Why Hertz, Avis Are Breaking Down
With declining revenue and pricing pressure, rental-car companies are a wreck.
Has anyone noticed how the car rental companies, Hertz (HTZ), Avis (CAR), and Dollar Thrifty (DTG) have gone parabolic over the past few months? I didn't, until Minyan "Bark" brought it to my attention. Now I'm itching to establish a short position in one of these names.
And the rally, unlike in Ford (F) or the counter sell-off in auto-parts companies such as Autozone (AZO), comes way before the "cash for clunkers" was a gleam in Obama's eye. Back in December, these stocks were trading at about a buck a share and seemed destined to be sucked into the vortex of bankruptcy created by the Big Three as General Motors (GMGMQ), Ford, and Chrysler were their lifeline of products and to some extent, credit.
Not that their businesses were faring well by any measure. Rental volume and miles driven were down and pricing pressure was compressing margins. People are simply not traveling for business or leisure as much as they used to.
Rough Road Ahead
Aside from their suppliers still being in business, none of the above has really improved. Hertz, Avis, and Dollar all reported earnings in the past week and the numbers show it will be rough road ahead.
Hertz saw second-quarter profits sink 93% on a 24% decline in revenue. Full-year forecasts of $6.7 to $7 billion in revenue are below the low end of the previously stated range.
Avis posted both a sequential and year-over-year decline in revenue and profits -- actually, it was a loss, if you include restructuring costs. Every segment, from corporate accounts to vacation rentals to day trippers to truck rentals saw high single-digit percentage declines.
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