Avis Earnings Gain on Strategic Plans

Zacks

Leading global car rental company, Avis Budget Group Inc. (CAR) posted better-than-expected fourth-quarter and fiscal 2013 results mainly on the back of synergies realized from its long-term strategic plans. Results for both periods benefited from strong volume growth and pricing that stemmed from continued investments in the company’s highly profitable customer segments and channels. Further, top and bottom lines were aided by strong contributions from recent acquisitions including Zipcar and Payless Car Rental.

Fourth-quarter 2013 adjusted earnings per share of 15 cents surpassed the Zacks Consensus Estimate of 12 cents and reflected a significant improvement from a loss of 7 cents per share reported in the prior-year quarter. For the full year, the company’s adjusted earnings per share of $2.20 soared 9% year over year and were well above the Zacks Consensus Estimate of $2.17.

On a reported basis, including the restructuring costs incurred in Europe and debt-extinguishment expenses, the company reported a loss per share of 26 cents in the fourth quarter, narrowing from a loss of 43 cents per share in the year-ago quarter. Full-year GAAP earnings per share were 15 cents, down 94% from $2.42 earned in 2012. Earnings for the quarter were also impacted by a typically slower fourth quarter that the company counters.

Avis Budget’s net revenue increased 8.9% year over year to $1,849 million in the fourth quarter and surpassed the Zacks Consensus Estimate of $1,833 million. Revenue growth was primarily driven by the acquisition of Zipcar and a 6% rise in rental days. For the full year, revenue rose 7.9% to $7,937 million and marginally beat the Zacks Consensus Estimate of $7,929 million.

Adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA), excluding certain items, for the quarter increased by a whopping 46.2% to $114 million mainly due to higher earnings in North America. However, full-year adjusted EBITDA skidded 8.5% from the prior year to $769 million on account of extremely lower fleet costs in 2012 that regularized in 2013.

A major driver of the company’s robust performance in 2013 was the synergies realized from the Zipcar and Payless Car Rental acquired in Mar 2013 and Jul 2013, respectively. Contributions from Zipcar helped Avis Budget’s revenue by $74 million in the fourth quarter and $246 million for the full year. Further, Zipcar contributed a meaningful $11 million and $25 million, respectively, to fourth quarter and full-year adjusted EBITDA.

Payless aided the company’s revenue by contributing $21 million in the fourth quarter and $44 million for the full year. However, Payless’ contributions to adjusted EBITDA were hardly noteworthy.

Q4 Segment Performance

North American car rental revenues grew 11.1% year over year to $1,178 million in the quarter, primarily attributable to the acquisition of Zipcar and 6% volume expansion. Adjusted EBITDA reflected a substantial 55.3% growth to $73 million, on account of higher revenue and lower marketing costs, partly offset by an 8% rise in per-unit fleet costs.

International car rental revenues came in at $586 million, up 6.5% from the year-ago quarter, benefiting mainly from a 6% rise in rental days and 1% growth in total revenue per rental day. Adjusted EBITDA for the segment grew 20.8% to $29 million, primarily driven by superior revenue growth and benefits realized from the integration of the European businesses.

Revenues for the Truck Rental business dipped 2.3% year over year to $85 million, as volumes declined 5% on account of a 14% drop in truck rental fleet in 2013. However, adjusted EBITDA increased over two-fold in the quarter to $3 million.

Balance Sheet

Avis Budget ended the quarter with cash and cash equivalents of $693 million and total corporate debt of $3,394 million. As of Dec 31, 2013, the company’s shareholders’ equity was $771 million. During 2013, the company generated $460 million in free cash flow, with a 24-month free cash flow totaling $978 million.

Share Repurchase

During the fourth quarter, Avis Budget bought back 720,000 shares for $26 million under its $200 million authorization approved in Aug 2013. Full-year share buybacks totaled 1.6 million shares for an average of $50 million.

Looking Ahead

Closing 2013 on a strong note, Avis Budget provided an impressive forecast for fiscal 2014. The company projects fiscal 2014 revenues to be in the range of $8.3–$8.5 billion, marking an increase of 5%–7% from the 2013 level. This assumes a 3% - 5% rise in rental days and 1% increase in pricing in North America.

Adjusted EBITDA (excluding certain items) is expected to rise about 7% – 17% to $825–$900 million.

Per-unit domestic fleet costs are expected to increase nearly to $300 - $310 per month in 2014 against $299 per month in 2013. Additionally, per unit fleet costs for the total company are projected to be about $295–$305 per month, representing a 2%–5% rise from 2013.

The company expects interest expense pertaining to corporate debt to be nearly $220 million, down by $8 million compared with the 2013 levels.

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 $150–$155 million. Consequently, the adjusted pre-tax income for 2014 is anticipated to be in the $450–$530 million range.

The company’s effective tax rate in 2014 is expected to be 38% on an adjusted basis, while diluted shares outstanding are projected to be approximately 114 million. Based on the above expectations, the company projects adjusted earnings (excluding certain items) to be $2.45–$2.85 per share, representing year over year growth of 11% – 30%.

Other Stocks Worth Considering

At present, Avis Budget carries a Zacks Rank #2 (Buy). Stocks worth a look in the business services industry include SouFun Holdings Ltd. (SFUN), Rentrak Corporation (RENT) and Viad Corp. (VVI). While SouFun Holdings and Rentrak have a Zacks Rank #1 (Strong Buy), Viad Corp. carries a Zacks Rank #2 (Buy).

Read the Full Research Report on CAR
Read the Full Research Report on RENT
Read the Full Research Report on VVI
Read the Full Research Report on SFUN


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