Leading global car rental company,
Avis Budget Group Inc.
) 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
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.
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.
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
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
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
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
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
WNS (Holdings) Ltd
). All of them carry a Zacks Rank #1 (Strong Buy).
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