Hertz Global Holdings, Inc. Q1 2010 Earnings Call Transcript

Hertz Global Holdings, Inc. Q1 2010 Earnings Call Transcript
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Hertz Global Holdings, Inc. (HTZ)

Q1 2010 Earnings Call

April 26, 2010 10:00 am ET

Executives

Leslie Hunziker – Investor Relations

Mark P. Frissora – Chairman and Chief Executive Officer

Elyse Douglas –Chief Financial Officer

Gerald A. Plescia – Executive Vice President and President of Hertz Equipment Rental

Scott Sider - Executive Vice President and President of Vehicle Rental and Leasing, The Americas

Jeffrey Zimmerman - Senior Vice President, General Counsel & Secretary

Analysts

Brian Johnson - Barclays Capital

Himanshu Patel - JPMorgan

Emily Shanks – Barclays Capital

Richard Kwas - Wells Fargo Securities

Christopher Agnew - MKM Partners LLC

John Healy – Northcoast Research

Sachin Shah - Capstone Global Markets

JJ Berney - Citadel Global Equities

Michael Millman - Millman Research

Bob McAdoo - Avondale Partners

Jordan Hymowitz – Philadelphia Financial

Presentation

Operator

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Ladies and gentlemen, thank you for standing by and welcome to Hertz Global Holdings first quarter 2010 earnings call. The company has asked me to remind you that certain statements made on this call contain forward-looking statements. Within the meaning of the Private Securities Litigation Reform Act of 1995, forward-looking statements are not guarantees of their performance and by their nature are subject to inherent uncertainties. Actual results may differ materially.

Any forward-looking information relayed on this call speaks only as of this date and the company undertakes no obligation to update that information to reflect changed circumstances. Additional information concerning these statements is contained in the company's press release regarding its first quarter results issued this morning and in the risk factors and forward-looking statement section of the company's 2009 Form 10-K. This filing is available from the SEC, the Hertz website, or the company's Investor Relations Department.

I would like to remind you that today's call is being recorded by the company and is also being made available for replay starting Wednesday at 9:00 am Eastern, and running through May 10, 2010. I would now like to turn the call over to our host Leslie Hunziker. Please go ahead.

L

eslie Hunziker

Good morning and welcome to Hertz Global Holdings 2010 first quarter conference call. You should all have our press release and associated financial information. We also provided slides to accompany our conference call, which can be accessed on our website at www.hertz.com\investorrelations.

In a minute I'll turn the call over to Mark Frissora, Hertz’s Chairman and CEO. Also speaking today is Elyse Douglas, our Chief Financial Officer. In addition we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing, The Americas; Michel Taride, Executive Vice President and President, Hertz International and Gerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll be on hand for the Q&A session.

Today we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrated using these non-GAAP metrics.

Our call today focuses on Hertz Global Holdings, Inc., the publically traded company. Results for the Hertz Corporation differ only slightly, as explained in our press release. Now I'll turn the call over to Mark Frissora.

Mark P. Frissora

Thanks Leslie and good morning everyone. Thanks for joining us. I’m sure all of you have seen our announcement this morning on our acquisition of Dollar Thrifty. I'll talk more about it later in the call. But let me say briefly that this is a very important and strategic transaction for us and that it fills a gap in our product portfolio with a strong mid-tier value offering.

Having Dollar Thrifty under the Hertz family of brands, product and services will allow us to expand our global presence, boost our market position and realize the financial benefits from substantial synergies between the two companies.

Now let's take a quick look at the latest quarter on Slide 6 and then we'll get into the details of the acquisitions later on in the presentation today. 2010 is off to a very promising start. In the US, rental car volumes are exceeding our expectations with strong advanced bookings through the peak summer season. Similarly, Europe's reservations for the summer months are robust as well.

And while Europe rental got off to a slow start, today the rebound we're seeing is well ahead of where we thought it would be at this point in the year. So the momentum in rental car across the globe is very encouraging. We're cautiously optimistic about the return of demand for rental equipment.

In the first quarter we benefited from the industrial market's early recovery in select regions of the world. In terms of worldwide volume, from trough to peak between this January and April, units on rent are up 14.5% and utilization has increased over the same period by 790 basis points. This brought a bit of good news to the challenging market conditions for equipment rental overall.

Seasonal weakness and a tough year-over-year comp were hurdles we were expecting. But the year-over-year revenue increase in our industrial business exceeded our expectations. The only concern we have going forward is whether pricing in the equipment rental market will improve at the same rate as volume.

In addition to the tough conditions in the equipment rental market in the first quarter, we had two unusual hurdles to overcome. The first was the severe winter weather that affected all of our businesses. We incurred loss revenue in the US and in Europe due to rental cancellations resulting from the severe and erratic storms.

We also had incremental costs related to snow removal and rental car utilization was impacted by the volume and eruption as well as redistribution due to an increase in one-way rentals and reduced car sales when some US auctions in the Northeast were negatively impacted by the harsh winter weather.

In February we experienced a second disruption when Toyota issued a recall on its most popular vehicles. Ultimately, the recall turned out to be only a two week event and we've already been fully compensated for the lost sales and their associated costs. However, utilization in the US suffered because in the end we had to ground nearly 13% of our fleet while waiting for details on the specifications of the recall and the resulting repair.

When we first learned about the recall, we had no idea how long our fleet would be out of service. So we immediately stopped [de-fleeting] older cars, and to a smaller extent took early delivery of future orders for some of our other OEM suppliers. This put us about a month behind plan with fleet sales in the quarter. The good news is that here, at the end of April right now, we have the fleet right sized to demand which puts us in great shape heading into the peak summer months.

Overall, I'm really pleased with our financial performance at the beginning of the year. When you exclude the impact of weather conditions and the supplier recall, even our utilization was in line. While I'm on the topic of fleet efficiency, let me take this opportunity on Slide 7 to dispel any notion you may have that we are overfleeting based on inflated demand expectations, and therefore jeopardizing pricing for the sake of share. That's just nonsense.

In the US we have improved fleet efficiencies since 2007. In '07 it was 77.82%, in '08 it was 77.7%, in '09 it was 79.63%. And while the first quarter of 2010 was impacted by unusual situations outside of our control, efficiency so far for April is slightly ahead of last year's level in the similar period. You just can't deliver high utilization if you're overfleeted.

It's important to remember that Hertz is a highly diversified growth company, executing a much different model than our competitors. With that in mind, you understand that we are fleeting appropriately to capture the recovering base demand, including the strong return of the corporate traveler as well as our own expansion into the leisure economy market where we have 25 new Advantage locations under a year old with plans to open an additional 25 locations this year.

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