RESEARCH: Hertz Global Holdings 2Q17 Earnings – Analyst Snapshot

09 August 2017

On 8 August 2017, Hertz Global Holdings (HTZ) reported its 2Q17 results, which came in weaker year-over-year due to increased incremental expenses related to the company’s operational turnaround.

  • Hertz generated USD 2.22bn in revenues in 2Q17, a 2% decline YoY, driven by replacement rentals from high customer vehicle recall activity, as well as a 2% pricing decline due to a change in customer mix.
  • Adjusted corporate EBITDA declined 81% YoY to USD 35m, and the adjusted corporate EBITDA margin was 2%.
  • The company generated negative USD 566m adjusted free cash flow during 1H17. Hertz spent USD 103m on non-vehicle capex in 1H17.

 

Segment Results:

  • The US Rental Car (US RAC) segment generated revenues of USD 1.5bn in 2Q17, 4% lower YoY. US RAC generated USD (22m) adjusted corporate EBITDA in 2Q17, compared to USD 168m in the same quarter last year. RAC net vehicle depreciation per month increased 27% YoY to USD 353 per unit driven by declining residual values, accelerated vehicle disposition timing, and fleet quality and mix investments. Hertz sold 35% more vehicles YoY, and on-boarded a richer mix of model year 2017 vehicles.
  • The International Rental Car segment generated revenues of USD 543m in 2Q17, relatively unchanged YoY. Adjusted corporate EBITDA for the International segment increased to USD 63m in 2Q17 from USD 42m in 2Q16.
  • All other operations (excluding US and International RAC) saw an 11% increase in revenues in 2Q17 to USD 162m. The segment’s adjusted corporate EBITDA for the quarter was USD 17m, relatively unchanged YoY.

 

Outlook:

  • Hertz has been working on right-sizing its fleet, and in 3Q17 fleet capacity is expected to be more optimal.
  • 3Q17 is the key quarter for car rental industry and usually accounts for around 50%-60% of Hertz’s annual adjusted corporate EBITDA. July and August are expected to be stronger, while September is usually seasonally weaker. The company believes it will see significant improvement in its operating results, as well as generate positive free cash flow, during 2H17.

 

Liquidity and Debt:

  • Hertz had USD 1.14bn of unrestricted cash at 30 June 2017.
  • The company had approximately USD 1.1bn of restricted cash, including USD 834m of residual proceeds from the second lien notes issuance in June 2017, USD 250m of which Hertz used to repay outstanding 4.25% senior notes due 2018 and terminate USD 150m of commitments under the senior revolver. Hertz indicated that it intends to use the remaining proceeds to repay corporate debt and will not use it for ABS structure. The company is considering several repayment options, one of which is redemption of USD 450m outstanding under the 2019 notes.

 

Covenants:

  • At 30 June 2017, Hertz was in compliance with its consolidated first lien net leverage ratio maintenance covenant under the revolver, as the ratio was 2.56x.
  • The company indicated that it had a USD 79m LTM covenant EBITDA cushion under the 3.25x test. 

 

 

 

 

 

CLICK HERE for 2Q17 earnings press release.
CLICK HERE for 2Q17 earnings presentation.
CLICK HERE for 2Q17 10-Q.