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Can Hertz survive coronavirus business hit? New filing casts doubt



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USA TODAY

Hit hard by the coronavirus pandemic, Hertz has sent out yet another red flag about its troubled finances.

In a regulatory filing Monday, Estero-based Hertz Global Holdings — parent of The Hertz Corp. — raised serious doubts about its ability to survive another year. 

In a 10-Q filing with the U.S. Securities and Exchange Commission, the publicly traded company said it may not be able to repay or refinance its hefty debt and “may not have sufficient cash flows from operations or liquidity to sustain its operating needs or to meet the company’s obligations as they become due” over the next 12 months. 

“As such, management has concluded there is substantial doubt regarding the company’s ability to continue as a going concern” within a year of the filing, Hertz Global stated.

The warning came as the company announced its first quarter results, which only begin to show how much the car rental giant has been hurt by the pandemic.

The spread of the deadly virus has both discouraged and prevented travel across the globe. As a result, the demand for car rentals practically vanished overnight in March.

In the first quarter, Hertz saw wider losses than a year ago — and bigger losses than Wall Street expected.

The company said it lost $356 million, or $2.50 a share. That compared to losses of $147 million, or $1.54 a share, in the same quarter a year ago.

Adjusting for one-time items, the company said it lost $253 million, or $1.78 a share, compared to a loss of 87 cents a share a year ago. 

On an adjusted basis, analysts on average expected a loss of $1.13 a share.

Total revenues fell to about $1.9 billion in the quarter, down from more than $2.1 billion a year ago, which also fell short of analysts’ expectations.

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In announcing the disappointing results Monday, Kathryn Marinello, the company’s president and CEO, said in a news release: “We started the year with positive momentum, extending the strong growth trajectory of the past three years, reflecting consistent increases in both price and volume, productivity improvements and best-in-class fleet management.”

Then came the coronavirus, which created a “major business disruption as global travel demand dropped to almost zero and the U.S. used-car market effectively shut down,” devaluing its rental fleet, she said.

“We immediately shifted our business priorities to focus on employee and customer safety, expense mitigation and preserving liquidity,” Marinello said.

The coronavirus has also increased the company’s costs, as it has been forced to adopt new safety measures to safeguard its employees, as well as any customers, from the disease. Every vehicle is now being “sealed and certified ‘Hertz Gold Standard Clean’ after undergoing a 15-point cleaning and sanitization process that meets CDC guidelines, the company stated.

Hertz has taken many steps to cut its costs over the past several months, including reducing its capital spending, canceling new fleet orders and reducing its employee count.

A few weeks ago, Hertz announced its plans to lay off 10,000 employees across its North America operations after most of the cuts had already happened. 

The company estimates the aggressive steps it has taken to slash its costs will result in $2.5 billion in annualized savings. However, Hertz is still facing a mound of debt it’s not sure it can repay. 

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“As a responsible management team, we have to be pragmatic about the timing of an economic recovery, so we are doing absolutely everything we can to preserve liquidity,” Marinello said in the news release. “At the same time, from an operating perspective, we are continuing to service customers at the highest levels, with a safe fleet, in the manner they’ve come to trust from our iconic brand.” 

Last week, the company announced its lenders have given it more time to make up its missed lease payments last month to avoid a default, which could trigger the sale of much of Hertz’s fleet. 

However, the company only has until May 22 to come up with a new strategy and structure to pay back the debt, and it has warned there can be “no assurance” it will be able to negotiate any relief beyond that date.

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In its press release Monday, Hertz said: “At this time, neither the duration nor magnitude of the market disruption of COVID-19 can be predicted, therefore, the company is unable to reasonably estimate the ultimate impact to the business.”

Hertz’s business has dropped off by about 80%. 

At the end of 2019, the company had about 38,000 employees worldwide, with about 1,100 of them based in Southwest Florida.

Hertz operates the Hertz, Dollar and Thrifty brands.

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