This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Hertz Restatement Throws 2014 Plan In Doubt

Stocks in this article: HTZCAR

NEW YORK (TheStreet) -- Hertz Global Holdings (HTZ) said on Friday it will need to restate its 2011 earnings and may have to restate its annual earnings for the past two years, as a result of errors in its accounting for depreciation of non-fleet assets, allowances for doubtful accounts in Brazil and other items. Those accounting errors could delay Hertz's spinoff of its equipment rental business and throws the company's 2014 strategy in doubt.

Read More: Hertz Revamps Capital Structure In Equipment Rental Spin

Hertz shares were tumbling nearly 10% in early Friday trading on the announced accounting errors and looming restatement.


WATCH: More market update videos on TheStreet TV | More videos from Debra Borchardt

Hertz said on May 14 it was unable to file its 10-Q with the Securities and Exchange Commission for the first quarter, citing a review of its accounting for depreciation and non-fleet expenditures. Hertz also said at that time it had identified some accounting errors that might cause the company to restate 2011 results.

On April 25, Hertz said in a filing with the SEC that Jatindar Kapur, a SVP of finance and the company's Corporate Controller, had resigned for personal reasons and not any disagreement with the company. As a result, Hertz hired Robin Kramer, a former partner at Deloitte & Touche, to replace Kapur as an become the company's Chief Accounting Officer.

Accounting Restatements

On Friday, Hertz said that its Audit Committee, in consultation with auditor PriceWaterhouseCoopers, concluded that the company's 2011 financial statements should not be relied upon and that the company will also have to correct errors in its 2012 and 2013 financial statements. However, Hertz hasn't yet decided whether it will be forced to restate its 2012 and 2013 results.

After a review, Hertz said it had decided its capitalization and timing of depreciation for certain non-fleet assets, allowances for doubtful accounts in Brazil, and other items were erroneous. The company also found errors related to allowances for noncollectable amounts on renter obligations for damaged vehicles and restoration obligations at the end of facility leases.

Versus the company's May disclosure, it latter errors that analysts took as new developments.

As such, the company will have to restate at least one-years' worth of financial results, with the prospect its last three years of financial reports may need to be restated.

Hertz also said it has discovered at least one material weakness in its internal accounting controls, another new development.

Recently appointed Chief Financial Officer Thomas C. Kennedy, the company's new Chief Accounting Officer, Robin Kramer, and another recent hire, Randy Walford, head of SOX/Compliance will work to strengthen the company's financial controls.

Equipment Rental Spin

Hertz said on Friday its accounting issues could impact the timing of its announced separation of the company's equipment rental business, however, the spin-off remains on track. "While it is possible that the efforts to resolve the various accounting issues could impact the timing of the actual separation, plans to separate the equipment rental business remain on track," Hertz said.

To continue pushing forward an equipment rental spinoff, Hertz has hired Brian MacDonald, the former CEO of Sunoco, to lead the business.

"Mr. MacDonald brings a proven record and extensive experience in strategic planning, financial and operational management, and business development across geographies. HERC has also implemented a separation hiring plan, including the recruitment of other senior leaders," Hertz said in a statement.

Previously, Hertz had said it expected the equipment rental spin-off to happen in early 2015.

Poor Guidance

The car rental giant also said on Friday its preliminary first quarter earnings are likely to be below consensus, as a result of costs to conduct an accounting review, in addition to weaker operating results. For the first quarter, car rental revenue increased about 4.5% year-over-year, however, U.S. rental car total revenue per day was down 1.6% as a result of an oversupply of fleet and a changing business mix.

Hertz also said on Friday its fleet costs are expected to show sequential improvement as the company right sizes its business and takes deliveries of lower-cost program cars. April results also indicate positive pricing for Hertz's airport rental brands due to tighter supply, Hertz said.

Still, the company indicated that second quarter pricing will continue to be impacted by a changing mix of its rental volumes off-airports, in addition to an increasing market share of its discounted Firefly brand.

International car rental revenue increased 1.7% in the first quarter, reflecting 12 new airport locations and rising Firefly revenue. For coming quarters, Hertz said its international business will be positively impacted by macroeconomic improvements in European and Asia Pacific markets. Added rental locations through its Thrifty, Firefly and Hertz-branded stores should also help the top-line, while refinancing and stronger resale channels should rein in costs.

The company's equipment rental business saw revenue increase about 2.4% in the first quarter, with North American equipment rentals rising 7.4% on a recovery in construction and industrial activity. Those figures also reflected growth off of an unusually high level of equipment rentals in the first quarter of 2013 as governments and businesses on the Eastern Seaboard cleaned up after Super-storm Sandy.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,677.90 +216.58 1.32%
S&P 500 1,950.82 +23.71 1.23%
NASDAQ 4,452.7920 +69.9450 1.60%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs