Leading global car rental company, Avis Budget Group Inc. (CAR - Analyst Report) posted lower-than-expected third-quarter 2013 results, with adjusted earnings per share of $1.48 missing the Zacks Consensus Estimate of $1.55. However, the quarterly earnings rose 1.4% from $1.46 per share earned in the prior-year quarter.
On a reported basis, including certain items, the company’s earnings per share came in at $1.02 in the quarter, down 57.1% from the year-ago quarter's figure of $2.38.
In the said quarter, the company benefited from volume growth and strong pricing trends in North America, along with robust performance of the EMEA (Europe, Middle East and Asia) region as compared with the previous year, while higher fleet costs remained a drag on the results.
Highlights of the Quarter
Avis Budget’s net revenue increased 10.4% to $2,395 million year over year and surpassed the Zacks Consensus Estimate of $2,354 million. The revenue growth was primarily driven by the acquisition of Zipcar and a 6% rise in rental days.
However, Avis Budget’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), excluding certain items, for the quarter increased 2% to $383 million mainly due to higher earnings from Europe, partly offset by rise in the North American fleet costs.
North American car rental revenues grew 11.4% year over year to $1,513 million in the quarter, primarily attributable to the acquisition of Zipcar, 4% volume expansion and 1% rise in pricing (constant currency). However, adjusted EBITDA fell 3.8% to $223 million, on account of a 15% rise in per-unit fleet costs, partly offset by increased revenues and lower interest expenses related to vehicles.
International car rental revenues came in at $773 million, up 10% from the year-ago quarter, benefiting mainly from 8% rise in rental days and 2% growth in total revenue per rental day. However, adjusted EBITDA for the segment increased 11.6% to $144 million, primarily driven by higher net revenues.
Revenues at Truck Rental remained flat year over year at $109 million, due to 9% rise in pricing, partly offset by 15% decline in truck rental fleet and 8% in volume. However, adjusted EBITDA fell 7.1% to $13 million in the quarter but excluding restructuring cost, adjusted EBITDA came in at $19 million, rising 36% year over year.
Avis Budget ended the quarter with cash and cash equivalents of $589 million and total corporate debt of $3,384 million. As of Sep 30, 2013, the company’s shareholders’ equity was $804 million.
In the quarter, Avis Budget bought back 860,000 shares for $25 million.
Last quarter, Avis Budget had announced its board of directors’ approval of a new share buyback program that sanctioned the repurchase of up to $200 million of the company’s common stock.
Following the third-quarter results, Avis Budget now projects fiscal 2013 revenues to be in the range of $7.9–$7.95 billion, marking an increase of 7%–8% from the 2012 level.
For fiscal 2013, adjusted EBITDA (excluding certain items) is now expected to range from $760–$780 million.
However, the company reiterated its forecasts for per-unit domestic fleet costs, which are expected to increase nearly 25% to $300 per month in 2013. Additionally, per unit fleet costs for the total company are projected to be about $285–$295 per month in 2013, representing a 15%–20% rise from 2012.
The company expects interest expense pertaining to corporate debt to be nearly $230 million, down by $30 million compared with 2012 levels.
The company’s non-vehicle depreciation and amortization costs (excluding the amortization of intangibles related to the Avis Europe and Zipcar buyouts) are expected to be about $130–$135 million, the same as the earlier projections. Consequently, the adjusted pre-tax income is anticipated to be in the $395–$420 million range.
The company’s effective tax rate in 2013 is expected to be 38% on an adjusted basis, while diluted shares outstanding are projected to be approximately 116–117 million. Based on the above expectations, the company projects adjusted earnings (excluding certain items) to be $2.10–$2.25 per share in 2013.
Other Stocks Worth Considering
At present, Avis Budget carries a Zacks Rank #3 (Hold). Better-performing stocks in the business services industry include SouFun Holdings Ltd. (SFUN - Snapshot Report), comScore, Inc. (SCOR - Snapshot Report) and WNS (Holdings) Ltd. (WNS - Snapshot Report). While SouFun Holdings and comScore have a Zacks Rank #1 (Strong Buy), WNS (Holdings) carries a Zacks Rank #2 (Buy).