Hertz Reports Record Third Quarter Income

Hertz Global Holdings Inc. reported on Oct. 31 third quarter 2012 worldwide revenues of $2.5 billion, an increase of 3.4% year-over-year (a 6.4% increase excluding the effects of foreign currency, primarily in Europe).

For the third quarter 2012, ending Sept. 30, adjusted net income was a record $280.3 million, versus $223.2 million in the same period of 2011.

Total debt increased only marginally. Hertz Global Holdings ended the third quarter of 2012 with total debt of $12.7 billion and net corporate debt of $4.3 billion, compared with total debt of $12.5 billion and net corporate debt of $4.4 billion as of Sept. 30, 2011.

Car Rental Revenues

Worldwide car rental revenues were a record $2.15 billion for the third quarter of 2012, an increase of 2.1% (a 5.3% increase excluding the effects of foreign currency) from the prior-year period. According to Mark P. Frissora, Hertz chairman and CEO, on the company’s conference call today, total U.S. revenue was up 3.5% year-over-year “as volume growth was partially offset by pricing pressure.”

Worldwide car rental adjusted pre-tax income for the third quarter of 2012 was a record $428.7 million, an increase of $53.4 million from the prior-year period. The result was driven primarily by increased volume and lower net depreciation per vehicle, partially offset by a decrease in RPD, according to Hertz. As a result, worldwide car rental achieved a record adjusted pre-tax margin of 19.9% for the quarter, versus 17.8% in the prior year period.

Total U.S. rental car adjusted pretax income was up about 25% in the quarter, according to Frissora on the call.

Hertz achieved record transaction days for the quarter, which increased 3.4% over the third quarter of 2011 [6.1% U.S.; (1.8)% International].

U.S. off-airport total revenues for the third quarter increased 4.1% year-over-year, and transaction days increased 6.3% from the prior-year period.

Worldwide rental rate revenue per transaction day ("RPD") for the quarter decreased 2.6% [(2.8)% U.S.; (2.0)% International] from the prior year period. RPD continues to be impacted by the shift in the mix between airport and off-airport rentals. When adjusted for mix, third quarter U.S. RPD decreased only 2.1%.

Hertz noted that it managed fleets tighter in the third quarter due to the negative pricing environment. While volume growth was tempered as a result, U.S. fleet efficiency reached an all-time high of 82.8%.

Growth in off-airport rentals, and specifically growth in replacement rentals, which have longer rental lengths, had a negative impact on RPD, the company reported. However, it said that the off-airport's profit contribution is growing significantly. There is continued pressure on commercial pricing as well as in the deep value segment, according to Hertz.

In Europe, improved pricing in commercial rentals is being more than offset by negative pricing for leisure rentals, where demand is softest. “The European market continues to fall short of our expectations in terms of recovery timing,” Frissora said on the call. “However, our rental car performance is relatively stable.”

The worldwide average number of company-operated cars for the third quarter of 2012 was 703,200, an increase of 5.3% over the prior-year period, and a 2.2% increase year over year, excluding the effects of the Donlen acquisition.

During the conference call, Frissora said that Hertz On Demand worldwide membership is now more than 160,000 people, with revenues up globally by more than 70%, which was led by an 80% transaction growth in the U.S.

Outlook

Hertz Global Holdings reaffirms its full-year 2012 revenues, corporate EBITDA, adjusted pre-tax income, adjusted net income and adjusted diluted earnings per share guidance provided on May 2, 2012.

The company said it expects to generate worldwide revenues in the range of $8.9 billion to $9.0 billion and adjusted net income in the range of $570 million to $620 million.

Dollar Thrifty Merger

On the call, Frissora reminded listeners of its latest announcement giving the Federal Trade Commission (FTC) until Nov. 16 to review the case. While the tender offer for Dollar Thrifty Automotive Group is set to expire on Nov. 5, Frissora said if the FTC cannot review the case by then, the company will extend the offer expiration date.

“Hertz and Dollar Thrifty will continue to work closely with the FTC to address matters raised by the commissioners and the staff, and we are communicating with them on a daily basis,” Frissora said. “Rest assured that we are working very hard on this transaction. However, we can't give you any guarantees as to what actions the FTC may take in connection with proposed acquisition or when the FTC may act.”

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