Eminence Capital and Hertz Global Holdings
During the fourth quarter of 2014, Eminence Capital increased its stake in Hertz Global Holdings (HTZ). The fund held 4,482,363 shares of HTZ, which accounted for 1.62% of the fund’s 4Q14 portfolio. HTZ had made up 0.20% of the fund’s 3Q14 portfolio with 539,217 shares.
Eminence Capital also initiated a position in HTZ’s peer Avis Budget Group (CAR) in 4Q14.
About Hertz Global Holdings
Hertz Global Holdings operates its car rental business through the following brands:
HTZ has more than 10,800 corporate and licensee locations in 145 countries throughout North America, Europe, Latin America, Asia, Australasia, Africa, and the Middle East. The company also provides car rental services to more than 3,000 airport locations around the world.
Hertz owns Donlen Corporation—the vehicle leasing and fleet management leader—and Hertz Equipment Rental Corporation (or HERC).
In 2014, Hertz said that it would be restating three years of financials to fix about $46.3 million in accounting errors. The company has added to its leadership in order to “complement and expand existing expertise.” HTZ is also working on its inefficiencies. The company estimated that the planned restatements would cut pretax income by $28 million, $74 million, and $51 million for 2013, 2012, and 2011, respectively.
New fleet strategy and cost reduction
HTZ has adopted a new strategy for purchasing vehicles to improve customer experience and the company’s competitive position. The company is planning to buy about 350,000 model year 2015 vehicles in the US. Hertz received 21% of the new fleet in 4Q14.
HTZ expects to complete its fleet transformation one month ahead of its original mid-year schedule. The company’s early initiatives allowed it to increase its cost-saving commitment to $200 million from $100 million.
Separation of equipment rental business
Hertz is committed to separating HERC from HTZ’s car rental business. This separation won’t occur until after HTZ completes its accounting review.
Unaudited 4Q14 and full year 2014 results
For the fourth quarter of 2014, HTZ’s revenues totaled $2.5 billion. US car rental revenue was $1.5 billion, which was in line with 4Q13. HTZ said that “a substantial increase in contracted bookings due to a large new account win was partially offset by the Company’s decision to strategically reduce its consumer bookings from opaque travel web sites.” International car revenue was down 5% year-over-year (or YoY) to $515 million. On a constant currency basis, international car revenue was up 2%.
Equipment rental revenue increased 3% YoY to $413 million. It was up 5% on constant currency basis. In its earnings release, Hertz said, “Economists are projecting 3% GDP growth in North America in 2015; rental equipment experts are estimating 8% industry growth; and HERC has only about a 4% share of the North American market today. As a result, the Company still expects there will be a significant amount of industry opportunities to capitalize on, despite the energy risk.”
In the next part of this series, we’ll discuss Eminence Capital’s position change in PVH Corporation (PVH).