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Why Shares of Hertz Global Are Down Today

By Lou Whiteman – Apr 21, 2020 at 12:12PM

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The pandemic is forcing layoffs and millions in charges.

What happened

Shares of Hertz Global Holdings (HTZG.Q) fell 10% on Tuesday after the auto rental giant quantified how the COVID-19 pandemic is affecting business and announced steps to mitigate the damage.

So what

The pandemic has brought global travel to a halt, and in the process has caused a significant increase in auto rental cancellations and a decline in forward bookings. In response, Hertz in a securities filing late Monday said it is reducing its total North American workforce by about 10,000. The terminations are effective April 14 for nonunion employees and April 21 for union employees.

A vehicle pictured from the wheelbase looking up.

Image source: Getty Images.

Hertz said it expects to incur about $30 million in costs related to the layoffs, including about $28 million in severance or termination payments and an additional $2 million in benefits costs, primarily related to healthcare. The costs will be incurred over the next 12 months, with the majority in the coming three months.

Now what

That Hertz is feeling a pinch due to the pandemic is hardly news. That the company believes the slowdown will last long enough to justify its axing 10,000 jobs and taking $30 million in charges is likely what is moving the stock on Tuesday.

There's a real fear that even when the pandemic is behind us, the U.S. economy will fall into a recession, which would likely limit travel demand, and demand for rental cars and other travel-related services, for quarters to come. With so little certainty about when demand will return, investors have no interest in holding steady with Hertz shares right now.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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