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Hertz: What Accounting Issues Mean for Shareholders

Hertz isn't the first company to suffer from accounting issues

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The accounting issues first came to light in a September 25, 2011, report by Mark Roberts of the Off Wall Street Consulting Group, Inc. In it he revealed that Diamond Foods’ gross margin was about five percentage points too high as a result of a momentum payment made to walnut growers that should have counted against its July 2011 fiscal year but instead was entered into its next fiscal year making its profit that much higher.

Just days before the report came out DMND stock was trading as high as $96.13. Once the accounting issues hit the street, it was a quick ride down to $32 by the end of 2011. One year later, its stock had declined to below $15 where it bottomed. Now trading around $30, DMND stock is trying to regain momentum lost. Although yesterday’s Q3 2014 earnings release has the stock down in Friday trading, its snack business appears to be strong and the worst seems to be behind it.

Bottom Line

Where there’s smoke there’s fire. Diamond Foods’ ordeal lasted more than two years, and in some respects is still hanging around (as its Q3 results attest). Hertz’s problems aren’t going to quickly go away, which means HTZ stock will remain under pressure for some time.

Are its accounting issues similar to Diamond Foods? No, they’re not.

In Diamond’s case you are talking about executive officers knowingly altering the company’s profit picture in order to benefit (Pringles acquisition was to be paid in DMND stock). While no one has actually gone to jail, but the people in charger weren’t far away from doing time.

Hertz’s accounting issues appear to be due to lax accounting controls and nothing of a nefarious nature. Therefore, if you are a fan of its business I’d be tempted to buy some more on weakness. From where I sit, it doesn’t appear to be anything too damaging … but I’ve learned from the school of hard knocks never to say never.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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