Increasing demand for rental cars lifts Hertz' sales and stock
The car rental company issued second quarter guidance this morning, for the first time in eight months. Not only was the guidance well above Wall Street estimates, but the company even said it has been adding to its car fleet as it's seeing higher demand in the last few weeks.
Mark P. Frissora, the company's chairman and chief executive officer, said in a statement, "We are able to resume earnings guidance for the current quarter and full year for several reasons. Our car rental demand in the U.S. and Europe has stabilized and we are experiencing better-than-anticipated summer peak reservation build in both markets. We are adding fleet as a result."
Hertz' stock climbed 15 percent to close at $8.08 today, thanks to the announcement.
Forecasting profits Hertz sees second-quarter adjusted earnings of 9 cents to 10 cents on worldwide revenue of $1.70 billion to $1.75 billion. Analysts on average were expecting earnings of 3 cents a share on revenue of $1.90 billion, according to Reuters Estimates. Similarly for the year, Hertz sees adjusted earnings of 12 cents to 15 cents, while analysts projected a loss. Hertz sees improved cost savings making up for lower-than-expected revenues. Hertz also anticipates, "no significant long-term financial impact from the GM and Chrysler bankruptcies."
Aside from the numbers, the really interesting story here is why Hertz is buying cars. Frissora said in a CNBC interview that Hertz has seen improving demand for rental cars in the past 10 weeks in the U.S. and in the past seven weeks in Europe for the summer season. As a result, the company is "literally scrambling to buy as many cars as (it) can."
The demand is mostly in the leisure market, which is about 40 percent of the company's volume. The market has improved markedly from declines in the mid-teens to declines in the mid-single digits. What's more, for the July 4 weekend, demand is actually up year-over-year in advanced reservations. In Europe demand for July and August is also up in eight major countries. The strength of the demand has surprised the company.
The reason for this seems to be that many people are staying in country for their vacation, meaning they're not flying, but driving. This could definitely be seen as an improvement from last year's "staycation" fad. It seems people are at least spending money on their vacations, taking advantage of heavy discounts and incentives they haven't encountered before. The incentives may even cause some people to initiate vacations they would not have otherwise taken, Frissora said.
No help for car companies If you think this could help the ailing car companies, no such luck for now. Even though Hertz has been buying any car it can get its hands on -- adding 16,000 vehicles the past eight weeks in the U.S. alone -- it has been mainly picking up dealer inventory.
So while the airline industry continues to see lower demand and hotels are offering deep discounts, Hertz is benefiting from their misfortunes -- and probably picking up cars for cheap as well.