Shares of Hertz Global Holdings (NYSE:HTZ) were knocked down today -- as much as 13% at one point before closing down 3.9% -- after it filed a regulatory document Tuesday in which the company withdrew its full-year guidance and only stated that 2014 results will be "well below" previous estimates. The company blamed a host of issues, including ongoing financial restatement costs, recalls by automakers, "soft demand" in its equipment rental business, and higher operating expenses. Hertz also said it is looking at pushing the spinoff of its equipment rental business beyond the first quarter of 2015, as originally expected.
The best take on the report comes courtesy of Deutsche Bank analyst Chris Woronka: "Net-net, it's difficult to find any positives in the report." He's right: Rarely will you find a report so full of negatives, and this points toward operational concerns.
Furthermore, Avis Budget Group (NASDAQ:CAR) and other Hertz competitors are reporting a turnaround of sorts. Avis has reported positive results in both quarters of fiscal 2014, with first-quarter earnings before unusual items of $20 million and second-quarter earnings before unusual items of $113 million coming in well ahead of the $1 million and $87 million delivered, respectively, in the same periods of 2013.
About that audit
Meanwhile Hertz is also restating its financial statements for 2011, 2012, and 2013. At issue are both capitalization and depreciation for nonfleet assets and allowance for doubtful accounts in Brazil. Obviously, when you restate a financial statement, particularly a balance sheet item, subsequent statements need to be updated as well.
However, it appears investors and analysts did not anticipate the process being as long, extensive, and costly as cited in this financial statement. Previously, the company identified errors totaling nearly $50 million in prior periods, but it appears more costs are in store.
This, added to the departure of Hertz's previous chief financial officer, provides ammunition to Hertz bears -- a list that is growing longer by the day. Following Tuesday's filing, analysts at JP Morgan and Deutsche Bank downgraded the company.
One positive takeaway
One positive for the bulls is rental car revenue. The company is growing its top line on its core business in both the U.S. and international segments. Hertz said second-quarter U.S. rental car revenue was up 4%, with the all-important rental car revenue per day rising 2%. International rental car revenue growth came in at 7% on reported higher demand from Europe and New Zealand.
This is a report that Hertz and its investors would rather forget. Unfortunately, it doesn't appear that management has a plan to turn around this company in the short term. Although it isn't always true, departing CFOs can portend future weakness for a company. It appears that is happening here.
While my fellow Fool Jim Royal is a fan of Hertz stock, in part because of the pending spinoff and potential for a large stock buyback, and he most recently purchased shares for his Real-Money portfolio in June, I'd personally let the restatement play out before establishing a position.