HTZ Hertz Global Holdings Inc

By Mike Colias, David Benoit and Anne Steele 

Investor Carl Icahn more than doubled his stake in Hertz Global Holdings Inc. on Tuesday, the same day the rental-car firm's stock plunged in the wake of disappointing financial results and a lowered annual outlook.

The activist investor swooped in to purchase 15 million shares, boosting his ownership in the car-rental company to more than a third. Hertz shares at one point earlier in the day had fallen 50%.

Hertz shares closed down 23% to $27.70 Tuesday in regular trading on the New York Stock Exchange, after the company reported financial results Monday that raised broader concerns about the potential for falling used-car prices to hurt the new-car business. The stock is down 51% this year.

Mr. Icahn wasn't immediately available for comment. Hertz has faced pressure from Mr. Icahn since 2014, and three of his employees currently hold board seats.

The Estero, Fla.-based car-rental firm blamed steep drops in the value of its smaller cars for the earnings miss, which was 57% below Wall Street expectations.

Hertz's third-quarter profit fell to $42 million from $237 million a year earlier, the company reported late Monday. Excluding certain items, per-share adjusted profit was $1.58, well below analysts' expectations of $2.75.

Hertz, which owns Dollar and Thrifty rental brands, also cut its financial guidance for the year, triggering analyst downgrades.

Hertz's weak results might signal headwinds for auto makers and dealers already struggling to repeat last year's car-sales record. The availability of cheaper used cars damps demand for new vehicles, and could force car companies and dealers to dangle bigger discounts to keep new-vehicle inventory from collecting dust. Those discounts can dent profits. Declining used-car values also can increase car companies' expenses on new-car leases.

Auto makers in recent months have been offering bigger incentives and cheaper loans to keep shoppers engaged. Passenger-car sales are off 8% through October while sales of pickups, SUVs and vans rose 8% and are on track for a record high, according to researcher Autodata Corp.

Chief Executive John Tague blamed Hertz's financial results largely on deeper-than-expected depreciation on small and midsize vehicles and warned of further drops in the fourth quarter. Sales of sedans and coupes, long a staple for U.S. car shoppers, are falling sharply as cheap gasoline prices send consumers flocking to pickup trucks and sport-utility vehicles.

Mr. Icahn played a key role in hiring Mr. Tague to helm Hertz in 2014, pushing back against suggestions from other activist investors. Mr. Icahn continued padding his stake after Mr. Tague's hiring and remains a shareholder in the company's spinoff, equipment-rental business Herc Holdings Inc.

Hertz's latest quarterly results "will make people increasingly cautious" about the impact of lower used-car prices on new-vehicle sales and leasing, Evercore ISI analyst Arndt Ellinghorst wrote in a research note.

Still, some analysts suggested Hertz's struggles weren't signaling a broader warning for the auto industry. Falling residuals for small and midsize sedans have long been anticipated, and Hertz suffered more from higher costs and lower rental volumes, several analysts said. Rival Avis Budget Group Inc. last week reported better-than-expected vehicle depreciation and posted third-quarter financial results that beat analysts' expectations.

Hertz has struggled to turn around operations after accounting errors forced it to adjust years of financial results. In addition to an equipment-rental separation that gave it a much-needed cash infusion to pay down debt, Hertz has been aggressively cutting expenses, targeting $350 million in cost cuts for the year.

Barclays analyst Brian Johnson said that deeper depreciation accounted for only about 20% of Hertz's profit shortfall versus expectations. The size of the profit shortfall and slashed guidance suggests "there are likely some ongoing execution issues," he said in a research note. "This management team may now face questions around credibility," Mr. Johnson added.

"An abysmal quarter. That's all we can say about this release," Wells Fargo analyst Richard Kwas said in a research note on Hertz's third-quarter results. While a negative guidance revision was expected, "the adjustment was dramatic."

Write to Mike Colias at Mike.Colias@wsj.com, David Benoit at david.benoit@wsj.com and Anne Steele at Anne.Steele@wsj.com

(END) Dow Jones Newswires

November 08, 2016 18:44 ET (23:44 GMT)

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