Investors put the hurt on Hertz Global (HTZG.Q) this morning, as its stock plummeted 52% in early trading. As of noon EST, shares had recovered somewhat, retracing to "only" a 37.2% loss.
This morning, Hertz reported earnings of $0.52 per share on $2.5 billion in revenue for its fiscal third quarter. Both numbers fell short of the expectations of Wall Street analysts, who had predicted Hertz would earn $2.75 per share and rake in $2.6 billion in revenue.
Nor were the failures to live up to expectations the only bad news at Hertz. It was a miserable quarter for the rental car company speaking objectively as well. At $2.5 billion in revenue, Hertz didn't do even as much business as it did last year (revenue was actually down 1% year over year), much less grow. And earnings-wise, $0.52 per share in profits was just 22% of what Hertz earned a year ago -- a 78% decline.
Hertz management tried to put a brave face on the news, with CEO John Tague calling the results merely "uneven." On the one hand, car rentals were "at the low end of our expectations" for the quarter, but still within the range of what management had anticipated. On the other hand, Hertz says "a customary vehicle depreciation rate review near the close of the third quarter resulted in a substantial depreciation adjustment, particularly on compact and mid-sized vehicles."
So Hertz's inventory of nearly new cars is now worth a lot less than management used to think it was worth. That explains the big loss, and it also explains why Hertz proceeded to cut its own guidance for the rest of the year. With Q3 producing so much less profit than Hertz had anticipated, management is now guiding investors to expect no more than $0.88 per share in "adjusted earnings per share," which is a lot less than the $3.50 ceiling on its previous guidance range.
Valuation-wise, management says free cash flow this year will range from $250 million to $300 million. On a $3 billion market capitalization, that implies the stock is now selling for anywhere from 10 to 12 times annual cash profits. That may be a cheap price if Hertz can recover from this quarter's massive charge to earnings and start growing again. On the other hand, with revenue moving in the wrong direction even before taking the writedown into consideration, investors need to also consider the awful possibility -- that it's time to "total" Hertz stock.