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Avis Budget (CAR) Beats on Q2 Earnings, Revises Guidance

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Avis Budget Group, Inc. (CAR - Free Report) reported mixed second-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted EPS of 57 cents outpaced the consensus mark by 2 cents and increased a massive 90% on a year-over-year basis. Earnings benefited from strong EBITDA performance, lower tax rates and reduced average share count.

Revenues totaled $2.3 billion, which missed the consensus estimate by $59 million but improved 4% year over year. The top line benefited from a 4% increase in volume, higher Americas underlying pricing under the company’s historical T&M per day metric and a 2% benefit from currency exchange rates.

Avis Budget’s consistent focus on enhancing its technology and improving offerings is leading to operational and pricing improvement. In the reported quarter, the company progressed significantly toward having a global integrated demand fleet pricing yield management system called DFP. Notably, this system is capable of optimizing pricing and fleet decisions on the basis of available demand. Avis Budget has completed the first phase of DFP — the pricing robotic — across all its corporately-owned international locations.

Avis Budget made some significant progress with mobility as well. Evidently, Zipcar partnered with Volkswagen to add 325 electric Golf to its London offering. It also partnered with the City of Columbus in order to be available to businesses, visitors and a local resident. Avis Budget’s ongoing partnership with Alphabet’s (GOOGL - Free Report) Waymo (to provide fleet management services to Waymo’s self-driving vehicles in Phoenix) has now expanded to other areas as well.

Recently, Avis Budget expanded its partnership with Amazon (AMZN - Free Report) to reward the latter’s customers who rent on Avis Car. The company became exclusive vehicle rental partner of villa rental company Luxury Retreats. It also partnered with Lyft to add thousands of vehicles to the Lyft Express Drive program across North America.

Furthermore, the company is in the process of modernizing its core rental and reservation systems, and finance processes and systems. It is also building a next-generation connected car and mobility platform that will enable advanced analytics and data science to optimize its fleet. Avis Budget recently reached the 100,000 connected car mark.

In a year’s time, the stock has gained just 1.7% compared with the industry’s 11.6% rally.

Revenues by Segment

Revenues at the Americas segment increased 1.6% year over year to $1.6 billion. Segment revenues were positively impacted by 2% higher volumes, with growth both on and off airport. Revenue per Day was 1% lower mainly due to lower ancillary revenues and the change in loyalty accounting but was 1% higher under the company’s historical T&M per day metric. The segment accounted for 68% of total revenues.

Revenues at the International segment were up 9.7% year over year on a reported basis and 4% on a constant-currency basis to $738 million. The upside was driven by a 6% higher volume and a $40 million benefit from foreign currency rates, partially offset by a 2% lower local currency Revenue per Day. Rental days per day grew 6% primarily driven by strong growth in France, Italy and Spain. The segment contributed 32% to total revenues.

Avis Budget Group, Inc. Revenue (TTM)

Profitability

Adjusted EBITDA in the second quarter was $161 million, up 15% from the prior-year quarter, with margin increasing by 70 basis points (bps). This uptick can be attributed to strong revenue growth, 50 basis point improvements in utilization and a 5% reduction in local currency per-unit fleet costs.

Adjusted EBITDA for Americas was $107 million, up 11.5% from prior-year quarter. Revenue growth along with 70 basis points improvement in utilization and a 7% lower per-unit fleet costs drove the segment’s adjusted EBITDA figure.

Adjusted EBITDA for International increased 20.3% year over year to $71 million. The increase was owing to strong revenue growth, improved utilization, unchanged per-unit fleet costs, and a $19 million benefit from currency.

Balance Sheet and Cash Flow

Avis Budget exited the quarter with cash and cash equivalents of $489 million compared with $544 million in the prior quarter. Corporate debt at the end of the second quarter was $3.6 billion, flat with the prior-quarter tally.

The company generated $618 million of cash from operating activities compared with $503 million in the previous quarter. Adjusted free cash flow totaled $70 million in the reported quarter.

2018 Outlook

For 2018, Avis Budget raised its adjusted EPS, adjusted net income and adjusted pretax income guidance but lowered its revenue guidance. It reiterated adjusted free cash flow and adjusted EBITDA guidance for the year.

Adjusted EPS is expected to be between $3.00 and $3.85 compared with $2.90 and $3.75 projected earlier. The mid-point of the guided range is below the Zacks Consensus Estimate of $3.50.

Further, adjusted net income is envisioned in the range of $245-$315 million compared with the prior anticipation of $240-$310 million. Adjusted pretax income is expected between $340 million and $420 million. The prior expectation was in the $330-$410 million band.

The company expects revenues to be in the range of $9.05-$9.30 billion compared with the $9.20-$9.45 billion anticipated earlier. The mid-point of the guided range is below the Zacks Consensus Estimate of $9.29 billion.

Adjusted free cash flow is consistently expected between $325 million and $375 million. Adjusted EBITDA is anticipated in the range of $740-$820 million.

Zacks Rank and Key Pick

Avis Budget currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader Business Services sector is SPS Commerce (SPSC - Free Report) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank tocks here.

The long-term expected earnings per share growth rate for SPS Commerce is 22.5%.

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