Leading global car rental company,
Avis Budget Group Inc.
) posted better-than-expected first-quarter 2014 results benefiting
from strong volume growth and improved pricing for both leisure and
commercial travels in North America. Furthermore, top and bottom
lines were aided by strong contributions from recent acquisitions
including Zipcar and Payless Car Rental.
Based on the encouraging first quarter results, the shares of this
Zacks Rank #2 (Buy) company rose 2.54% during the after-hours
trading yesterday. As a strategy, the company remains focused on
growing its highly profitable customer segments and channels
through acquisitions, which are now yielding results.
First-quarter 2014 adjusted earnings per share of 16 cents doubled
from prior-year earnings as well as the Zacks Consensus Estimate of
8 cents. On a reported basis, including certain one-time items, the
company reported earnings per share of 3 cents in the first
quarter, compared with a loss of 43 cents per share in the year-ago
Avis Budget's net revenue increased 10.1% year over year to $1,862
million in the quarter and surpassed the Zacks Consensus Estimate
of $1,818 million. Revenue growth was primarily driven by the
acquisition of Zipcar and Payless and a 6% rise in rental days.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA), excluding certain items, for the quarter
increased 25.8% to $117 million.
Contributions from Zipcar, which was acquired in Mar 2013, helped
Avis Budget's revenue by a contribution of $68 million and adjusted
EBITDA by contributing $5 million in the quarter. Meanwhile,
Payless, acquired in Jul 2013 aided the company's results with
contributions worth $30 million to revenue and $6 million to
Q4 Segment Performance
car rental revenues grew 12.6% year over year to $1,236 million in
the quarter, primarily attributable to the acquisition of Zipcar
and Payless, a 4% volume expansion and 2% rise in pricing,
excluding Payless. Adjusted EBITDA reflected a substantial 22.6%
growth to $114 million, on account of higher volume and pricing,
partly offset by a 7% rise in per-unit fleet costs.
car rental revenues came in at $551 million, up 6.6% from the
year-ago quarter, benefiting mainly from a 3% rise in rental days
and 1% growth in total revenue per rental day. Additionally, the
Zipcar acquisition also aided segment revenue growth. Adjusted
EBITDA for the segment remained flat at $17 million, primarily
driven by revenue growth and benefits realized from the integration
of the European businesses that were fully offset by a $9 million
negative impact from currency translation.
Revenues for the
business dipped 1.3% year over year to $75 million, as volumes
declined 3% on account of a 14% drop in truck rental fleet in 2014.
However, the segment posted a loss before interest, taxes and
depreciation of $2 million, which narrowed by $3 million compared
with the prior-year quarter. Results benefited from a 4% rise in
Avis Budget ended the quarter with cash and cash equivalents of
$841 million and total corporate debt of $3,696 million. As of Mar
31, 2014, the company's shareholder equity was $703 million. During
the quarter, the company generated $390 million in operating cash
Moreover, in Feb 2014, the company completed the tuck-in
acquisition of its existing Budget Car & Truck Rental licensee
in Edmonton, Alberta, Canada and decided to directly operate Budget
Car Rental brand in Portugal with immediate effect. The acquisition
for approximately $30 million plus fleet costs will enable the
company to gain a larger market share of Canada's domestic,
international and truck rental spending.
During the first quarter, Avis Budget bought back 1.6 million
shares for $75 million under its $200 million authorization
approved in Aug 2013. This brings the total share repurchases under
the program as of Mar 31, 2014, to 3.2 million for about $125
million. Moreover, the company added another $235 million to its
share repurchase authorization in Apr 2014.
Following a strong first quarter, the company reiterated its fiscal
2014 adjusted EBITDA forecast while raising its revenue and
earnings per share projections for the year. The company now
projects fiscal 2014 revenues in the range of $8.4-$8.6 billion,
marking an increase of 6%-8% from the 2013 level. Earlier, the
company forecasted revenue of $8.3-$8.5 billion, representing
growth of 5%-7%. The company's higher revenue forecast is
based on the synergies expected from its recently acquired Budget
Further, the company raised the expected rental days forecast for
its North America segment to 4%-6% against a 3%-5% increase
projected earlier. However, it reiterated its forecast for a 1%
rise 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 $215 million, down by $13 million compared with the
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 $455-$535 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 111 to 112 million.
Based on the above expectations, the company now projects adjusted
earnings (excluding certain items) to be $2.50-$2.95 per share,
reflecting a 14%-34% increase year-over-year. This compares with
the company's previous forecast of $2.45-$2.85 per share in
adjusted earnings with year over year growth of 11%-30%.
Other Stocks Worth Considering
Stocks worth a look in the business services industry include
Odyssey Marine Exploration Inc.
). While Odyssey Marine has a Zacks Rank #1 (Strong Buy), WageWorks
and Viad Corp. carry a Zacks Rank #2 (Buy).
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AVIS BUDGET GRP (CAR): Free Stock Analysis
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