Hertz in Midst of ‘Critical Transformation’

In what has become somewhat of a trend this earnings season, Hertz is in the “midst of a critical transformation for our company,” and its priority is “getting back to the basics, operational excellence and unmatched customer service,” Hertz CEO Gil West said during a Thursday earnings call. 

The comments come one day after Lufthansa Group announced a “turnaround program” for its namesake carrier, two days after JetBlue unveiled its “refocused strategy,” and a week after Southwest Airlines promised “an ongoing strategic transformation” during their respective earnings calls.

West had previously noted during its April earnings call that the company had “a lot of work to do.” He detailed what that entails further on Thursday during Hertz’s second-quarter call. 

The company’s strategy “has three building blocks—our fleet, our revenue and cost management,” he said. West added that to accomplish its strategic priorities, the company needed to strengthen its balance sheet and “ensure a more stable liquidity position,” and to build a team and organizational design “that ensures we can execute our strategy. … We’ve quickly done both,” referring to the several executives recently named to the organization, including Scott Haralson as its new CFO and Sandeep Dube as its new chief commercial officer, among other additions.

Hertz is in the process of accelerating its fleet rotation, “enabling us to lower our depreciation and maintenance cost, improve our customer experience and increase pricing power,” West said. As for electric vehicles, they currently make up less than 10 percent of Hertz’s fleet, “but I do believe EVs are key for the future. … We’ve gone through and rationalized our EV fleet, and we’re allocating it across our businesses to maximize, of course, [revenue per day], but also get the right product market fit to do that with our customers.”

For revenue, the company is “focused on driving more quality revenue through our direct booking channels,” Dube said, with new optimization tools and structural improvements to the websites. Another component is improved customer service, “enabled by a self-service digital platform, where appropriate. This means that customers, both loyalty and non-loyalty, can skip the counter and go directly to their vehicles,” Dube added. Third, Hertz is beginning to leverage “smarter dynamic pricing tools and new ways of merchandizing the products,” Dube said.

Haralson said Hertz was exiting high-depreciation-cost vehicles and bringing in ones with lower such costs more quickly, and the benefit of the fleet rotation will “push through a little more than $1 billion of non-cash depreciation through the P&L from Q3 of this year through probably the end of 2025,” he said. 

Haralson didn’t give many details on changes for the cost management side other than to say Hertz would focus on direct operating expenses and selling, general and administrative expenses. “Becoming more efficient and reducing our operating cost is an important component of our transformation,” he said. “We’ve made some good progress so far, but overall this is more than just managing initiatives, it’s managing the entire cost structure with an efficiency mindset. We have some wood to chop here, but we made good progress quarter over quarter.”

Hertz Q2 Metrics

Hertz reported second-quarter revenue of nearly $2.4 billion, down about 3 percent year over year. It had a net loss of $865 million compared with a net profit of $139 million in Q2 2023. The company had on average about 546,200 rentable vehicles during the quarter, up 2.3 percent from Q2 2023. Revenue per day was down 3 percent year over year to $59.65.

The Americas segment revenue for the quarter was more than $1.9 billion, down about 4 percent from a year ago. The number of average rentable vehicles increased 2 percent year over year to nearly 439,300. Revenue per day was down 3 percent to $59.94.

The international segment revenue was $425 million, a slight increase from the $422 million reported in Q2 2023. The average number of rentable vehicles was nearly 107,000, up 5 percent from a year prior. Revenue per day was down 2 percent from a year prior to $58.38.

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