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Hertz Looks to Put Troubles Behind

This year has been one of turmoil and change for the Hertz Corp., as it parted ways with its CEO and has yet to file a financial report in 2014.

Chris Brown
Chris BrownAssociate Publisher
Read Chris's Posts
November 17, 2014
Hertz Looks to Put Troubles Behind

Intended to house at least 700 employees, the new Hertz Corp. headquarters in Estero, Fla., is set to be complete in 2015. Photo courtesy of Hertz Corp.

4 min to read


Intended to house at least 700 employees, the new Hertz Corp. headquarters in Estero, Fla., is set to be complete in 2015. Photo courtesy of Hertz Corp.

This year may well go down as the most tumultuous in Hertz’s 96-year history. Here’s a recap and look to Hertz’s road ahead.

Accounting Practices Questioned


In June, an audit revealed that the company’s financial statements for 2011 could no longer be used and needed to be restated. In addition, Hertz reported it had to fix its 2012 and 2013 financial statements to reflect these errors.

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Those errors refer to “charges for certain non-fleet assets, allowances for doubtful accounts in Brazil and other items,” Hertz said. Auditors then discovered additional errors related to “allowances for uncollectible amounts with respect to renter obligations for damaged vehicles and restoration obligations at the end of facility leases.”

In March, the Hertz board of directors approved plans to spin off its HERC (Hertz Equipment Rental Corp.) division into a stand-alone publicly traded company. With Hertz’s accounting restatements, Hertz may have to delay the separation beyond the first quarter of 2015, the company said.

On Aug. 19, Hertz said it expected its performance to be “well below the low end” of its 2014 guidance, partly due to the associated costs related to the accounting review.

As of Oct. 21, Hertz had yet to file a quarterly report for 2014.

Personnel Shake-ups


On Sept. 8, Hertz announced that Mark Frissora was stepping down as CEO and chairman. Brian P. MacDonald, president and CEO of Hertz Equipment Rental Corp., was appointed interim CEO during the search for a new permanent CEO.

A few weeks before this announcement, CNBC’s Jim Cramer referred to Frissora as having “lost all credibility on Wall Street” for “snatching defeat out of the jaws of victory.” According to Cramer, Frissora had “missed every opportunity to increase the value of Hertz.”

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Cramer wasn’t alone. Activist investor Carl C. Icahn — who owns 8.48% of Hertz’s outstanding shares, along with Fir Tree Partners, with a 3% stake in the company — put pressure on Hertz for Frissora’s resignation.

But while Cramer and other analysts predicted that Frissora’s departure would result in a healthy stock bump, on the contrary, it dipped to its lowest point in 18 months.

Working with Icahn, Hertz agreed to appoint his three nominees to the board, replacing three board members who retired.

Frissora’s departure was an exclamation point on a series of personnel changes that began with Elyse Douglas, former senior executive vice president and CFO, stepping down in September 2013. Thomas C. Kennedy was hired away from Hilton Worldwide to take Douglas’ place.

On Aug. 18, Hertz accepted the resignation of Scott Sider, who served as group president of Rent A Car Americas. Sider started at Hertz as a college intern in 1982.

 Moving Forward


The financial markets now wait for Hertz to restate and revise its financial results. How will the market react? A recent research paper by the Social Science Research Network asserts that in these cases “accounting problems play a unique role in signaling the seriousness of the delay.”

On the other hand, Hertz is still following its original announcement to restate 2011 earnings and merely revise earnings from 2012 and 2013. If problems of a greater magnitude had been found, those revisions would have turned into restatements, which haven’t happened.

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Are Hertz’s problems fixable?

“You have a company that completed a massive acquisition that it was chasing for close to three years,” says John Healy, a research analyst with Northcoast Research Partners. “There was probably a bit of fatigue that impacted decision making and operations. And then they decided not to slow the boat down, but speed it up.”

Healy references the decision to spin off HERC, the move of the company headquarters to Florida, Hertz’s retail remarketing initiative and the implementation of its enterprise resource planning (ERP) system — all put in motion within a year. “The company tried to do too much, too fast and broke down in the process,” Healy says.

Healy believes Hertz can right its ship. “Success in this industry is shared, not won by itself,” he says. “Avis is seeing good results, and I imagine Enterprise is seeing them too. Hertz issues are temporary and fixable, but it may take some time.”



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