Battered by sluggish travel demand in Europe, leading global car
rental company, Avis Budget Group Inc. ( CAR )
reported adjusted earnings of $1.46 per share for third-quarter
2012, missing the Zacks Consensus Estimate of $2.51. However, on a
year-over-year basis, earnings surged 43% from $1.02 per share.
On a reported basis, including one-time items, the company's
earnings per share came in at $2.38 in the reported quarter
compared with 65 cents in the year-ago quarter. The improvement
from the year-ago quarter was primarily driven by strong top-line
growth along with improved margins.
As per Avis Budget, overall travel demand remained strong in the
quarter under review, while it continued to progress smoothly on
the integration of its Avis Europe business acquired in October
Quarter in Detail
Avis Budget's net revenues jumped nearly 34% to $2.170 billion
from $1.623 billion in the year-ago quarter, beating the Zacks
Consensus Estimate of $2.162 billion. The company's Avis Europe
business, which was acquired in October last year, contributed to
the year-over-year growth.
Avis Europe contributed $526 million to the total revenue.
Excluding the impact of the recent acquisition of Avis Europe,
revenue inched up 1% with rental volume exhibiting a 4% rise, while
prices went down by 3%.
Driven by solid top-line performance, Avis Budget's adjusted
EBITDA for the quarter surged 39% to $377 million, of which $102
million was contributed by Avis Europe. Consequently, Adjusted
EBITDA margin for the quarter expanded 29 basis points to
North American car rental revenue grew
2% to $1.358 billion in the third quarter, primarily attributable
to a 4% volume expansion and 7% increase in ancillary revenue,
partially offset by a 3% decline in prices. Further, adjusted
EBITDA grew 7% year over year to $232 million, primarily benefiting
from lower operating and vehicle interest cost, partially offset by
an increase of 3% in per-unit fleet costs.
International car rental revenue came
in at $703 million, rising over three folds from the year-ago
quarter, benefiting mainly from the Avis Europe acquisition.
Excluding the effect of the Avis Europe acquisition, the segment's
revenue saw just a marginal increase of 1%. A 2% increase in volume
along with higher license royalty income drove the year-over-year
growth, but was partially offset by a 3% fall in pricing.
Adjusted EBITDA for the segment increased over two folds to $129
million, of which $94 million were contributed by the European
Revenue at Truck Rental declined 3% to
$109 million, as benefits from a 2% hike in pricing were more than
offset by a dip of 5% in volume. As a result of reduced revenue
along with increased vehicle maintenance expenses, the segment's
adjusted EBITDA plummeted 36% to $14 million.
Avis Budget ended the quarter with cash and cash equivalents of
$554 million and total corporate debt of $2.967 billion. At the end
of quarter, the company's shareholder's equity stood at $791
Avis Budget expects domestic fleet costs to decline in the range
of 6%-8% on a per-unit basis in fiscal 2012. The company's
non-vehicle depreciation and amortization costs are expected to be
about $110 million and net interest expenses are anticipated to be
$265 million in 2012.
The company's effective tax rate in 2012 is expected to be in
the range of 36%-38% on an adjusted basis, while diluted shares
outstanding are projected to be approximately 121 million.
Avis Budget is continuing with its efforts to reduce costs while
enhancing productivity through its Performance Excellence
initiative as well as five-point cost-reduction and efficiency
improvement plan. The company expects its cost-saving initiatives
to provide incremental savings of over $50 million in 2012, up from
the previous forecast of $45 million.
Moreover, Avis Budget pointed out that it is on track with its
integration plans for Avis Europe, acquired on October 3, 2011. In
addition to this, the company expects its 2012 results to gain
substantially from the integration-related synergies coupled with
its strategic initiatives. Annual synergies from the Avis Europe
acquisition are expected to touch $0.040 billion compared with its
earlier projection of $35 million.
Further, the company now expects full-year total revenue to come
at $7.3 billion, which is the lower end of the previously guided
range of $7.3-$7.6 billion. Avis Budget lowered its revenue
forecast citing weak economic situation in Europe.
Consequently, the company has lowered its upper-end adjusted
EBITDA forecast for fiscal 2012. Avis Budget now anticipates
adjusted EBITDA to be in between $825 million and $840 million,
down from previously projected range of $825-$875 million.
Moreover, the adjusted pre-tax income is anticipated to be in the
range of $450-$465 million, down from $450-$505 billion estimated
Based on the above expectations, the company lowered its
upper-end adjusted earnings per share guidance for fiscal 2012. The
company now expects it in the range of $2.35-$2.45 per share
compared with earlier guidance of $2.35-$2.65.
Avis follows a core global strategy of partnering with leading
travel brands to expand its customer reach while creating
additional demand. The company recently made its first appearance
in Taiwan, in an effort to expand its Asian operations. Avis
Budget's decision to enter Taiwan is backed by growing car rental
demand on the island as well as its speeding economic growth.
Moreover, in order to expand its geographical presence, the
company is pro-actively looking for strategic acquisitions and
alliances to enhance its growth opportunities. The acquisitions of
Avis Europe and Apex Car Rentals are the major steps taken by the
company to enhance its operational foothold in global markets.
However, we remain slightly cautious about the stock due to the
weak European economic conditions and trimmed outlook for fiscal
2012, and therefore maintain a long-term Neutral recommendation on
Moreover, the risks of operating in a global market and intense
competition from other established players, such as Hertz
Global Holdings Inc. ( HTZ ),
Enterprise Rent-A-Car, Dollar Thrifty Automotive Group
Inc. ( DTG ) and Ryder System Inc. (
remain the matters of concern.
Avis Budget Group is the leading general-use vehicle rental
company in North America, Australia and New Zealand. With a
formidable network of more than 10,000 rental locations and 350,000
vehicles, the company boasts a well-established position in the
highly-competitive vehicle rental industry.AVIS BUDGET GRP (CAR): Free Stock Analysis
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