Hertz Faces Bigger-Than-Expected Loss as Turnaround Costs Rise

Hertz Global Holdings Inc.’s
return to the red in the fourth quarter after a

period of profitability signals it still has work to do to pull off its ambitious turnaround plan.

The rental-car company’s adjusted loss of 77 cents per share was worse than the 62 cents analysts had been expecting. Chief Executive Officer Kathryn Marinello said Hertz incurred higher expenses as it upgraded technology, spent more on marketing and continued to overhaul its vehicle fleet to include more of the SUVs that American drivers want.

“If you look at the structural underpinnings of this company, there is no reason why we can’t be competitive,” she told analysts on a conference call Wednesday. “Everything we’re doing puts us back on track.”

Icahn Pressure

Marinello’s efforts are being closely watched by Hertz’s largest shareholder Carl Icahn, who owns 35 percent and put her in the job a year ago with a mandate to turn things around. She’s been working to transform Hertz by selling off lower-value cars and trying to get better prices at the rental counter. The efforts appeared to begin paying off, with Hertz reporting its first quarterly profit in a year in the third quarter before the fourth-quarter reversal.

Total revenue in the quarter rose 4 percent to $2.1 billion, but pricing at the rental counter fell 1 percent in the U.S. Hertz said its depreciation costs on U.S. vehicles improved 6 percent, a sign that the new models are holding their values better. That should help the company get better resale prices when it sells cars later on.

Getting Impatient

Hertz and rival Avis Budget Group Inc. have struggled over the past year amid slumping used-vehicle values and weak car-rental rates. The process of shrinking the size of their fleets to better match supply with demand has undermined profitability, and both companies remain threatened by the rise of car-sharing and ride-hailing businesses such as Uber Technologies Inc.

Since Avis reported

improved profits
last week, Hertz shareholders may start to get impatient with results, said Joel Levington, an analyst with Bloomberg Intelligence.

“Opaque promises of a better tomorrow aren’t likely going to be comforting to stakeholders after Avis provided very clear guidance,” Levington said in an email. “It continues to raise concerns about the company’s ability to manage and monitor its business effectively.”

Hertz shares fell as much as 15 percent in New York Wednesday to the lowest intraday level since August. The stock is down about 21 percent this year.

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