Hertz GlobalHTZ

Key highlights

• Strong pricing performance: The company saw revenue rise 10% to $2.4 billion, which was driven by its strongest second-quarter revenue per day on record outside of the pandemic. This pricing power, where daily rental rates rose 9% to $61.98, helped the company grow its top line even while operating with 1% fewer vehicles than last year.
• Fleet quality improving: The core U.S. fleet is now 94% comprised of model year 2025 and 2026 vehicles, making it the youngest fleet the company has owned in twelve years. Newer cars generally cost less to maintain and hold their value better, which management expects will lead to better economics than the older models they replaced.
• Operating costs rising: Direct operating expenses per day rose 4% to $37.49, which was slightly higher than the company planned. The increase was caused by higher variable costs linked to the rise in revenue and expenses from sale leaseback deals, though the gap between what Hertz earns per day and what it spends still improved 17% compared to last year.
• Recall headwinds persist: Safety recalls were 300% higher than last year, which forced an average of 15,000 vehicles out of service during the quarter. These unusable cars reduced profit by roughly $30 million, though overall utilization, meaning the percentage of the fleet that is actually being rented, still improved to 79%.
• Mobility division momentum: The Oro Mobility unit, which manages fleets for rideshare drivers, has now seen more than 6 million miles driven across four different markets. This division is the foundation for a new partnership with Uber that plans to start running autonomous robotaxis in the San Francisco area later this year.
• Improved depreciation outlook: Management expects to hit its goal of keeping net depreciation, which is the monthly drop in a car's value, at or below $300 for the full year. This is a critical metric for a rental company because it determines the largest cost of owning the fleet, and hit $302 per month this quarter.

Our take: This was a encouraging quarter because Hertz is finally showing it can raise prices effectively while modernizing its fleet. While high recall volumes and rising operating costs are still dragging on results, the 17% improvement in the spread between daily revenue and expenses shows the underlying business is getting healthier. We are looking for this momentum to lead to consistent profits as fleet costs stabilize.