Hertz Global Holdings Inc. soared the most in five years after the rental-car company said it has concluded an era of weak financial oversight and is poised to revive the brand’s strength.
The shares climbed 13 percent to $19.21 at 10:09 a.m. in New York after surging as much as 21 percent, the biggest intraday jump since April 2010. Hertz said an internal review found material weaknesses, caused in part by lax oversight of former Chief Executive Officer Mark Frissora. The company said it now expects to reach annualized cost savings of $300 million by year-end, $100 million more than its goal.
Hertz is ready to “substantially close this chapter,” Chief Financial Officer Tom Kennedy said on a conference call Friday.
John Tague, who took over as CEO in November, has shuffled management, adding veterans from the airline and other industries with strength in financial accounting and revenue management. Tague said Hertz will exit the car-sharing business in the U.S., a small source of revenue but a niche of the industry that has attracted large investor attention, including from Carl Icahn, Hertz’s largest shareholder.
Hertz identified $207 million in additional pretax misstatements from 2011 through 2013, according to a statement Thursday. The misstatements reduced annual pretax income by as much as 23 percent and net income by as much as 26 percent.
Hertz said it expects to complete the separation of its equipment-leasing unit, announced in March 2014, in 2016’s second quarter. The Naples, Florida-based company also reaffirmed a $1 billion share-buyback plan, unveiled at the same time.
The company’s investigation found that the tone at the top of Hertz was “inconsistent and sometimes inappropriate,” according to a filing with U.S. regulators.
“In particular, our former chief executive officer’s management style and temperament created a pressurized operating environment,” Hertz said.
Hertz had said in September that Frissora, now CEO of Caesars Entertainment Corp., resigned for personal reasons. Investors had pushed for his removal, citing accounting and operational missteps.
“The tone at the top stuff is very serious,” said Maryann Keller, an independent auto-industry consultant who was on Dollar Thrifty’s board until Hertz bought the smaller rival. “They’re basically saying that the CEO caused other people to act in ways that are unethical. So where does the SEC investigation go now?”
The board, she added, should have “had the presence of mind to question him.”
Hertz said it was notified in June 2014 by the U.S. Securities and Exchange Commission that the agency was investigating its filings. The company said it’s cooperating and can’t predict the outcome.
In November, Hertz appointed former United Airlines manager Tague, choosing him over Scott Thompson, the former Dollar Thrifty CEO, whom investor Jana Partners had called the “obvious choice” for the job.
Tague, who had been CEO of transportation provider Cardinal Logistics Holdings, was described by a former employee as a “customer-focused” executive. Steve Miller, who will take over as CEO of International Automotive Components Group next month, was a United director during Tague’s tenure. He said Tague “has a great business head on him.”
–With assistance from David Welch in New York.
This article was written by Mark Clothier from Bloomberg and was legally licensed through the NewsCred publisher network.