All Car Rental Companies Aren't The Same: Why Avis' Earnings Delivered But Hertz Didn't

Car rental company Hertz Global Holdings, Inc HTZ hasn't found itself in the driver's seat following the release of its third-quarter results that sorely missed estimates and a guidance that was far from inspiring.

Meanwhile, peer Avis Budget Group Inc. CAR delivered earnings and revenue growth that trumped estimates.

Promptly, traders sent Hertz's stock down, as it was cut down to size, literally by one-half, on roughly 13 times its average volume.

Why The Panic?

Hertz Global reported third-quarter adjusted net income per share from continuing operations of $1.58, down from $2 per share in the year-ago period and the $2.75 consensus estimate.

Revenues fell 1 percent to $2.5 billion, also below the average analysts' estimate of $2.6 billion. U.S. rental revenues declined 2 percent, as a 1 percent increase in volume could not offset a 3 percent drop in rate per day. U.S. vehicle utilization also fell 60 basis points to 82 percent. The company derives roughly 68 percent of its total revenues from the United States.

Expenses Escalate

Even as total revenues dipped 2 percent, total expenses rose roughly 5 percent to $2.43 billion, with depreciation and SG&A increasing notably. Tax provision also increased.

Setback In Cost Cuts

The company conceded that it has fallen short on its internal stretch cost reduction target, although it did say that it is on track to deliver $350 million in cost reduction in 2016.

Citing the miss on the timing of cost reduction realization and the potential for an additional depreciation rate adjustment in the fourth quarter, Hertz trimmed its 2016 guidance. The adjusted earnings per share guidance for 2016 now stands at $0.51 to $0.88 while the consensus call is for $0.90. Earlier, the company had estimated $2.75–$3.50.

Deutsche Bank Downgrades

Commenting on the results, Deutsche Bank said in a research note the stock may come under pressure, reflecting "a newfound lack of confidence in earnings visibility and the company's ability to provide achievable guidance."

The firm downgraded Hertz to Hold from Buy, while reducing the price target by 59 percent, to $24 from $59.

Last week, Avis Budget reported both top- and bottom-line beats. Adjusted earnings per share for the third quarter grew 25 percent year-over-year to $2.47, bettering the $2.34 consensus estimate.

Revenues climbed 3 percent to $2.7 billion, zipping past the $2.65 billion estimate, thanks to a 2 percent increase in pricing in the United States and a 4 percent increase in international rental days.

Unlike Hertz's 5 percent expense growth, Avis Budget grew its costs merely by 2 percent.

For 2016, the company predicted revenue growth of 3 percent to $8.75 billion, and it lowered its EBITDA forecast to the low end of its previous guidance range of $850 million to $900 million.

At last check, Hertz was in reverse gear, losing a whopping 49.79 percent to $17.88 and in a sympathy move, Avis Budget is dropping 13.72 percent to $33.64.