Highfields Capital Lowers Its Stake in Hertz Global Holdings



Highfields Capital’s position in Hertz Global Holdings

Highfields Capital lowered its position in Hertz Global Holdings (HTZ) as per its recent 13F filing. The fund reduced the number of shares of Hertz from 13,982,527 in 3Q14 to 9,184,231 shares in 4Q14, representing a 34% drop.

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About Hertz Global Holdings

Hertz Global Holdings operates its car rental business through the following brands:

  • Hertz
  • Dollar
  • Thrifty
  • Firefly

Hertz 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).

Accounting issues

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.” Hertz 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.

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New fleet strategy and cost reduction

Hertz 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.

Hertz 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 its car rental business. This separation won’t occur until after Hertz completes its accounting review.

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Unaudited 4Q14 and full-year 2014 results

For the fourth quarter of 2014, Hertz’s revenues totaled $2.5 billion. US car rental revenue was $1.5 billion, which was in line with 4Q13. Hertz 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 websites.”

Hertz’s 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, which was up 5% on a 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.”

Hertz has a price-to-earnings (or PE) ratio of 29.1x while peer United Rentals (URI) trades at a lower PE ratio of 17.3x.

You can gain exposure to Hertz by investing in the iShares Russell 1000 Growth ETF (IWF) and the Vanguard Mid-Cap Value ETF (VOE). Hertz accounts for 0.0893% and about 0.60% of IWF and VOE, respectively.

In the next part of this series we’ll discuss Highfields Capital’s lowered position in Dollar Tree (DLTR).


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