Leading global car rental company,
Avis Budget Group Inc. (CAR), posted
stronger-than-expected fourth-quarter 2012 adjusted loss per share
of 7 cents, faring better than the Zacks Consensus Estimate of loss
of 8 cents and improving 50% from a loss of 14 cents delivered in
the prior-year quarter on the back of solid top-line growth along
with improved margins.
On a reported basis, including
one-time items, the company’s loss per share came in at 43 cents in
the reported quarter compared with a loss of $1.62 in the
comparable year-ago quarter.
As per Avis Budget, overall travel
demand remained strong in the quarter under review, while it
continued to progress smoothly owing to the integration of its Avis
Europe and Apex Car Rentals businesses.
Quarter in
Detail
Avis Budget’s net revenue increased
4% to $1.698 billion from $1.630 billion in fourth-quarter 2011,
beating the Zacks Consensus Estimate of $1.641 billion. The
year-over-year revenue growth was primarily driven by a 6% rise in
rental day volume, which was partially offset by a 2% decline in
pricing.
Driven by solid top-line
performance, Avis Budget’s adjusted EBITDA for the quarter surged
22% to $78 million from $64 million in the comparable year-ago
quarter. Consequently, Adjusted EBITDA margin for the quarter
expanded 66 basis points to 4.6%.
Segment
Performance
North
American car rental revenues grew 5% to $1.060
billion in the fourth quarter, primarily attributable to a 5%
volume expansion partially offset by decline in prices by less than
1%. Further, adjusted EBITDA jumped nearly threefold to $47 million
compared with $16 million in the year-ago quarter, primarily
benefiting from higher revenues along with lower per-unit fleet
costs and vehicle interest costs.
International car rental revenues came in
at $550 million, rising 3% from the year-ago quarter, benefiting
mainly from the Avis Europe acquisition and addition of Apex Car
Rentals. A 6% increase in volume drove the year-over-year growth,
but was partially offset by a 5% fall in pricing. However, adjusted
EBITDA for the segment decreased 35% to $24 million, primarily due
to increased restructuring costs.
Revenues at Truck
Rental inched up 1% to $87 million, as benefits from
a 2% hike in volume along with a 5% increase in ancillary revenues
were partially offset by a dip of 4% in pricing. The segment’s
adjusted EBITDA plummeted $8 million to $1 million due to increased
fleet and fleet maintenance expenses.
Fiscal 2012, in
Brief
Avis Budget’s revenues for 2012
increased 25% to $7.357 billion primarily due to the acquisition of
Avis Europe in October 2011. The year-over-year revenue growth was
primarily driven by a 26% rise in rental days and a 33% rise in
ancillary revenues, which were partially offset by a 3% decline in
pricing.
Driven by solid top-line growth
along with improved margins, Avis Budget’s adjusted earnings
increased 47% year over year to $2.43 per share and beat the Zacks
Consensus Estimate of $2.41.
Balance
Sheet
Avis Budget ended the fiscal with
cash and cash equivalents of $606 million and total corporate debt
of $2.905 billion. At the end of year, the company’s shareholder’s
equity stood at $757 million.
Looking
Ahead
Avis Budget expects per-unit
domestic fleet costs to increase in the range of 15%–20% to
$275–$290 per month in 2013. The company’s non-vehicle depreciation
and amortization costs are expected to be about $125–$130 million
and net interest expenses are anticipated to range between $230
million and $235 million in 2013, $30 to $35 million lower from the
2012 level.
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 120 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 2013. In 2012, Avis Budget saved $50 million through
this initiative.
Further, the company now expects
full-year 2013 total revenue to come in between $7.6 billion and
$7.8 billion. Adjusted EBITDA is anticipated to be in the range of
$725–$825 million in 2013. Consequently, the adjusted pre-tax
income is anticipated to be in the range of $360–$470 million.
Based on the above expectations,
the company projects adjusted earnings to be in the range of
$1.90–$2.45 per share in 2013.
Asset Backed Bond
Offering
In a separate story, Avis Budget
announced that Avis Budget Car Rental Funding (AESOP) LLC, its
wholly-owned subsidiary, has closed its offering of $750 million
asset-backed bonds, carrying an annual interest rate of 2.0%, which
is the lowest in the company’s history.
The proceeds from the offering will
be used to refinance the outstanding vehicle debt maturing in 2013
along with the utilization of some funds during the peak summer
fleet needs in 2013.
Borrowing costs have gone down
significantly, marking a record low, and in turn, facilitating the
companies to obtain easy financing at compelling prices. Corporate
bonds are in high demand as U.S. treasuries are yielding low rates,
driving investors toward bonds issued by the fundamentally sound
companies.
Such moves are quite obvious as the
companies cannot take the pressure of paying higher rates for long
at a time when debts can be issued with lower coupon rates.
Our
Recommendation
Avis follows a core global strategy
of partnering with leading travel brands to expand its customer
reach while creating additional demand.
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.
Further, we believe that the
company’s recent offer of $500 million for acquiring
Zipcar, Inc. (ZIP) will definitely boost its top
and bottom line. This strategic move will facilitate the company to
expand its offerings from car rental to car sharing and compete
with rivals United Rentals Inc. (URI) and
Hertz Global Holdings Inc. (HTZ), which has its
own car sharing service, Hertz On Demand.
Currently, Avis Budget carries a
Zacks Rank #3 (Hold), as we remain slightly cautious on the stock
due to prevailing weakness in the European economy and a possible
rise in fleet costs in North America in 2013, which may adversely
affect its margins.
AVIS BUDGET GRP (CAR): Free Stock Analysis Report
HERTZ GLBL HLDG (HTZ): Free Stock Analysis Report
UTD RENTALS INC (URI): Free Stock Analysis Report
ZIPCAR INC (ZIP): Free Stock Analysis Report
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