Avis Budget Beats on Q4 Earnings, Initiates 2015 Outlook - Analyst Blog

Leading global car rental company, Avis Budget Group Inc. ( CAR ) reported fourth-quarter 2014 adjusted earnings per share of 23 cents, which grew 53% from the prior-year earnings and surpassed the Zacks Consensus Estimate of 18 cents. Earnings benefited from the company's ongoing key strategic initiatives and increased pricing trends in North America.

Avis Budget Group Inc. - Earnings Surprise | FindTheBest

On a reported basis, including certain one-time items, the company reported earnings per share of 21 cents in the fourth quarter, contrary to a loss of 26 cents per share in the year-ago quarter.

Avis Budget's net revenue increased 2% year over year to $1,887 million in the quarter but fell short of the Zacks Consensus Estimate of $1,942 million. The year-over-year growth was primarily driven by 6% rise in rental days and improved pricing in North America, partly offset by negative foreign currency translations.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter increased 13% to $129 million also driven by higher rental volumes and better pricing in North America, partly offset by increased fleet expenses.

Segment Performance

North American car rental revenues grew 7% year over year to $1,247 million in the quarter, primarily on the back of a 6% volume expansion, 1% rise in pricing and 5% improvement in ancillary revenue per rental day. Adjusted EBITDA increased 9% to $81 million on account of higher revenue, partly offset by a 4% rise in per-unit fleet costs.

International car rental revenues came in at $555 million, down 7% from the year-ago quarter, mainly impacted by negative currency movements. Results were also affected by 2% fall in rental days, offset by 1% rise in total revenue per rental day on a currency neutral basis. Adjusted EBITDA for the segment rose 17% to $56 million and improved 23% on a currency neutral basis, benefiting from higher fleet utilization in Europe and lower vehicle insurance expenses.

Revenues for the Truck Rental business remained flat with last year at $85 million despite a 10% reduction in truck rental fleet in 2014. Also, the segment's adjusted EBITDA of $10 million doubled from the prior-year quarter. The increase in EBITDA was due to lower maintenance costs of its new fleet.

Fiscal 2014, in Brief

Avis Budget's revenues for 2014 increased 7% to $8,485 million, primarily driven by a 7% rise in rental days, 2% growth in North American pricing and a 33% rise in ancillary revenues. However, revenues for the year fell short of the Zacks Consensus Estimate of $8,584 million. Driven by solid top-line growth along with improved margins, Avis Budget's adjusted earnings increased 35% year over year to $2.96 per share and beat the Zacks Consensus Estimate of $2.93.

Other Financials

Avis Budget ended the year with cash and cash equivalents of $624 million and total corporate debt of $3,420 million. As of Dec 31, 2014, the company's shareholders' equity was $665 million. During 2014, the company generated $2,579 million in operating cash flow and about $456 million of free cash flow.

In Nov 2014, the company acquired its Budget licensee for Southern California and Las Vegas, which functions directly at Los Angeles International Airport and through sub-licensees across Southern California and parts of Nevada.

Share Repurchase

During the fourth quarter, Avis Budget bought back nearly 1.7 million shares for $90 million, bringing the total share repurchases in 2014, to 5.7 million for about $300 million.


Following a strong 2014, Avis Budget provided its outlook for 2015. The company expects revenue of roughly $8.8 billion, an increase of 4% from 2014. The company's North America segment rental days are now expected to grow 5%-7%, while pricing is anticipated to increase 2%, on a constant currency basis.

Adjusted EBITDA is expected to be in the range of $900 million to $1 billion, representing a 3%-14% increase year over year. Adjusted EBITDA for the year is expected to include a $40 million negative impact from foreign exchange movements.

Per-unit domestic fleet costs guidance for 2015 stands at about $320-$330 per month, marking an increase of 2%-5% year over year. Additionally, per unit fleet costs for the company are expected to be about $305-$315 per month, representing a 3% rise from 2014.

Interest expense pertaining to corporate debt is expected to be nearly $200 million. The company's non-vehicle depreciation and amortization costs guidance (excluding the amortization of intangibles related to acquisitions) is at about $165 million. Consequently, the adjusted pre-tax income for 2015 is anticipated to be in the $535-$635 million range.

The company's effective tax rate in 2015 is expected to be 37%-38% on an adjusted basis, while diluted shares outstanding are projected to be approximately 106 million.

Based on the above expectations, the company's adjusted earnings are expected to be $3.15-$3.75 per share, reflecting a 6%-27% year-over-year increase.

Other Stocks Worth Considering

Currently, Avis Budget has a Zacks Rank #3 (Hold). Better-ranked stocks in the business services industry include Cardtronics Inc. ( CATM ), SPS Commerce Inc. ( SPSC ) and WNS (Holdings) Ltd. ( WNS ), all carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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