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Why Is Avis Budget (CAR) Down 4.2% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Avis Budget Group, Inc. (CAR - Free Report) . Shares have lost about 4.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Avis Budget Lags Q4 Earnings & Revenues; Offers View

Avis Budget reported dismal fourth-quarter 2016 results. The company’s adjusted earnings were $13 million or $0.15 per share compared with $18 million or $0.18 per share in the prior-year quarter. Adjusted earnings missed the Zacks Consensus Estimate of $0.16.

GAAP loss for the quarter were $31 million or $0.35 per share compared with loss of $5 million or $0.06 in the prior-year quarter. Decline in earnings were driven by fall in revenues during the quarter.

Revenues for the quarter were $1,879 million compared with $1,902 million in the year-ago quarter. Revenues missed the Zacks Consensus Estimate of $1,956 million. Revenues declined primarily due to decrease in rental days and pricing in the Americas, as well as fall in International pricing.

Adjusted EBITDA was $121 million compared with $128 million in the year-ago quarter. The softer-than-expected volume and pricing as well as currency movements had an adverse impact on the company’s adjusted EBITDA.

For the full year, the company reported adjusted income of $273 million or $2.93 per share compared with $333 million or $3.17 per share, a year ago. Revenues for the full year were $8,659 million compared with $8,502 million in the prior year.

Segmental Performance

Americas reported revenues of $1,343 million compared with $1,362 in the prior-year quarter, primarily due to a 1% decrease in rental days and a 1% fall in pricing. Adjusted EBITDA decreased to $101 million primarily due to lower revenues and higher per-unit fleet costs.

The International segment’s revenues were down 1% year over year to $536 million, due to 5% lower pricing, including a 2% reduction due to currency movements, partially offset by a 3% increase in volume. Adjusted EBITDA for the segment increased 13% to $36 million, due to higher volumes and expense savings.

Financials

Avis ended the year with cash and cash equivalents of $490 million and total corporate debt of $3,523 million. As of Dec 31, 2016, the company’s shareholders’ equity was $221 million. During the year, the company generated $2,629 million as cash flow from operating activities.

Avis repurchased 2.8 million shares worth $100 million. For the full year, the company repurchased 12.3 million shares worth $390 million.

Acquisition

During the quarter, the company completed the acquisition of France Cars. This buyout will help the company position itself as the second-largest light commercial vehicle fleet operator in France, while providing it a strong presence in the French local market. This acquisition will likely help the company improve its revenues in the impending quarter. 

Guidance

Full-year 2017 revenues are expected to be in the range of $8.8−$8.95 billion.  Movements in currency exchange rates are currently expected to hurt revenue growth by approximately $130 million.

Per-unit fleet costs are expected to be in the range of $280−$290 per month in 2017 compared with $285 in 2016.  In the Americas segment, per-unit fleet costs are expected to be between $311 and $321. In the International segment, per-unit fleet costs are expected to be between $210 and $220 per month, compared with $227 per month in 2016, including a 5% decrease from currency exchange rates.

Adjusted EBITDA is expected to be in the range of $840−$920 million. For 2017, adjusted earnings per share are expected to be between $3.05 and $3.75. The company expects to repurchase $300 million or more stocks in 2017.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter. In the past month, the consensus estimate has also shifted downward by 16.7% due to these changes.

VGM Scores

At this time, Avis Budget's stock has an average Growth Score of 'C', however its Momentum is doing a lot better with an 'A'. Also, the stock was allocated a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value and momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock hase a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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