After a strong showing in the first quarter, Hertz is still riding high.
The Estero-based rental car giant saw a strong start to the year – and the momentum has continued into the second quarter, with a busy April.
In an earnings call Thursday, CEO Stephen Scherr said he expects rental demand and rates to remain solid.
“As we move into Q2, the travel industry is positioning itself for a strong summer,” he said. “We are doing the same. Already we have experienced seasonal acceleration, with a strong spring break and Easter week bringing us forward to Memorial Day, and we have some good demand indicators with respect to summer.”
He pointed out that both airlines and hotels are forecasting robust demand for summer based on advanced bookings.
“For Hertz, there is a particular opportunity around international inbound travel, which has been a significant component of rental revenue,” Scherr said.
Through the first quarter that segment of its business was “only 60% back to pre-pandemic levels,” he said, noting that it traditionally generates higher profit margins, with elevated pricing.
“International inbound business from Latin America is pacing strong,” Scherr said. “European travel, which is much improved from the troughs of the pandemic, continues to build.”
More significantly, he said, Asia is “only beginning to show improvement,” with even more opportunities for growth.
“With COVID rules relaxed, we believe inbound travel from Japan, Korea and eventually China will yield positive returns for our business,” Scherr said.
Inbound refers to travel into the United States.
Another positive trend for Hertz: The continued strength in used car prices. It provides Hertz the opportunity to “harvest gains,” when rotating its fleet, which can be used to “subsidize growth and acquisition,” Scherr said.
“Of course, there is no certainty of this trend continuing and it may yet reverse,” he said. “But this early price action was better-than-forecasted, despite uncertainty in the economy, and higher interest rates.”
CEO shares update on Hertz’s priorities
On the earnings call, Scherr offered an update on some of Hertz’s top strategic priorities, including its move toward “electrification.”
At the end of the first quarter, Hertz had about 50,000 electric vehicles for rent, equating to roughly 10% of its total fleet. The company is benefiting from recent EV price reductions, as it continues to add them.
“We are forecasting nearly 2 million EV rentals in 2023, approximately five times the number of the prior year,” Scherr said.
To that end, Hertz continues to grow its network of charging stations.
Through a partnership with BP Pulse, Hertz has accelerated the buildout of EV charging stations at its rental car locations in major U.S. cities, Scherr said.
Additionally, he said, through a public-private partnership, known as Hertz Electrifies, the company is working with cities to increase their number of charging stations, which will not only benefit the public, but Hertz’s rideshare and other customers in metro areas. So far, Denver, Houston and Atlanta are on board with the program, with more agreements in the works.
Rentals of all kinds to rideshare drivers continue to increase, and Hertz is working on improving the rental process for them, to “reduce churn” and promote more growth on this side of its business, Scherr said.
On another front, a recently announced effort to revitalize Hertz’s value brands Dollar and Thrifty is advancing.
“We’ve begun to co-develop a digital forward customer experience, including direct channel digital properties designed to provide customers with a touchless experience at an affordable value point,” Scherr said. “We are looking to an early launch of the project in the summer.”
Last year, Hertz reset the priorities for its European operations, which continues to pay off, under new leadership, he said.
“We extended our Uber partnership to Europe, and we have taken steps to right size our expense base and improve our operational cadence in each of our European markets,” Scherr said. “We anticipate considerable growth from here.”
What if there’s a slowdown?
Although Scherr oozed optimism in the earnings call, Scherr acknowledged the “uncertainty in the market,” and the prospect that the near-term strength in consumer demand may be “unsustainable in a weakening economy.”
“Our fleet plan is dynamic and can be right sized to sit inside wherever the demand curve moves,” he said. “We can alter fleet quickly and without repercussion,” he said.
If there’s a slowdown, Scherr said the company’s response would “focus on reducing buys more than accelerating sales” of vehicles.
Since emerging from Chapter 11 bankruptcy nearly two years ago, a cornerstone of the company’s success has been its dynamic fleet plan, giving it the ability to make adjustments to match demand, up or down, Scherr emphasized.
“We will not chase unprofitable volume,” he said. “We are running Hertz differently.”
Hertz ended the first quarter with about 505,000 vehicles in its fleet, across its three brands.
By the Numbers
Here’s a look at Hertz’s first-quarter performance, compared to a year ago:
- Total revenue rose to $2 billion, up 13%
- Adjusted net income declined to $126 million, or 39 cents a share, down 69%
- Monthly revenue per vehicle increased to $1,409, up 7%
- Average fleet size grew to 504,528, up 5%
The company’s performance beat analysts’ expectations on revenues and earnings. Shares climbed on the positive news.
