Why Is Avis Budget (CAR) Down 5.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Avis Budget Group (CAR). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

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

Avis Budget Misses on Q3 Earnings, Revises Guidance

Avis Budget reported dismal third-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Adjusted EPS of $3.33 lagged the consensus mark by 19 cents but increased 7.4% on a year-over-year basis. The bottom line benefited from higher underlying pricing and significantly lower per-unit fleet costs.

Revenues totaled $2.8 billion, which fell short of the consensus estimate by $52 million but improved roughly 1% year over year. The top line was driven by a 3% increase in volume and higher Americas underlying pricing under the company’s historical T&M per day metric, partially offset by a 1% impact from currency exchange rate movements.

Revenues by Segment

Revenues at the Americas segment increased by a slight margin year over year to $1.8 billion.  Revenue growth was driven by 1% higher rental volumes and offset by a $9 million negative effect from exchange rate effects. Revenue per Day remained unchanged mainly due to change in loyalty accounting but was 1% higher under the company’s historical T&M per day metric. The segment accounted for 66% of total revenues.

Revenues at the International segment were up 2.3% year over year to $934 million. The upside was driven by a 7% higher volume, partially offset by a 2% lower Revenue per Day (excluding exchange rate effects and a 2% impact from currency exchange movements). The segment contributed 34% to total revenues.

Profitability

Adjusted EBITDA in the third quarter totaled $476 million, down 1.2% from the prior-year quarter number, with adjusted EBITDA margin contracting 40 basis points (bps).

Adjusted EBITDA for Americas was $313 million, up 3.3% from prior-year quarter. The uptick was driven by volume growth and 10% lower per-unit fleet costs, partially offset by increased vehicle interest expenses, higher gasoline expenses and lower utilization related to vehicle recalls.

Adjusted EBITDA for International declined 8.2% year over year to $178 million. The decrease can be attributed to a 3% increase in per-unit fleet costs, excluding exchange rate effects, higher airport concession fees, increased marketing and a $5 million impact from currency, partially offset by benefit of revenue growth.

Balance Sheet and Cash Flow

Avis Budget exited the quarter with cash and cash equivalents of $605 million compared with $489 million in the prior quarter. Corporate debt at the end of the third quarter summed $3.6 billion, roughly flat with the prior-quarter tally.

The company generated $974 million of cash from operating activities compared with $618 million in the previous quarter. Adjusted free cash flow totaled $232 million in the reported quarter.

2018 Outlook Revised

For 2018, Avis Budget updated its guidance for revenues, adjusted EPS, adjusted net income, adjusted pretax income and adjusted EBITDA. It reiterated adjusted free cash flow guidance for the year.

Adjusted EPS is expected between $3.30 and $3.70 compared with $3.00 and $3.85 projected earlier. Further, adjusted net income is envisioned in the range of $265-$300 million compared with the prior anticipation of $245-$315 million. Adjusted pretax income is expected between $370 million and $410 million. The prior expectation was in the $340-$420 million band.

The company expects revenues to be in the range of $9.10-$9.20 billion compared with the $9.05-$9.30 billion anticipated earlier.

Adjusted EBITDA is anticipated in the range of $760-$800 million compared with $740-$820 million projected earlier. Adjusted free cash flow is consistently expected between $325 million and $375 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 100% due to these changes.

VGM Scores

Currently, Avis Budget has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Avis Budget has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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