Avis Budget (CAR) Q1 Earnings Beat, Sales Miss Estimates - Analyst Blog

Leading global car rental company, Avis Budget Group Inc. CAR reported first-quarter 2015 adjusted earnings per share of 17 cents, which grew 6.3% from the prior-year earnings and surpassed the Zacks Consensus Estimate of 14 cents. The upside came despite volatile global economic conditions, coupled with the industry-wide scenario of over-fleeting in North America.

Avis Budget Group Inc. - Earnings Surprise | FindTheCompany

On a reported basis, including certain one-time items, the company reported loss per share of 9 cents in the first quarter, contrary to earnings of 3 cents per share in the year-ago quarter.

Avis Budget’s net revenue inched down 1% year over year to $1,850 million and fell short of the Zacks Consensus Estimate of $1,929 million. The decline was due to negative impact from foreign currency translations, offset by a 5% rise in rental days in the Americas. Revenue was up 4% on a currency-adjusted basis.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were flat with last year at $117 million driven by higher rental volumes and movements in currency exchange rates, partly offset by inflationary cost pressures, weather-related reductions in fleet utilization and legal expense related to resolving two long-standing U.S. cases.

Segment Performance

Americas, which consists of the company’s operations in North America, South America, Central America and Caribbean, reported revenue growth of 3% year over year to $1,375 million, primarily on the back of a 5% volume expansion and 4% improvement in ancillary revenue per rental day. Pricing for the Avis and Budget brands was up 1% in the U.S., while it remained flat overall because of the impacts from currency translations and growth in its Payless brand. Adjusted EBITDA was flat at $115 million on account of higher volume and 1% decline in per-unit fleet costs that were compensated by a 2% fall in utilization owing to weather and increased legal costs.

The International segment’s revenue came in at $475 million, down 11% from the year-ago quarter, mainly impacted by negative currency movements. However, the segment’s revenues benefited from a 5% rise in rental days while in constant-currency total revenue per rental day remained flat. Adjusted EBITDA for the segment rose 14% to $16 million.

Other Financials

Avis Budget ended the quarter with cash and cash equivalents of $854 million and total corporate debt of $3,725 million. As of Mar 31, 2015, the company’s shareholders’ equity was $521 million. During the first quarter, the company generated $503 million in operating cash flow.

In Jan 2015, the company acquired its Avis and Budget licensee for Norway, Sweden and Denmark for $50 million, which functions at major locations across the region including Oslo, Stockholm, Copenhagen and Sweden's Arlanda and Goldberg airports.

In April, the company acquired Italy’s leading vehicle rental businesses, Maggiore Group. The assets were purchased for nearly $160 million, which Avis sponsored with available cash and additional corporate debt.

Later in April, Avis acquired 100% ownership interest in Avis and Budget licensee in Brazil by buying equity and debt interests in the business for about $40 million.

Share Repurchase

During the first quarter, Avis Budget bought back nearly 0.5 million shares for $31 million. With this, the company had repurchased a total of 7.7 million shares for about $375 million under its share repurchase program that was started in Aug 2013.

Guidance

Avis Budget reiterated its outlook for 2015. The company expects revenue of roughly $8.8 billion, an increase of 4% from 2014. The company’s Americas segment rental days are expected to grow 5%–7%, while pricing is anticipated to increase 1%–2%, on a constant currency basis. The company expects revenue to bear a 6 points negative impact from currency translations and will include the results of Maggiore Group from the date of acquisition.

Adjusted EBITDA is expected to be in the range of $900 million to $1 billion, representing a 3%–14% increase year over year.  Adjusted EBITDA for the year is expected to include a $40 million negative impact from foreign exchange movements.

Per-unit fleet costs in Americas are expected to be about $310–$320 per month for 2015, marking an increase of 2%–5% year over year. Additionally, per unit fleet costs for the company are expected to be about $290–$300 per month, compared with $305 million in 2014.

Interest expense pertaining to corporate debt is expected to be nearly $200 million. The company’s non-vehicle depreciation and amortization costs guidance (excluding the amortization of intangibles related to acquisitions) is at about $165 million. Consequently, the adjusted pre-tax income for 2015 is anticipated to be in the $535–$635 million range.

The company’s effective tax rate in 2015 is expected to be 37%–38% on an adjusted basis, while diluted shares outstanding are projected to be approximately 106 million.

Based on the above expectations, the company’s adjusted earnings are expected to be $3.15–$3.75 per share, reflecting a 6%–27% year-over-year increase.

Other Stocks Worth Considering

Currently, Avis Budget has a Zacks Rank #4 (Sell). Stocks to consider in the broader retail sector include Citi Trends Inc. CTRN, Express Inc. EXPR and American Eagle Outfitters Inc. AEO. While Citi Trends and Express sport a Zacks Rank #1 (Strong Buy), American Eagle holds a Zacks Rank #2 (Buy).

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