Global car rental company Hertz (NASDAQ: HTZ) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 12.8% year on year to $1.81 billion. Its non-GAAP EPS of $1.12 per share was 14.6% below analysts’ consensus estimates.

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StockStory’s Take

Hertz management devoted extensive attention to its fleet rotation strategy and cost discipline in the first quarter, aiming to address operational headwinds resulting from macroeconomic volatility and shifting vehicle residual values. CEO Gil West described the company’s focus on “buy right, hold right and sell right” as critical to transitioning the fleet from a drag on profitability to a lever for improvement. West noted, “With over 70% of our core U.S. rental fleet now 12 months old or newer, we have a younger fleet that’s well equipped to navigate today’s uncertainty.” The decision to accept new vehicles ahead of tariff exposure contributed to localized utilization and pricing issues, but was viewed by management as a short-term trade-off for longer-term benefits. Hertz also cited progress in lowering maintenance costs and direct operating expenses as foundational improvements.

Looking ahead, Hertz management emphasized ongoing fleet optimization, capacity discipline, and the implementation of advanced technology to drive profitability. CFO Scott Haralson stated the company expects to reach a sub-$300 depreciation per unit (DPU) run rate, while also targeting improved utilization and cost efficiency. Management acknowledged lingering uncertainty in demand, especially from corporate and government customers, but highlighted opportunities in leisure and off-airport segments. Chief Commercial Officer Sandeep Dube said, “We are focused on capacity discipline to derisk our fleet investments, improving utilization process improvements and delivering on our commercial strategy to build a more durable and margin-accretive business.” The company aims to leverage technology partnerships and refined revenue management systems to enhance margins and adapt to evolving market conditions.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to accelerated fleet rotation, proactive cost management, and strategic responses to industry-wide supply disruptions. The timing of new vehicle deliveries and efforts to avoid tariff exposure were key factors impacting utilization and pricing.

• Fleet modernization progress: By acquiring newer vehicles ahead of anticipated tariffs, Hertz reduced the average age of its U.S. rental fleet, which management believes will lower depreciation and maintenance costs throughout the year.

• Tariff timing effects: The early acceptance of vehicles to avoid tariffs led to short-term overcapacity in certain local markets, temporarily impacting utilization and rental pricing, particularly in low-demand periods.

• Retail car sales momentum: Hertz saw a record quarter for retail vehicle sales, as it prioritized direct-to-consumer channels over wholesale, benefiting from rising used car residual values and improved net margins from selective reconditioning and financing initiatives.

• Technology partnerships expanding: The company launched AI-powered pricing for vehicle sales through Cox Automotive, expanded its use of Palantir’s Foundry for fleet management, and introduced AI-driven vehicle inspections with UVI, aiming to improve operational transparency and efficiency.

• Cost discipline and operating leverage: Through structural cost reductions and productivity initiatives, Hertz achieved nearly $100 million in direct operating expense savings year-over-year, with management expecting continued improvement as the younger fleet drives further efficiencies.

Drivers of Future Performance

Hertz expects that a combination of disciplined fleet management, technology-driven revenue optimization, and a tighter focus on high-margin customer segments will shape performance in upcoming quarters.

• Utilization and segment mix: Management intends to maintain a smaller, younger fleet while increasing utilization rates and shifting the revenue mix toward off-airport and mobility segments, which offer more consistent demand and healthier margins compared to traditional airport rentals.

• Revenue management upgrades: The rollout of an advanced revenue management system with Amadeus is expected to deliver incremental EBITDA improvements by optimizing pricing and demand selection, especially for non-contractual bookings that comprise the majority of Hertz’s transactions.

• Residual value and tariff exposure: While recent residual value increases benefit the current fleet, management remains cautious about future supply chain disruptions and tariff impacts, noting that vehicle supply and pricing for model year 2026 remain uncertain and could influence both fleet costs and profitability.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) Hertz’s execution on further fleet rotation and the ability to sustain sub-$300 depreciation per unit, (2) the effect of new revenue management technology and off-airport segment growth on margins, and (3) any changes in supply chain conditions or tariff-related costs that could impact fleet economics. Progress on cost reduction and customer experience improvements will also be critical signposts.

Hertz currently trades at a forward EV-to-EBITDA ratio of 5.2×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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