Hertz Global Holdings, Inc (HTZ)

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Hertz Global Holdings (HTZ)

Q3 2010 Earnings Call

November 03, 2010 10:00 am ET


Scott Sider - Executive Vice President and President of Car Rental & Leasing The Americas

Elyse Douglas - Chief Financial Officer and Executive Vice President

Mark Frissora - Executive Chairman, Chief Executive Officer, Member of Executive & Governance Committee, Chairman of Hertz Corp and Chief Executive Officer of Hertz Corp

Leslie Hunziker - Staff Vice President of Investor Relations


Fred Lowrance - Avondale Partners, LLC

Richard Kwas - Wells Fargo Securities, LLC

Michael Millman - Millman Research Associates

Christopher Agnew - MKM Partners LLC

Brian Johnson - Barclays Capital

Neal Portis - Goldman Sachs

Christopher Doherty

Michael Perez

John Healy - Northcoast Research



Welcome to the Hertz Global Holdings Third Quarter 2010 Earnings Call. The company has asked me to remind you that certain statements made on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance, and by their nature, are subject to inherent uncertainties. Actual results may differ materially. Any forward-looking information relayed on this call speaks only as of this date, and the company undertakes no obligation to update that information to reflect changed circumstances.

Additional information concerning these statements is contained in the company's press release regarding its third quarter results issued yesterday and in the Risks Factors and Forward-Looking Statements section of the company's 2009 Form 10-K and second quarter 2010 Form 10-Q. Copies of these filings are available from the SEC, the Hertz website or the company's Investor Relations department.

[Operator Instructions] I would now like to turn the call over to your host, Leslie Hunziker. Please go ahead.

Leslie Hunziker

Good morning, and welcome to Hertz Global Holdings 2010 Third Quarter Conference Call. You should all have our press release and associated financial information, which we issued last night. This morning, we've provided slides to accompany our conference call that can be accessed on our website at www.hertz.com/investorrelations.

Let me give you a quick update on our IR calendar. We'll be attending Northcoast Fall Management Forum on November 9 and Barclays Global Automotive Conference on November 16, both in New York. Hertz's annual financial modeling workshop and Investor Day is scheduled for December 6 and 7 in midtown Manhattan, and more detailed information on that will be sent out next week.

In a minute, I'll turn the call over to Mark Frissora, Hertz's Chairman and CEO. Also speaking today is Elyse Douglas, our Chief Financial Officer. In addition, we have Scott Sider, Executive Vice President and President of Vehicle Rental and Leasing, the Americas; Michel Taride, Executive Vice President and President, Hertz International; and Gerry Plescia, Executive Vice President and President of Hertz Equipment Rental. They'll be on hand for the Q&A session.

Before we begin, I need to remind you that, today, we'll use certain non-GAAP financial measures, all of which are reconciled with GAAP numbers in our press release and at the back of the slide presentation, both of which are posted on our website. We believe that our profitability and performance is better demonstrating using these non-GAAP metrics.

Our call today focuses on Hertz Global Holdings, Inc., the publicly traded company. Results for the Hertz Corporation differed only slightly as explained in our press release. Now I'll turn the call over to Mark Frissora.

Mark Frissora

Good morning, everyone, and thanks for joining us. Let's start if we can on Slide 5. As you saw in our pre-announcement a couple of weeks ago, we delivered a solid third quarter performance despite the slower pace of the economic recovery. Revenue from our U.S. Rental Car business grew faster than our public competitors for the fifth consecutive quarter, benefiting from a relatively healthy pricing environment this summer as well as higher demand in the commercial market.

Our European Rental Car revenue growth neared double-digit levels when you exclude the effects of currency translation, and the Equipment Rental business turned the corner, generating 33.7% higher adjusted pretax income in the quarter and year-over-year revenue growth that was positive for the first time in nine quarters.

Turning to Slide 6. For the company as a whole, our balanced strategy that focuses on diversified growth and continuously improving our cost structure paid dividends in the third quarter. We generated 29.9% higher adjusted pretax income on 7.1% more revenue compared with last year. The significant profit improvement was generated despite higher interest expense, $3.7 million of negative currency exchange rates and continued investments in our expanding Advantage Leisure business and our Off-Airport operations.

Third quarter 2010 adjusted pre-tax margin for the entire company increased by 200 basis points year-over-year to 11.6% as we continue to benefit from ongoing cost-saving initiatives. In particular, we're seeing strong flow-through of the savings in our U.S. Rental Car business, where on Slide 7, you can see that the adjusted pretax margin was 160 basis points higher in the recent third quarter and adjusted pretax income was $14.5 million higher than in the third quarter of 2007, which was a historic peak period for Hertz. This stronger profit was achieved in the face of today's macroeconomic pressure that resulted in 2.4% less revenue than the similar 2007 period. This is a noteworthy achievement.

We continue to identify valuable cost-savings opportunities using Lean and Six Sigma tools that further improve process efficiency and labor productivity while enhancing customer satisfaction. You'll see that as the economy progressively improves and internal growth initiatives mature, the annual margin benefit from cost savings for the entire company will be more obvious and even more compelling.

On Slide 8, our consolidated revenue grew 7.1%, or 8.9% when you exclude currency translations, as a result of improving volume trends across both of our business segments. In terms of pricing, there is also good news across the board. The equipment rental pricing pressure's abating with year-over-year pace of decline improving each month as we near neutral.

In Europe Rent-A-Car in the third quarter, we secured a 1.5% price increase from higher revenue per day in each of the commercial, replacement and leisure rental car markets. And in U.S. Car Rental, revenue per day, or RPD, increased 2.4% with our Hertz classic brand or 1.7% when you include Advantage, with the greatest contributions coming from our Off-Airport business, which was up 4.8%, and Airport Leisure business, where the revenue per day increased 3.6%.

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