottom Line

While management is working on their long-term business plan, with their $350 million cost reduction plan still on track, there are still significant headwinds in the near term.  The turnaround plan is not likely to bear fruit until the second half of 2017.

If you are inclined to invest in the Transportation Services sector, you would be best served by looking into Grupo Aeroportuario del Centro Norte, S.A.B (OMAB - Free Report) which currently carries a Zacks Rank #2 (Buy) rating.

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