Stock Story -
Global car rental company Hertz (NASDAQ:HTZ) fell short of analysts' expectations in Q2 CY2024, with revenue down 3.4% year on year to $2.35 billion. It made a non-GAAP loss of $1.44 per share, down from its profit of $0.72 per share in the same quarter last year.
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Hertz (HTZ) Q2 CY2024 Highlights:
- Revenue: $2.35 billion vs analyst estimates of $2.46 billion (4.3% miss)
- EPS (non-GAAP): -$1.44 vs analyst estimates of -$1.20
- Gross Margin (GAAP): -5.2%, down from 31.5% in the same quarter last year
- Free Cash Flow was -$3.18 billion compared to -$729 million in the previous quarter
- Sales Volumes were flat year on year (12% in the same quarter last year)
- Market Capitalization: $1.25 billion
Started with a dozen Model T Fords, Hertz (NASDAQ:HTZ) is a global car rental company providing vehicle rental services to leisure and business travelers.
Ground TransportationThe growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Hertz struggled to generate demand over the last five years as its sales were flat. This is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hertz's annualized revenue growth of 5.8% over the last two years is above its five-year trend, but we were still disappointed by the results.
We can better understand the company's revenue dynamics by analyzing its sales volumes, which reached 39.72 million in the latest quarter. Over the last two years, Hertz's sales volumes averaged 9.2% year-on-year growth. Because this number is better than its revenue growth, we can see the company's average selling price decreased.
This quarter, Hertz missed Wall Street's estimates and reported a rather uninspiring 3.4% year-on-year revenue decline, generating $2.35 billion of revenue. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.
Operating MarginHertz has done a decent job managing its expenses over the last five years. The company has produced an average operating margin of 9.4%, higher than the broader industrials sector.
Analyzing the trend in its profitability, Hertz's annual operating margin decreased by 3.1 percentage points over the last five years. Even though its margin is still high, shareholders will want to see Hertz become more profitable in the future.
In Q2, Hertz generated an operating profit margin of negative 15.5%, down 33.7 percentage points year on year. Since Hertz's gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased sales, marketing, R&D, and administrative overhead expenses.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Sadly for Hertz, its EPS declined by 38.7% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
Diving into the nuances of Hertz's earnings can give us a better understanding of its performance. As we mentioned earlier, Hertz's operating margin declined by 3.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Hertz, its two-year annual EPS declines of 67.4% show it's continued to underperform. These results were bad no matter how you slice the data.
In Q2, Hertz reported EPS at negative $1.44, down from $0.72 in the same quarter last year. This print missed analysts' estimates. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data.
Key Takeaways from Hertz's Q2 Results We struggled to find any positives in these results. Its revenue unfortunately missed, its gross margin was negative, and its EPS fell short of Wall Street's estimates. Overall, this was a bad quarter for Hertz. The stock traded down 6.1% to $3.84 immediately after reporting.
