Hertz Reports Unexpected First-Quarter Loss, Sending Shares Down 17%
Hertz Global Holdings Inc. witnessed a sharp drop in its share price, falling 17% during trading on Tuesday following the release of its worse-than-expected first-quarter financial results. The car rental company recorded a significant decline in revenue and profitability as it struggled with softening demand, particularly among corporate and government clients, and navigated a strategic overhaul of its vehicle fleet.
The company reported an adjusted net loss of $1.12 per share, notably higher than the average analyst estimate of a $0.99 loss, based on data compiled by Bloomberg. The earnings disappointment triggered a market sell-off, erasing a large portion of the gains Hertz had accumulated earlier this year.
Revenue Drops 13% as Demand Slows
Hertz’s revenue for the first quarter fell by 13% year-over-year, totaling $1.8 billion, falling short of analysts’ expectations of $2 billion. Despite a modest increase in leisure bookings, the broader picture revealed weaker utilization and pricing pressures.
Revenue per day, a critical metric in the rental industry, declined 5% to $53.38, with Hertz attributing the drop to an oversupply of vehicles in several markets. According to Chief Commercial Officer Sandeep Dube, the imbalance in fleet distribution caused the company to “leave some pricing opportunity on the table.”
Vehicle Utilization Improves Slightly but Remains Below Historical Norms
Hertz’s vehicle utilization rate in Q1 increased to 79%, up three percentage points from the same period last year. However, this figure is still considered historically weak, suggesting inefficiencies in matching fleet supply to customer demand.
The company has been in the process of refreshing its vehicle lineup, accelerating the purchase of newer models ahead of potential tariff hikes. CEO Gil West noted that about 70% of Hertz’s fleet is now less than one year old, a move aimed at reducing future depreciation costs. However, he also acknowledged that this transition led to missed opportunities in some markets, compounding the revenue shortfall.
Electric Vehicle Exit Completed After $2.9 Billion Misstep
This quarter also marks the first reporting period in which Hertz no longer carries electric vehicles (EVs) in its fleet. The company had previously disclosed that it incurred $2.9 billion in losses related to its ambitious EV expansion, as renters avoided EVs and repair costs surged.
Earlier this year, Hertz finalized the sale of 30,000 EVs, effectively ending its earlier push into the segment. The EV strategy, once seen as a progressive pivot, ultimately backfired due to low customer adoption and maintenance issues, severely impacting profitability.
Fleet Depreciation Costs Expected to Fall in Q2
Despite the Q1 setback, Hertz provided guidance that it expects adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) to break even in Q2 and turn positive by Q3. A key driver behind this outlook is the expectation that depreciation costs will drop to under $300 per month per vehicle in the upcoming quarter, a significant improvement and ahead of schedule.
CEO Gil West highlighted that working closely with automakers helped the company secure early deliveries, allowing Hertz to lock in newer vehicles before the imposition of potential trade tariffs. This fleet refresh strategy is aimed at making Hertz more agile in responding to economic uncertainties and evolving market dynamics.
Investor Confidence Wavers Despite Strategic Overhaul
Investor sentiment took a hit after the earnings release. The company’s 17% share price drop on Tuesday wiped out a significant chunk of the 90% gain it had accumulated earlier in the year. Notably, Bill Ackman’s Pershing Square Capital Management, which holds a nearly 20% stake in Hertz, saw its position lose approximately $71 million in intraday value.
Ackman had previously expressed optimism, suggesting that the worst might be behind for Hertz and that his firm’s investment was based in part on the expectation that tariff-driven fleet appreciation would boost the company’s value. Despite the near-term volatility, Pershing Square remains marginally profitable on its Hertz position since revealing the stake.
Strategic Uncertainty Remains Despite Optimistic Guidance
Barclays analyst Dan Levy expressed concern over the company’s exposure to demand-related risks, noting that the Q1 earnings miss was primarily centered in the Americas. He emphasized that while Hertz’s new fleet strategy may offer some cost-side benefits, the broader concern lies in softening demand and pricing power.
The company has acknowledged the challenging economic environment and indicated that it continues to adjust operations in real-time to align with consumer behavior and market volatility. CEO Gil West emphasized that Hertz is “well equipped to navigate today’s uncertainty,” citing the advantages of a younger fleet and improved operational agility.
Conclusion: Hertz Faces a Rocky Road Ahead
Hertz’s first-quarter results underscore a difficult period of transition, marred by strategic missteps in electrification and short-term demand pressures. While the company’s forward-looking metrics suggest a potential rebound in the second half of the year, investor confidence has been shaken by the unexpectedly large loss and revenue shortfall.
Going forward, much will depend on Hertz’s ability to optimize its refreshed fleet, stabilize pricing, and rebuild trust among both corporate clients and investors. The car rental giant remains at a critical juncture, balancing near-term financial headwinds with the long-term promise of a leaner, more efficient operational model.