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High Fleet Costs to Hurt Avis Budget's (CAR) Q4 Earnings

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Leading global car rental company, Avis Budget Group Inc. (CAR - Free Report) is scheduled to report fourth-quarter 2017 results after the market closes on Feb 21. The company is likely to record high fleet costs in both its segments

This is likely to result in lower earnings for the quarter.

Higher Operating Costs

Avis Budget continues to face hurdles like high fleet costs and unfavorable currency headwinds. Evidently, the company’s earnings for the earlier quarters were hurt by high fleet costs in both its segments and adverse currency movements in the International segment. During third-quarter 2017, average monthly per-unit fleet costs increased to $326 from $310 in the year-ago quarter. The trend is likely to continue in the fourth quarter as well, hurting its bottom line.

Operating in the vehicle rental industry, Avis Budget faces intense competition from other players, mainly on grounds of pricing. The company may lose rental volumes if it is unable to match up to industry pricing standards. On the other hand, an attempt to capture volumes by reducing prices may hurt its overall performance, in case of persistently high operating costs. Apart from this, pricing also depends a lot on the size of the rental fleets and supply of vehicles in the industry. If the company fails to adjust its rental fleet size in response to demand fluctuations, it may impact pricing and lead to loss of market share to competitors.

Other Key Factors

The Zacks Consensus Estimate for revenues from the Americas segment, which accounts for the bulk of total revenues, is currently pegged at $1,360 million, up from $1,343 million reported in the year-ago quarter. Revenues from the International segment are anticipated to improve to $636 million from $536 million. Total revenues are likely to be up from $1,879 million in the prior-year quarter to 2,018 million.

Despite top-line growth, our proven model does not conclusively show that Avis Budget is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and Zacks Consensus Estimate, is -11.69% with the former pegged at 17 cents and latter at 19 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Avis Budget Group, Inc. Price and EPS Surprise

 

Avis Budget Group, Inc. Price and EPS Surprise | Avis Budget Group, Inc. Quote

Zacks Rank: Avis Budget has a Zacks Rank #5 (Strong Sell).

Note that we caution against stocks with a Zacks Rank #4 (Sell) or #5 going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Sonic Automotive, Inc. (SAH - Free Report) has an Earnings ESP of +2.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Magna International, Inc. (MGA - Free Report) has an Earnings ESP of +0.48% and a Zacks Rank #3.

Workday, Inc. (WDAY - Free Report) has an Earnings ESP of +2.37% and a Zacks Rank #3.

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