Shares of car rental giant,
Hertz Global Holdings Inc.
) rolled down 9.1% on Friday due to accounting mishaps that led the
company to postpone its first quarter fiscal 2014 earnings
announcement and related 10-Q filing. The earnings release
scheduled for June 9 were delayed due to the identification of
certain errors in its financial results for 2011 and the need to
restate the same as well as make relevant corrections in its 2012
and 2013 statements.
Hertz, on Friday morning, approached investors stating that its
audit committee has declared that the company's financial
statements for 2011 are no longer reliable and must be restated.
The errors in the statements relate to the capitalization and
timing of depreciation for certain non-fleet assets, allowances for
doubtful accounts in Brazil, allowances for uncollectible amounts
regarding renter obligations for damaged vehicles and restoration
obligations at the end of facility leases.
As a result, the audit committee has directed to initiate a
complete review of the company's financial results for fiscal years
2011, 2012 and 2013.
Additionally, the company's independent registered public
accounting firm PricewaterhouseCoopers LLP has identified that at
least one material flaw remained in the company's internal controls
over financial reporting that led to disclosure controls and
procedures that were "ineffective" at the end of 2013. As a result,
the company expects to receive an adverse opinion from
Although grappling with the accounting issues, the company has
provided a bird's-eye view of the upcoming results, projecting
below consensus results for the first quarter due to the costs
associated with the accounting review and other items. The company
stated that the U.S. rental car revenue was up about 4.5% in the
quarter and total revenue per day was down 1.6% from the year-ago
Further, the company highlighted that April revenues benefitted
from U.S. car rental which is experiencing constructive pricing for
its airport brands in the U.S. on account of tighter supply,
favorable holiday shift and anniversary of the U.S. Government
sequester. However, the company projects pricing in the
second-quarter to be impacted by mix as volume growth in the
off-airport segment continue to grow at a double-digit rate,
airport volumes enter a lean period ahead of the third-quarter
peak, and the discount Firefly brand captures incremental business.
On the international front, car rental revenues rose 1.7% in the
first quarter and the company anticipates further growth in the
second quarter based on improvement in the European and Asia
Pacific economies. Looking ahead, volume gains are expected to stem
from new Thrifty and Firefly locations ramp-up and economic
recovery benefits for Hertz Classic. Also, Hertz's fleet costs are
projected to get better and international franchising continues to
gain traction. Further, the company expects greater penetration
through the expansion of its Dollar, Thrifty and Firefly brands.
Additionally, Hertz stated that its worldwide equipment rental
revenue rose 2.4%, while revenue for the other segment grew 7.3%.
Currently, Hertz carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the business services industry include
Avis Budget Group Inc.
ExamWorks Group Inc.
), all of which sport a Zacks Rank #2 (Buy).
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