Hertz Global Holdings Inc lowered its full-year earnings forecast as cuts in government spending hurt U.S. airport rentals, sending its shares down 15 percent to a six-month low.
Government austerity and low consumer confidence have reduced U.S. airline and hotel bookings this year, cutting into one of the biggest sources of revenue for Hertz and its largest publicly traded competitor, Avis Budget Group Inc.
Shares in Avis fell as much as 7 percent on Thursday.
The U.S. car rental industry is tied inexorably to domestic travel, which has been hit this year by budget cuts that have also reined in travel spending in the defense industry and other key government suppliers.
“We are revising full-year 2013 guidance primarily because of weaker-than-anticipated volume … in the U.S. airport car rental market, our largest business,” Hertz Chief Executive Mark Frissora said in a statement.
Airport rentals contribute about half of revenue at Hertz, the largest U.S. car rental company after privately owned Enterprise Holdings. Together with Avis, the trio controls about 95 percent of the country’s car rental market.
In a move to cut dependence on commercial airport rentals, Hertz fought a long battle with Avis to acquire Dollar Thrifty, which serves the leisure car rental market.
Wells Fargo Securities analyst Richard Kwas wrote in a note that Hertz had been unable to integrate its fleet from the Dollar Thrifty acquisition “as smoothly as expected in the first year”.
Frissora, who is also chairman of Hertz, said weaker airport rental volumes had resulted in the company’s fleet being under-utilized. The used car market was unable to absorb its excess vehicles at current market prices, he said.
“Fortunately, stronger pricing in the U.S. airport car rental market is helping to partially offset softer volume,” he said, adding that the European car rental business had overcome a protracted recession.
Hertz said it expected full-year adjusted earnings of $1.68-$1.78 per share, down from its previous forecast of $1.78-$1.88.
The Park Ridge, New Jersey-based company cut its revenue forecast to $10.80 billion to $10.90 billion from $10.85 billion to $10.95 billion.
The company’s shares were down 15 percent at $21.91 in afternoon trading on the New York Stock Exchange. Avis Budget’s shares were down 6 percent at $28.27 on the Nasdaq.