Back to top

Analyst Blog

Leading global car rental company, Avis Budget Group Inc. (CAR - Analyst Report), posted stronger-than-expected first-quarter 2013 results, with adjusted earnings per share of 8 cents coming in substantially higher than the Zacks Consensus Estimate of 1 cent. However, quarterly earnings declined 33% from 12 cents earned in the prior-year quarter.

On a reported basis, including one-time items, the company’s loss per share came in at 43 cents in the reported quarter compared with a loss of 22 cents in the comparable year-ago quarter.

During the quarter, the company benefited from strong pricing trends in North America compared to last year, while higher fleet costs and economic challenges in Europe remained a drag on the results.

Quarter in Detail

Avis Budget’s net revenue increased 4% to $1.691 billion from $1.623 billion in first-quarter 2012, but missed the Zacks Consensus Estimate of $1.715 billion. The year-over-year revenue growth was primarily driven by a 2% rise in rental day volume and a 2% increase in pricing.

However, Avis Budget’s adjusted EBITDA for the quarter slipped 26% to $83 million from $112 million in the comparable year-ago quarter. Consequently, Adjusted EBITDA margin for the quarter contracted 200 basis points to 4.9%.

During the quarter, the company completed the acquisition of Zipcar Inc., which contributed about $65 million to the total revenue. Zipcar’s revenue represented a 10% increase year over year. Further, the total number of members at Zipcar increased 12% year over year to 792,000 at the end of the quarter.
 
Segment Performance

North American car rental revenues grew 6% to $1.100 billion in the first quarter, primarily attributable to 1% volume expansion and 4% growth in pricing, which benefited from an 8% rise in leisure pricing. However, adjusted EBITDA fell 3% to $90 million compared with $93 million in the year-ago quarter, on account of higher per-unit costs, offset by increased pricing and lower interest expenses related to vehicles.

International car rental revenues came in at $515 million, up 1% from the year-ago quarter, benefiting mainly from the acquisition of Apex Car Rentals last October. During the quarter, a 2% increase in volume helped revenue growth, but was offset by a 4% fall in pricing. However, adjusted EBITDA for the segment decreased 36% to $14 million, mainly attributed to lower pricing and inflationary cost increases.

Revenues at Truck Rental inched up 1% to $76 million, as benefits from a 4% hike in pricing were partially offset by a 3% dip in volume. However, the segment posted an adjusted loss before interest tax and depreciation and amortization of $9 million compared with adjusted EBITDA of $1 million reported in the year-ago quarter. The decline was attributed to the company’s previously announced restructuring program that caused maintenance and damage costs, fleet costs and restructuring costs to increase in the quarter.

Balance Sheet

Avis Budget ended the quarter with cash and cash equivalents of $569 million and total corporate debt of $3.347 billion. As of Mar 31, 2013, the company’s shareholder’s equity stood at $694 million.

Looking Ahead

Following first-quarter results, Avis Budget revised its outlook for fiscal 2013 to take into account the acquisition of Zipcar. The company now forecasts fiscal 2013 revenues in the range of $7.8 – $8.0 billion, representing an increase of 6% – 9% from the 2012 level. Revenue projections for the year include an estimated contribution of $260 million from the Zipcar acquisition. Previously, the company had anticipated fiscal 2013 total revenue to range from $7.6 billion – $7.8 billion.

For fiscal 2013, adjusted EBITDA is now expected to range from $750 million – $855 million, compared with $725–$825 million anticipated earlier. EBITDA for the year will include about $25 – $30 million generated from the Zipcar acquisition.

However, the company retained its forecasts for per-unit domestic fleet costs, which are expected to increase in the range of 15%–20% to $275–$290 per month in 2013. Per unit fleet costs for the total company are also projected to be about $275 – $290 per month in 2013, representing an 11% – 17% growth from 2012.

Nonetheless, the company does not project significant change in its pretax and net income for 2013 as it expects an additional $22 million in interest expense related to the Zipcar transaction. The company raised its net interest expense forecast for fiscal 2013 to $240 million, from an earlier projected range of $230 – $235 million. The increase in net interest expense primarily reflects the cost of financing the Zipcar acquisition, partially offset by benefits from the company’s already completed refinancings. However, this represents a $30 million decline from the 2012 level.

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, up from $125–$130 million projected earlier. Consequently, the adjusted pre-tax income is anticipated to be in the range of $375–$485 million, compared with $360–$470 million forecasted previously.

The company’s effective tax rate in 2013 is expected to be in the range of 37%–38% on an adjusted basis, while diluted shares outstanding are projected to be approximately 118 million. Based on the above expectations, the company projects adjusted earnings in the range of $2.00–$2.60 per share in 2013.

Additionally, the company projects annual synergies from the Zipcar acquisition in the $50 – $70 million range for the first two years from the date of the acquisition.

Other Stocks Worth Considering

Currently, Avis Budget carries a Zacks Rank #2 (Buy). Other stocks that are performing well in the business services industry include Hertz Global Holdings Inc. (HTZ - Snapshot Report), Interval Leisure Group Inc. (IILG - Snapshot Report) and SouFun Holdings Ltd. (SFUN - Snapshot Report), all of which carry a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.