(Bloomberg) After announcing that it needs to fix three years of financials and that quarterly results won’t meet estimates, car- and equipment-rental company Hertz Global Holdings Inc. tumbled in the stock market.
The shares slumped 9.3 percent by mid-morning Friday. Through Thursday’s close, the stock had added 6.5 percent this year.
Hertz’s audit committee said that financial statements for 2011 can’t be relied upon and should be restated, which will also require corrections to its 2012 and 2013 reports, according to a regulatory filing today. Hertz, based in Naples, Fla., will conduct a “thorough” review of all three years, which could result in material adjustments for the last two years.
“There’s clearly something deeper going on than we’ve seen,” said Maryann Keller, an auto-industry consultant and former director of Dollar Thrifty Automotive Group Inc., which Hertz acquired in 2012. “We have no idea what we’re dealing with here, no idea what this company’s financial condition is, what the past level of profitability is, and no basis on which to judge what it’s future profitability may be.”
Hertz also said that first-quarter U.S. daily car-rental revenue fell 1.6 percent from a year earlier, including its new Firefly discount brand, as it carried excess fleet. The company’s namesake brand airport rentals rose 1 percent, according to the filing. Analysts had projected first-quarter earnings per share excluding certain items of 9 cents on revenue of $2.55 billion, according to data compiled by Bloomberg.
Hertz said it found errors while preparing its first quarter financials that included the capitalization and timing of depreciation for “certain non-fleet assets.” The company also said it found other mistakes in how it accounted for money it couldn’t collect from renters who damaged their rentals.
Hertz in recent years increased the number of cars it bought from automakers for its fleet. In the past, the company acquired most of the cars from the automakers and sold them back months later at predetermined prices.
Acquiring Dollar Thrifty expanded their fleet of owned cars, which requires a higher degree of expertise and management, Keller said.
While the accounting problems may delay a planned spinoff of its equipment-rental unit, originally planned for early next year, the move to separate the business remains on track, the company said. In that transaction, the car-rental business will keep the name Hertz and get cash proceeds of about $2.5 billion to pay down debt and support a $1 billion share buyback.