Hertz Global Holdings Inc. has released its 2014 fourth quarter operating results and updated the status of its fleet strategy and cost reduction initiatives.
For fourth quarter 2014, total U.S. car rental revenue was $1.5 billion — in line with the same quarter in 2013, according to Hertz. For transaction days, Hertz saw a 2% increase year-over-year. Due to a large new account win, there was an increase in contracted bookings, but it was partially offset by Hertz’s decision to strategically reduce its consumer bookings from travel websites, says the company.
When it comes to revenue per day (RPD), Hertz’s U.S. car rental RPD was down 2% compared to fourth quarter 2013, primarily driven by a higher mix of off-airport business, says the company.
For the full year 2014, Hertz’s U.S. car rental monthly depreciation per vehicle was expected to be about $280-300 per unit. According to the company, it expects the actual depreciation expense will be within that range.
"The necessity to improve performance at Hertz is clear, as is the opportunity,” said John P. Tague, president and chief executive officer of Hertz. “We are committed to achieving the company's full potential, which I believe is significant. However, in order to realize that potential, we need to strengthen our foundation and build on our capabilities as an organization. To that end, we have made key appointments to our leadership team to complement and expand existing expertise. We also are working to remediate the execution and system issues that are impeding the current operating performance.”
As part of the actions underway to enhance the competitiveness of the Hertz’s revenue quality and drive improved profitability in the car rental business, it is also undertaking a comprehensive assessment of its revenue execution capabilities. This effort includes a full review of the decision support systems, data integrity, organizational talent and leadership, training programs and performance management, according to Hertz.
Hertz has started taking a disciplined approach to fleet capacity by selectively pursuing more profitable demand through a variety of means, including reduced participation in opaque channels and higher minimum-rate thresholds. This has allowed the company to accelerate used car sales, resulting in more moderate fleet growth in 2015 as compared to its preliminary plan, says Hertz. Consequently, Hertz now expects to finalize the fleet transformation that was announced last November, about one month ahead of the original mid-year target.
As part of its fleet upgrade, Hertz had previously said it would purchase approximately 350,000 model year 2015 vehicles in the U.S. According to Hertz, 21% of its new fleet was delivered in the fourth quarter. As a result, Hertz has improved its mix of low-mileage vehicles (under 30,000 miles) by almost 20 percentage points since the beginning of the fourth quarter 2014.
Additionally, Hertz is committed to completing assignments, including the restatement of previously issued financial statements. According to Hertz, the impact on GAAP pre-tax income of cumulative errors identified to date, on an unaudited basis, is approximately $28 million, $74 million and $51 million for 2013, 2012 and 2011, respectively — inclusive of $9 million in 2012 and $19 million in 2011, previously disclosed and reflected in the financials included in Hertz's 2013 10-K/A.
The review and investigation of Hertz’s financial records are ongoing, and numbers are therefore subject to change. Hertz continues to expect that it won’t be able to file updated financial statements before mid-2015, says the company.
“We are aggressively addressing areas of inefficiency and waste within the organization,” added Tague. “Early initiatives have enabled us to increase our cost reduction commitment from $100 million to a $200 million run rate by year-end 2015, and we continue to pursue opportunities to deliver even greater savings. While the full benefit of these and other actions will take time, I am confident that Hertz is on the right path to deliver improved performance and value creation."