Leading global car rental company, Avis Budget Group Inc. (CAR) posted stronger-than-expected second-quarter 2013 results, with adjusted earnings per share of 50 cents beating the Zacks Consensus Estimate by a penny. However, the quarterly earnings declined 47% from 94 cents earned in the prior-year quarter.
On a reported basis, including one-time items, the company’s loss per share came in at 26 cents in the reported quarter, compared with earnings of 66 cents in the comparable year-ago quarter.
During the quarter, the company benefited from strong volume growth in all regions and strong pricing trends in North America as compared with the previous year, while higher fleet costs remained a drag on the results.
Quarter in Detail
Avis Budget’s net revenue increased 7% to $2,002 million from the year-ago quarter, but missed the Zacks Consensus Estimate of $2,027 billion. The year-over-year revenue growth was primarily driven by the acquisition of Zipcar and a 3% rise in rental days.
However, Avis Budget’s adjusted EBITDA for the quarter slipped 35% to $164 million from $254 million in the comparable year-ago quarter.
North American car rental revenues grew 9% year over year to $1,292 million in the second quarter, primarily attributable to the acquisition of Zipcar, 2% volume expansion and 1% jump in pricing, which benefited from a 4% rise in leisure pricing. However, adjusted EBITDA fell 38% to $114 million, on account of higher per-unit costs, offset by increased pricing, reduced operating costs and lower interest expenses related to vehicles.
International car rental revenues came in at $608 million, up 5% from the year-ago quarter, benefiting mainly from the acquisition of Apex Car Rentals last October and 6% jump in rental days, partly offset by 2% fall in pricing. However, adjusted EBITDA for the segment decreased 10% to $53 million, mainly due to rise in operating costs and higher marketing commissions in Europe.
Revenues at Truck Rental edged down 1% to $102 million, driven by a 7% fall in the truck rental fleet and a resultant decline in volume, partly offset by a 9% jump in pricing. However, adjusted EBITDA fell 53% to $8 million in the quarter. The decline was due to the company’s previously declared plan to reposition the business, which resulted in restructuring costs of approximately $8 million.
Avis Budget ended the quarter with cash and cash equivalents of $503 million and total corporate debt of $3,416 million. As of Jun 30, 2013, the company’s shareholders’ equity was $646 million.
In Aug 2013, Avis Budget modified its principal corporate revolving credit facility, extending its maturity to 2018 from 2016 and increasing the amount to $1.65 billion from $1.5 billion. Further, it reduced the interest rate under the facility by 75 basis points (bps). The company has $1.1 billion of letters of credit outstanding and has no borrowings under the facility as of Jun 30, 2013.
In July, Avis Budget acquired Payless Car Rental. This acquisition will provide the company a notable position in the deep-value segment of the car rental industry.
Earlier in June, the company refinanced its $900 million term loan borrowings (due 2019) with $1 billion in new term loan borrowings due for the same period. It also lowered the interest rate on the loans by 75 bps. Further, the company redeemed all the outstanding 9.625% senior notes worth $124 million, maturing in 2018 and $100 million worth of its floating-rate senior notes maturing in 2014.
Along with the earnings release, Avis Budget announced that its board of directors had approved a new share buyback program that will allow it to repurchase up to $200 million of its common stock.
Following second-quarter results, Avis Budget reaffirmed fiscal 2013 revenues to be in the range of $7.8–$8.0 billion, representing an increase of 6%–9% from the 2012 level.
For fiscal 2013, adjusted EBITDA is now expected to range from $750–$800 million, compared with $750–$855 million anticipated earlier. Revised EBITDA reflects stronger-than-expected pricing trends in North America, offset by reduced vehicle residual values in North America and sluggish economic conditions in Europe and Australia.
However, the company upped its forecasts for per-unit domestic fleet costs, which are expected to increase nearly 25% to $300 per month in 2013. Per unit fleet costs for the total company are also projected to be about $285–$295 per month in 2013, representing growth of 15%–20% from 2012.
The company expects interest expense pertaining to corporate debt to be nearly $230 million, down by $30 million compared with 2012 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 $130–$135 million, unchanged from earlier projections. Consequently, the adjusted pre-tax income is anticipated to be in the range of $385–$440 million, compared with $375–$485 million forecasted earlier
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 117–118 million. Based on the above expectations, the company projects adjusted earnings in the range of $2.05–$2.35 per share in 2013.
Other Stocks Worth Considering
Currently, Avis Budget carries a Zacks Rank #4 (Sell). Other stocks that are performing well in the business services industry include Cardtronics Inc. (CATM), comScore, Inc. (SCOR) and WNS (Holdings) Ltd. (WNS). All of them carry a Zacks Rank #1 (Strong Buy).
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