Hertz Global Holdings experienced its steepest decline in stock value since its 2021 initial public offering, plunging 41% on June 24. This drastic drop was triggered by the car rental company's warning of significant pressure on its earnings and plans to issue new debt. The company's unique approach to fundraising involves a $300 million offering of convertible payment-in-kind (PIK) notes coupled with $100 million of shares designed to be shorted by note buyers to help them hedge their investment. Proceeds from the notes are intended for debt repayment.
The profit warning highlighted unexpected softness in the used-car market, which Hertz projects will push its second-quarter adjusted EBITDA to $80 million or less, falling short of analyst expectations. Hertz had originally anticipated making gains on vehicle sales in the second quarter, but instead recorded losses in May after gains in April, leading to an estimated net depreciation of approximately $300 per vehicle per month. This shift represents a material deterioration in the economics of fleet rotation, a critical component of a rental company's financial performance.
Adding to investor concerns, Hertz revealed that its financial guidance for the second quarter would be towards the lower end of its previously projected range of $50 million to $80 million. The company attributed this weaker outlook primarily to increased depreciation costs due to the struggling used-car market. While fleet size, revenue, rental days, and revenue per day are expected to meet or slightly exceed prior expectations, the losses on vehicle dispositions have offset these positives and weighed heavily on profitability. Hertz's shares have now fallen roughly 28% this year and nearly 50% over the past 12 months, reflecting persistent challenges and investor apprehension.
