Hertz 1Q16 Earnings Call Notes

Hertz Global Holdings (HTZ) John P. Tague on Q1 2016 Results

Excess fleet capacity pressured pricing

“even though our fleet level was on plan, RPD remained under pressure as industry pricing struggled with what we believe was a base level of excess capacity that was then further exacerbated by the mild winter affecting insurance replacement demand and somewhat weaker business travel trends.”

Seeing improving trends now though

“We believe the pricing pressure we’ve experienced is temporary, as evidenced by recently improving trends as we move towards the peak season. “

Decided not to buy back shares given challenging revenue environment

“we elected not to repurchase additional shares of Hertz Global Holdings during the quarter.
While we clearly believe our stock is significantly undervalued, we concluded that given the challenging revenue environment in the U.S. industry in the first quarter, it would be prudent to take a cautious stance for now. Should recently improved pricing trends continue as we expect they will, we will next assess the cadence of our buybacks following the Hertz separation.

Spinning off equipment rental business

“. As you can see from Tom and Larry’s remarks, we are now at the long-awaited eve of separating the HERC business and moving these two companies forward. I think the progress Larry and his leadership team are making outside of the transitory noise of oil and gas is evident.”

historically it’s been difficult to differentiate brands in this business

“differentiation amongst brands is historically a struggle in this business, but there are clearly reasons to have multiple brands. So I think going forward, both in terms of customer experience and brand positioning, we’re going to continue to push Hertz up as the premium rental car brand in the market, while creating appropriate value positions for the other brands that address their own segmentation”

I think it’s too soon to call an inflection point but things are improving

“ I think we expect things to improve in the second quarter, but I think it’s too soon to call it an inflection point. I would expect to see – be more satisfied in the third, but I’m not prepared to say that’s a hockey-stick inflection point. It’s simply things improving. I do truly believe this is transitory. I think all the industry participants are suffering from the consequences of this pricing environment, and I believe this is largely an industry that’s responsible to capital returns to investors.”

Residual values have moderated not collapsed

“So when you think about what we’ve experienced over the last several months, you’ve really got the moderating of a very long bull cycle on residual values. It’s moderating. It’s clearly not a collapse. It’s a moderation. “

moderate level of concern for European tourism from the US

“ As we went through the first quarter, we really didn’t see anything. Previous events such as were experienced in Belgium had turned out in retrospect to be more moderate than we thought. But we are watching given that this is a peak-booking season for the summer as that develops. So I think there’s a moderate level of concern recently in terms of demand, particularly from the U.S. market to Europe, but nothing that we’re prepared to extrapolate or that we believe can’t be mitigated.”

It’s hard to forecast since booking cadence is very short in this industry

“I can appreciate why we’d all like to know the answer to those questions, but we’re not in a position to provide specific guidance there. One of the difficult things about revenue visibility in this industry is the extreme shortness of booking curve, which is partly a function of pricing structure and excess supply. I think it could be a much longer more indicative booking curve than it is, but for the time being most of that activity is incurring within 30 days of pickup. So, I don’t know that – booking trends I would say are positive, but the data sample is small when you go beyond 30 days.”