Vehicles sit parked at the Hertz Global Holdings Inc. rental location at LaGuardia Airport (LGA) in the Queens borough of New York, U.S. (Photographer: Victor J. Blue/Bloomberg)

Hertz's Turnaround Will Take Time as Spending Rolls Into '19

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(Bloomberg) -- Hertz Global Holdings Inc. is still in the repair shop and might be there for a while.

After a year on the job, Chief Executive Officer Kathryn Marinello reduced Hertz’s first-quarter loss slightly to $1.58 a share, but the result was still about 30 cents worse than analysts’ average estimate. The shares tumbled as much as 15 percent Tuesday as rising costs for marketing and new fleet systems offset improvements at the rental counter.

“We still have work to do, reflecting the significant opportunities in front of us, as we position our business for sustainable, long-term growth,” Marinello said in a statement. While the company cited signs of progress, such as lower vehicle-depreciation costs and increased revenue and pricing per mile, she said spending on the turnaround will last at least through 2019.

Marinello’s efforts may test the patience of investors. This year, Hertz plans to spend $120 million more on new information technology, $100 million on fleet-management systems and $80 million more on marketing. “I think we will stay at the same level of spending next year,” she told analysts on the company’s earnings webcast.

The increased spending has masked some gains that Hertz has made with its rental business. Total revenue increased 7.7 percent to $2.06 billion for the quarter, while Hertz’s net loss narrowed to $202 million from $223 million a year earlier. Pricing at the rental counter increased about 3 percent.

Marinello also said that 80 percent of Hertz’s fleet cars are 2017 or 2018 models, including many popular sport utility vehicles. As a result, vehicle depreciation dropped 13 percent to $302 per vehicle, the company said in its slide presentation. Hertz is also using its fleet better, with a 79 percent utilization rate compared to 75 percent a year ago.

Since the company isn’t giving profit forecasts and hadn’t previously outlined its turnaround costs, analysts were somewhat in the dark, said Hamzah Mazari, a Macquarie Capital analyst.

“They are investing quite a bit,” Mazari said by phone before the conference call. “The Street doesn’t know how to measure the investment spending.”

©2018 Bloomberg L.P.

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