Leading global car rental company,
Avis Budget Group Inc.
) posted better-than-expected second-quarter 2014 results. The
results benefited from strong volume growth and improved pricing
for both leisure and commercial travels in North America, coupled
with the company's focus on speeding up growth in its most
Based on the robust second-quarter results, the shares of this
Zacks Rank #2 (Buy) company rose 4.2% during the after-hours
trading yesterday. The company remained focused on its strategy of
growing its highly profitable customer segments and channels
through acquisitions, which are now yielding results.
Second-quarter 2014 adjusted earnings per share of 68 cents grew
36% from the prior-year earnings and surpassed the Zacks Consensus
Estimate of 63 cents.
Avis Budget Group, Inc - Earnings Surprise |
On a reported basis, including certain one-time items, the
company reported earnings per share of 24 cents in the second
quarter, contrary to a loss of 26 cents per share in the year-ago
Avis Budget's net revenue increased 10% year over year to $2,194
million in the quarter and surpassed the Zacks Consensus Estimate
of $2,140 million. Revenue growth was primarily driven by 8% rise
in rental days and improved pricing in North America. Not
considering the $31 million contribution from Payless, acquired in
Jun 2013, and the currency translation effects, revenue grew 10%
and pricing in North America increased 5% year over year.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) for the quarter increased 19% to $213 million
also driven by higher rental days and better pricing in North
America. Payless contributed $5 million to adjusted EBITDA.
car rental revenues grew 12% year over year to $1,427 million in
the quarter, primarily attributable to a 5% volume expansion and 4%
rise in pricing, excluding Payless. Adjusted EBITDA reflected a
substantial 37% growth to $157 million, on account of higher volume
and pricing, partly offset by a 1% rise in per-unit fleet costs.
car rental revenues came in at $667 million, up 7% from the
year-ago quarter, benefiting mainly from a 2% rise in rental days
and 6% growth in total revenue per rental day. Adjusted EBITDA for
the segment declined 2% to $57 million as the benefits of revenue
growth and integration of the European businesses were more than
offset by a $5 million negative impact from currency translation.
Revenues for the
business dipped 2% year over year to $100 million, as volumes
declined 6% on account of a 12% shrink in truck rental fleet in
2014. However, the segment posted adjusted EBITDA of $13 million,
down 24% compared with the prior-year quarter. The decline in
EBITDA was due to lower volume as well as higher per-unit fleet
costs related to newly acquired rental fleet.
Avis Budget ended the quarter with cash and cash equivalents of
$437 million and total corporate debt of $3,388 million. As of Jun
30, 2014, the company's shareholder equity was $667 million. During
the first six months of fiscal 2014, the company generated $1,011
million in operating cash flow.
Moreover, in Jun 2014, the company completed the tuck-in
acquisition of eleven airport concession agreements from Advantage
for about $6 million.
During the second quarter, Avis Budget bought back over 1.3 million
shares for $75 million under its $200 million share repurchase
authorization approved in Aug 2013. This marks the completion of
the program with about 4.6 million shares repurchased since Aug
Following a strong second quarter, the company raised its fiscal
2014 projections for revenue, adjusted EBITDA and earnings per
share. The company now projects fiscal 2014 revenues in the range
of $8.6-$8.7 billion, marking an increase of 8%-10% from the 2013
level. Earlier, the company projected revenue in the band of
$8.4-$8.6 billion, representing a 6%-8% rise.
Further, the company raised the expected rental days forecast for
its North America segment to 5%-7% against a 4%-6% increase
projected earlier. Moreover, pricing is expected to increase 2% in
North America compared with a 1% rise predicted earlier.
Adjusted EBITDA is now expected to be in the range of $860-$910
million, representing a 12%-18% increase year over year. The
company had previously provided adjusted EBITDA guidance within
$825-$900 million, up 7%-17%. Additionally, the company continues
to target $1 billion of adjusted EBITDA in 2015.
Meanwhile, per-unit domestic fleet costs guidance is reiterated
with a forecast of 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 $210 million, down by $18 million compared with the
2013 levels. This compares to $215 million projected in interest
The company's non-vehicle depreciation and amortization costs
(excluding the amortization of intangibles related to the Avis
Europe and Zipcar buyouts) are now expected to be $150 million,
skewed toward the lower end of the previously guided range of
$150-$155 million. Consequently, the adjusted pre-tax income for
2014 is now anticipated to be in the $500-$550 million range, while
the previous guidance stood at $455-$535 million.
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's adjusted earnings
guidance is raised to $2.75-$3.05 per share, reflecting a 25%-39%
year-over-year increase. Previously, the company had
estimated adjusted earnings per share of $2.50-$2.95, with nearly
14%-34% year-over-year growth.
Other Stocks Worth Considering
Stocks which are worth a look in the business services industry
include ExamWorks Group Inc. (
), WNS (Holdings) Ltd. (
) and InnerWorkings Inc. (
). While ExamWorks Group and WNS (Holdings) Ltd. carry a Zacks Rank
#1 (Strong Buy), InnerWorkings holds a Zacks Rank #2 (Buy).
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