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Hertz Global Holdings Q2 2010 Earnings Call Transcript

Hertz Global Holdings Q2 2010 Earnings Call Transcript

Hertz Global Holdings (HTZ)

Q2 2010 Earnings Call

August 04, 2010 10:00 am ET


Elyse Douglas - Chief Financial Officer and Executive Vice President

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Previous Statements by HTZ
» Hertz Global Holdings, Inc. Q1 2010 Earnings Call Transcript
» Hertz Global Holdings, Inc. Q4 2009 Earnings Call Transcript
» Hertz Global Holdings, Inc. Q3 2009 Earnings Call Transcript

Mark Frissora - Executive Chairman, Chief Executive Officer, Member of Executive & Governance Committee, Chairman of Hertz Corp and Chief Executive Officer of Hertz Corp

Leslie Hunziker - Staff Vice President of Investor Relations


Richard Kwas - Wells Fargo Securities, LLC

Fred Lowrance

Christopher Agnew - Goldman Sachs

Michael Schlembach

Emmanuel Rosner

Christopher Doherty

Emily Shanks - Lehman Brothers

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John Healy - Northcoast Research

Steven Kent - Goldman Sachs Group Inc.



Thank you for standing by, and welcome to the Hertz Global Holdings Second Quarter 2010 Earnings Call. The company has asked me to remind you that certain statements made on this call, certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of 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 information to reflect changed circumstance.

Additional information concerning these statements are contained in the company's press release regarding the second quarter result issued yesterday and in the Risks Factors and Forward-Looking Statements section of the company's 2009 Form 10-K. Copies of this filing are available from the SEC, the Hertz website or the company's Investor Relations department.

I would like to remind you today's call is being recorded by the company and is also made available for replay starting today at 12:30 p.m. Eastern Time and running through August 18, 2010. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

I would like to turn the call over to our host, Leslie Hunziker. Please go ahead.

Leslie Hunziker

Good morning, and welcome to the Hertz Global Holdings 2010 Second Quarter Conference Call. You should all have our press release and associated financial information. We've also provided slides to accompany our conference call, which can be accessed on our website at

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 of Hertz International; and Gerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll all be on hand for the Q&A session.

Today, we'll use non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release 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 publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now I'll turn the call over to Mark Frissora.

Mark Frissora

Good morning, everyone, and thanks for joining us. As you've seen from last night's press release, despite a changing macro and economic backdrop, we delivered very good results in the second quarter reflecting the success of our growth and efficiency strategies.

The best example of this on Slide 5 is the record adjusted pretax earnings performance of our largest business, U.S. Rent-A-Car. In the 2010 second quarter, U.S. Rental Car generated $32.5 million of higher adjusted pretax income compared with the previous session's second quarter of 2007. This represents a 350-basis-point margin improvement over the 2007 period on 7% less revenues.

Overall for the company, higher revenue and greater efficiencies drove an 18.1% year-over-year increase in consolidated adjusted pretax income in the latest second quarter. This is on Slide 7. The profit increase translated into a 50-basis-point margin improvement despite the negative impact on the quarter from a one-time $32 million compensation benefit that we received in last year's second quarter. Additionally, we overcame higher adjusted interest expense and $1.9 million of negative currency exchange rates.

Corporate EBITDA was essentially flat also due to the one-time compensation benefit. Excluding last year's benefit, corporate EBITDA was up 13.3% year-over-year.

You might recall back in April, the pace of the global recovery seemed to be accelerating, with consumer confidence climbing to its highest level since October of 2007. Since then, however, consumer confidence has weakened. While this adversely affected our Leisure business, our Commercial business has accelerated. Consequently, while the overall volume rate remained in line with our forecast, the expected mix of rental shifted more towards Commercial business.

Our consolidated revenues grew 7.1% or 7.5% when you exclude currency translations as a result of improving volume trends across both of our business segments. In terms of pricing, equipment rental pricing pressures finally stabilizing with the year-over-year pace of decline gradually improving each month despite a tough year-over-year comparison.

In Europe, in the second quarter, we secured 3.9% price increases from the commercial and leisure rental car markets combined. While in the U.S., Rental Car revenue per day, or RPD, was a mixed bag, where an increase in Off-Airport RPD nearly offset weakness in airport RPD.

On Slide 8, total company adjusted direct operating and SG&A expenses were up 10.8% overall, but when you exclude the impact from the one-time compensation benefit last year, as well as the incremental advertising spending, adjusted direct operating expenses and SG&A expenses were up just 7.5%, reflecting cost in line with the increased revenue.

Additionally, maintenance costs were higher than usual in the second quarter as we ready our equipment to service the anticipated recovery in industrial and infrastructure demand. And since April of 2009, it should be noted that we've added 27 Advantage airport locations and 298 net new Off-Airport stores to our rental network. It's important to note that while we're recognizing the cost associated with the fairly rapid expansion of these businesses, we have not yet fully realized the revenue potential given the newness of the stores.

Monthly rental car depreciation per unit worldwide are down nearly 12% on lower vehicle acquisition cost and a larger portion of vehicles being sold through higher-priced lower cost, non-option channels.

Turning to Slide 9, we generated permanent cost savings of $142 million in the second quarter, bringing our first half total savings to $241 million outpacing our full year goal of $300 million. Today, we believe we can capture another $140 million of savings in the second half, split about evenly between the last two quarters, which would reflect a revised goal of $380 million of cost savings for this year. Our more efficient processes led to greater productivity at Hertz.

Consolidated revenue per employee was up 7.5% in the recent quarter over the same period last year. From our inception of Lean Sigma, back in '06 through the last 12 months ending June 30, revenue per employee has increased 23.6% despite $900 million less revenue.

Now let's take a quick look at second quarter performance by operations starting on Slide 10. In the most recent second quarter in the U.S., total rental car revenue was up 10.1% in the quarter compared with last year. Of the growth, total airport operations contributed 45.8%. Of that, the contribution for Commercial business was 53.5%.

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