Hertz Posts 2Q Profitability Levels “Not Seen Before”

Noting profitability has reached levels not ever seen before, Hertz Global Holdings highlighted its second-quarter financial performance this week, including jumps in revenue, adjusted pre-tax income and adjusted net income.

The company’s second-quarter worldwide revenues came in at $2.1 billion, a 10.3-percent increase year-over-year.

Hertz indicated worldwide car rental revenues for the quarter increased 9.8 percent year-over-year to $1.8 billion. The company calculated revenues from worldwide equipment rental for the second quarter were $301.7 million, up 13.5 percent year-over-year.

Officials also computed second-quarter adjusted pre-tax income was $184.4 million, versus $95.8 million in the same period last year. They said income before income taxes (pre-tax income) on a GAAP basis was $94.6 million, versus a loss of $6.2 million in the second quarter of 2010.

Hertz noted corporate EBITDA for the second quarter was $362.1 million, an increase of 28.7 percent year-over-year.

Meanwhile, the company determined second-quarter adjusted net income settled at $116.6 million, versus $58.5 million in the same period of 2010. That sum resulted in adjusted diluted earnings per share for the quarter of 26 cents, compared with 14 cents for the second quarter of 2010.

Second-quarter net income attributable to Hertz Global Holdings and subsidiaries’ common stockholders or net income on a GAAP basis was $55.0 million or 12 cents per share on a diluted basis. That’s compared with a net loss of $25.1 million or 6 cents per share loss on a diluted basis for the second quarter a year ago.

Not surprisingly, Mark Frissora, the company’s chairman and chief executive officer, gave a glowing assessment of Hertz’s second-quarter performance.

“It is especially gratifying to see our global team drive Hertz’s profitability to levels we haven’t seen before,” Frissora began.

“Second quarter 2011 adjusted pre-tax income beat our 2007 pre-recession second quarter by over $27 million, on $100 million lower revenues, with pre-tax margins which were 170 bps higher than 2007, and 380 bps above last year,” Frissora explained.

“These excellent results were attributable to strong year-over-year profit improvement in U.S. rent-a-car and our equipment rental businesses despite major investments in our strategic initiatives,” he went on to say.

In other elements of its balance sheet, Hertz noted it ended the second quarter with total debt of $11.69 billion and net corporate debt of $4.0 billion, compared with total debt of $10.75 billion and net corporate debt of $3.76 billion as of March 31.

Officials explained total debt increased in the second quarter primarily due to the seasonally higher fleet levels, partly offset by the redemption of $480 million of their 8.875-percent Senior Notes in April.

Hertz also mentioned net corporate debt increased primarily due to increased borrowings under its Senior ABL Facility and a decrease in cash and cash equivalents.

The company determined net cash provided by operating activities was $521.3 million in the second quarter, compared to $731.6 million in the same period last year, representing a decrease of $210.3 million. 

Hertz indicated that decrease was primarily due to the timing of its equipment rental customer receivables and VAT receivables as a result of improvements in the operating performance of our business, as well as timing of its vendor and interest payments. The decrease was partly offset by an increase in net income before non-cash expenses.

More Details of Car Rental Performance

Hertz reported the worldwide average number of company-operated vehicles for the second quarter was 487,600, an increase of 8.7 percent over the prior year period.

The company noted that ongoing structural changes in U.S. rental car fleet management and a strong residual market helped improve net depreciation to historic levels.

On the financial-performance side, Hertz indicated worldwide car rental revenues came in at $1.8 billion for the second quarter of 2011, an increase of 9.8 percent.

Transaction days for the quarter increased 8.2 percent over the second quarter of 2010. The company’s U.S. off-airport total revenues for the second quarter increased 9.0 percent year-over-year, and transaction days increased 9.7 percent from the prior-year period.

Officials also acknowledged worldwide rental-rate revenue per transaction day for the quarter decreased 3.9 percent from the prior-year period. 

Hertz said its worldwide car rental adjusted pre-tax income for the second quarter was $242.2 million, a rise of $67.3 million from $174.9 million a year ago.

“The result was driven by increased volume, strong residual values and strong cost management performance,” officials explained.

“As a result, worldwide car rental achieved an adjusted pre-tax margin of 13.7 percent for the quarter versus 10.9 percent in the prior year period,” they added.

More Details of Equipment Rental Performance

Hertz calculated second-quarter worldwide equipment rental revenues were $301.7 million, a jump of 13.5 percent from the prior-year period.

The company’s adjusted pre-tax income for worldwide equipment rental during the second quarter was $33.4 million, an improvement of $19.0 million from $14.4 million in the prior year period.

Hertz contended the rise was primarily attributable to the effects of increased volume and pricing and cost management initiatives.

Meanwhile, the company’s worldwide equipment rental operations achieved an adjusted pre-tax margin of 11.1 percent and a corporate EBITDA margin of 37.4 percent for the quarter.

Hertz added the average acquisition cost of rental equipment operated during the second quarter increased by 2.8 percent year-over-year and net revenue earning equipment as of June 30 was $1,702.7 million, a 0.9-percent increase from March 31.

Hertz Raises Outlook

Fueled by how it performed during the second quarter, Hertz increased its full-year 2011 guidance for revenues, corporate EBITDA, adjusted pre-tax income, adjusted net income and adjusted diluted earnings per share as follows:

Hertz emphasized that the adjusted diluted number of shares outstanding is estimated to fluctuate within a range of 413 million to 450 million throughout the year.

“For example, based on 440 million adjusted diluted shares outstanding, the company’s full-year 2011 guidance for adjusted diluted earnings per share is 96 cents, using the upper end of the adjusted net income guidance range,” company officials explained.

“The company will continue to provide an estimate of forecasted adjusted diluted shares outstanding on a quarterly basis,” they added.

While noting that it has now increased full-year guidance five times in the last eight quarters, Hertz stressed the current revision reflects better than forecasted performance in the recently completed second quarter, as well as fleet and other cost efficiencies forecasted to positively impact 2011 results.

“Additionally, the company has assumed that macro-economic conditions remain unsettled in the U.S. in the second half of 2011,” the company concluded.