Hertz Hides Results Behind Spin-Off, Buyback

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Hertz Global Holdings Inc. (NYSE: HTZ) reported fourth-quarter and full-year 2013 results before markets opened Tuesday. The car rental firm reported adjusted diluted earnings per share (EPS) of $0.26 on revenues of $2.56 billion. In the fourth quarter of 2012, the company reported EPS of $0.33 on revenue of $2.32 billion. Fourth-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.32 and $2.62 billion in revenue.

For the full year, Hertz reported an EPS of $1.63 on revenues of $10.77 billion, compared with EPS of $1.31 on revenues of $9.02 billion in 2012. The consensus estimate called for EPS $1.70 on revenues of $10.84 billion.

Hertz also announced this morning that it will split the company into two pieces. One will be called Hertz and will comprise its car rental business plus its fleet leasing and management services company Donlen. The second piece will consist of its equipment rental company and will be called HERC. The separation is expected to be achieved as a tax-free spin-off of the equipment rental business to Hertz Global shareholders and the company expects the deal to be completed in early 2015.

It is that spin-off and a new buyback program that drove Hertz Global’s share price higher Tuesday morning, not the paltry results for the quarter or the year. Hertz anticipates net cash of around $2.5 billion as a result of the spin-off, and it will use the cash to pay down debt and support a new $1 billion share repurchase program that the company expects will make most of its purchases following the separation. Hertz said its repurchases could total up to 20% of Hertz’s outstanding shares.

In its comments on the company’s outlook for 2014, revenues are forecast to rise to a range of $11.4 billion to $11.7 billion, and adjusted EPS is forecast in a range of $1.70 to $2.00. Consensus estimates call for EPS of $2.07 on revenues of $11.6 billion.

The company’s CEO said:

In a difficult fourth quarter, we achieved an adjusted earnings per share of $0.26 despite an estimated $0.12 impact of lower than expected pricing and higher expenses related to carrying extra fleet. … We are forecasting Q1 adjusted earnings per share of between $0.07 and $0.09, reflecting the impact, estimated at $0.07 to $0.08 adjusted earnings per share this quarter, of excess U.S. rental car fleet, although we expect fleet levels to be aligned with transaction day growth by the end of this quarter.

Shares were up about 3% in premarket trading Tuesday, at $27.99 in a 52-week range of $19.73 to $29.81. Thomson Reuters had a consensus analyst price target of around $30.30 before the results were announced.

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