NEW YORK – Hertz Global Holdings said it will spin off its equipment-leasing division to focus on renting cars, a move analysts have pushed for since Hertz went public in 2006. Hertz will separate into two publicly traded companies, with Hertz comprising car rentals and the Donlen fleet leasing business, and the other containing equipment rental operations, the Park Ridge-based company said today in a statement. Hertz has more than 11,500 rental locations around the world. Brands include Hertz, Dollar, Thrifty and Firefly. The new HERC company will have about 335 branches in the US, Canada, France, Spain, China and Saudi Arabia, as well as international franchisees. HERC had sales of more than $1.5 billion in 2013. Hertz also said Tuesday that fourth-quarter sales rose 10 percent to $2.56 billion, driven by car rentals at Dollar Thrifty, acquired in November 2012. The average analyst estimate in a Bloomberg survey was for revenue of $2.62 billion. Worldwide equipment rental revenue rose 4 percent. Adjusted pretax income fell to $186.3 million in the quarter, from $210.7 million a year earlier. Hertz said it anticipates 2014 revenue of $11.4 billion to $11.7 billion. Last May, Hertz announced it would move its headquarters to Estero, Fla., in a two-year transition. Hertz will get cash proceeds of about $2.5 billion from the spinoff to pay down debt and support a new $1 billion share buyback. The spun-off company will be called Hertz Equipment Rental, or HERC. “Investors will receive the HERC spin announcement with open arms, offsetting what was otherwise a soft quarter from an operating and fiscal year 2014 guidance perspective,” Kevin Milota, an analyst at JPMorgan Chase, wrote in a research note. He rates the shares overweight, the equivalent of a buy. Analysts have pressed executives to outline plans for the unit. The business, which rents bulldozers, backhoes and road graders, ties up capital Hertz could otherwise use to repay loans or pay dividends, analysts have said. The move will “create a stronger growth profile and more competitive position for each company with enhanced management focus, resources and processes that are more directly aligned with each business's unique strategic priorities,” Hertz said. Hertz fell 0.4 percent to $27.10 at 9:32 a.m. The shares have lagged behind Avis Budget Group Inc., which doesn't have an equipment-rental unit. Hertz shares rose 76 percent last year, while Avis more than doubled. Through March 17, Hertz had fallen 4.9 percent this year, after a 4.8 percent jump yesterday, while Avis had risen 16 percent. The separation of HERC will probably be completed by early 2015, the company said. The majority of share repurchases will be done after the separation, and may reach 20 percent of outstanding stock, it said. The new plan replaces a $300 million program announced last year, which has resulted in purchases of about $87.5 million in shares, according to Hertz. The separate companies will “benefit from improved financial profiles that include increased earnings stability and higher returns on capital,” Mark Frissora, chairman and chief executive officer, said in the statement. The car rental business will maintain its target net corporate leverage ratio of 2.5 times to 3.5 times net debt to earnings before interest, taxes, depreciation and amortization. – Agencies
