Hertz Global (HTZ) Reports Q4 Revenue of $2.55 Billion

Hertz Global Holdings, Inc. (NYSE: HTZ) today released 2014 fourth quarter operating results and updated the status of its fleet strategy and cost reduction initiatives.

John P. Tague, President and Chief Executive Officer of Hertz, said, "The necessity to improve performance at Hertz is clear, as is the opportunity. We are committed to achieving the Company's full potential, which I believe is significant. However, in order to realize that potential, we need to strengthen our foundation and build on our capabilities as an organization. To that end, we have made key appointments to our leadership team to complement and expand existing expertise. We also are working to remediate the execution and system issues that are impeding the current operating performance. Additionally, we are aggressively addressing areas of inefficiency and waste within the organization. Early initiatives have enabled us to increase our cost reduction commitment from $100 million to a $200 million run rate by year-end 2015, and we continue to pursue opportunities to deliver even greater savings. While the full benefit of these and other actions will take time, I am confident that Hertz is on the right path to deliver improved performance and value creation."

As part of the actions underway to enhance the competitiveness of the Company's revenue quality and drive improved profitability in the car rental business, Hertz also is undertaking a comprehensive assessment of the Company's revenue execution capabilities. This effort includes a full review of the decision support systems, data integrity, organizational talent and leadership, training programs and performance management.

In addition, the Company has begun taking a more disciplined approach to fleet capacity by selectively pursuing more profitable demand through a variety of means, including reduced participation in opaque channels and higher minimum-rate thresholds. This action has allowed the Company to accelerate used car sales, resulting in more moderate fleet growth in 2015 as compared to its preliminary plan. Consequently, the Company now expects to finalize the fleet transformation that was announced last November, about one month ahead of the original mid-year target.

Concurrent with these priorities, the Company is committed to completing work already in the pipeline, including the restatement of previously issued financial statements and remediation of control deficiencies, the integration of Dollar Thrifty, the separation of the equipment rental business and the headquarter relocation.

Financial Statement RestatementAs previously announced, the previously issued financial statements must be restated and should no longer be relied upon. The impact on GAAP pre-tax income of cumulative errors identified to date, on an unaudited basis, is approximately $28 million, $74 million and $51 million for 2013, 2012 and 2011, respectively, inclusive of $9 million in 2012 and $19 million in 2011, previously disclosed and reflected in the financials included in the Company's 2013 10-K/A. The review and investigation of its financial records are ongoing, and numbers are therefore subject to change. The financial information set forth in this release is subject to change based on the completion of the investigation and review, and such changes may be significant. In addition, Hertz continues to expect that it will not be able to file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified.

Hertz Equipment Rental Corporation SeparationHertz remains committed to the separation of its equipment rental business and is continuing to advance those plans, although the timing of the actual separation will not occur until after the Company has completed its accounting review, filed its financial statements with the SEC, and has completed the audited carve out financial statements for the equipment rental business and requisite SEC filing activities for the separation.

2014 Fourth Quarter Operating HighlightsFor the fourth quarter and the fiscal year ended December 31, 2014, the Company is providing the following operating highlights:

*Unaudited Revenue and Selected Operating Data by Segment

U.S. Car RentalTotal U.S. car rental revenue was $1.5 billion in the 2014 fourth quarter, in line with the 2013 fourth quarter. 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. In the 2014 fourth quarter, transaction days increased 2% year over year. U.S. car rental fleet efficiency was 75% in the 2014 fourth quarter, a 100 basis point decrease from last year as the Company moved cars out of the rental rotation in preparation for sale.

U.S. car rental total revenue per day (RPD) was down 2% compared with the 2013 fourth quarter, primarily driven by a higher mix of off airport business. Mix-adjusted total RPD for the quarter was flat compared with the prior year.

For the full year 2014, U.S. car rental monthly depreciation per vehicle was expected to be approximately $280 - $300 per unit. The Company expects that actual depreciation expense will be within the range cited.

At December 31, 2014, non-program cars represented 79% of the Company's U.S. car rental fleet. For 2015, the Company continues to expect non-program cars to represent approximately 70% of the U.S. operating fleet.

As part of its fleet upgrade, Hertz previously stated that it would purchase approximately 350,000 model year 2015 vehicles in the U.S. Roughly in line with its target, 21% of the new fleet was delivered in the 2014 fourth quarter. Good progress also was made on U.S. fleet dispositions, prioritizing sales of the highest mileage vehicles. As a result, the Company has improved its mix of low-mileage vehicles (under 30,000 miles) by almost 20 percentage points since the beginning of the fourth quarter. With continued increases in the mix of lower mileage vehicles as a result of used vehicle sales and the acquisition of a higher percentage of short-term program cars, the Company expects that average vehicle mileage will reach desired levels in the second half of 2015.

International Car RentalInternational car rental segment revenue was $515 million, down 5% in the fourth quarter, but up 2% when adjusting for negative currency effects, compared to the 2013 fourth quarter. Europe revenue, which represents 68% of International revenue, was flat as compared to the prior-year period, excluding currency effects. Europe transaction days increased 2%. Total RPD declined 1% in the quarter, excluding currency effects, due to the incremental volume growth in the value segment as the Company continues to expand the Thrifty and Firefly brands.

In the Asia Pacific market, Australia and New Zealand reported strong year-over-year revenue growth in the fourth quarter before currency effects. Both countries delivered total RPD and transaction days growth in the quarter.

Worldwide Equipment RentalBrian MacDonald, President and Chief Executive Officer of Hertz Equipment Rental Corporation, said, "In the second half of 2014, we established business priorities that focused on rightsizing the fleet and increasing the top line by improving sales capacity. By year end, U.S. revenue growth had rebounded, trending slightly above industry levels, and outpaced fleet growth. Unfortunately, at the same time weakening demand in Canada and Europe persisted."

Worldwide equipment rental segment revenue of $413 million increased 3% in the 2014 fourth quarter, or 5% excluding currency effects, compared with the prior year, impacted in part by a lower level of new equipment and parts sales. Rental and rental related revenue increased 5% in the 2014 fourth quarter as compared to the prior-year quarter, or 7% excluding currency effects. Worldwide volume increased 7% in the 2014 fourth quarter. Equipment rental pricing was 1% higher than in the 2013 fourth quarter. Time utilization was 67%, up 100 basis points year over year. Dollar utilization increased 100 basis points to 38%.

In North America in the fourth quarter, total equipment rental revenue was $387 million, 4% higher year-over-year, or 6% higher excluding currency effects. Of total North American equipment rental revenue, U.S. represented 80% with Canada making up the balance. North America rental and rental related revenue increased 6%, or 8% excluding currency effects. Volume in North America increased 7% in the 2014 fourth quarter. Equipment rental pricing was 2% higher compared with the 2013 fourth quarter. North American time utilization was 68%, up 200 basis points year over year. Dollar utilization increased 100 basis points to 39% in the fourth quarter.

Of full year 2014 total North America equipment rental revenue, oil and gas represented roughly 25%. Of that, approximately 15% was generated from upstream exploration and production activities, where major oil producers are beginning to reduce spending.

Mr. MacDonald said, "While we see risk to oil and gas this year, we are managing through the volatility and are moderating our revenue growth forecasts accordingly. We are aggressively working to offset weakness by improving productivity, redeploying equipment, and pursuing growth in the non-residential construction and manufacturing sectors, where low fuel prices are generating opportunities. Other industrial verticals such as power and chemical processing are also areas for growth."

At the same time, the Company continues to build the scale and competency of its sales force with a focus on winning new accounts and diversifying its customer base. 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.

All Other OperationsThe Company has grouped information about Donlen fleet leasing and management services together with its other business activities under "all other operations." All other operations fourth quarter segment revenue increased 6% over the same period last year. The Company's Donlen leasing operation's revenue was up 7% over last year driven by strong lease revenue and new account wins.

2014 Corporate EBITDAAlthough the Company is still working to determine how the accounting issues will impact its profitability for 2014, the Company expects its consolidated Corporate EBITDA will likely be at the lower end of the $1.30 billion to $1.45 billion range it gave on November 14, 2014.

Further, as the company previously stated, the 2014 preliminary results do not reflect the full potential of the business, and 2015 will represent a transitional year for the Company.

*Selected Unaudited Financial Information

2015 Foreign Currency EffectsThe Company does not hedge its operating results against currency movements as they are primarily translational in nature. At current foreign currency forward rates, the Company expects 2015 revenue growth to be negatively impacted by approximately 3% versus 2014. Additionally, each 1% point change in foreign currency movements is estimated to impact 2015 adjusted pre-tax income by approximately $3 million.

(Street sees Q4 revenue of $2.52 billion).

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