Avis Budget (CAR) Misses On Q3 Earnings, Revises Guidance

Avis Budget Group, Inc.’s (NASDAQ:CAR) reported dismal third-quarter 2018 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Adjusted EPS of $3.33 lagged the consensus mark by 19 cents but increased 7.4% on a year-over-year basis. The bottom line benefited from higher underlying pricing and significantly lower per-unit fleet costs.

Revenues totaled $2.8 billion, which fell short of the consensus estimate by $52 million but improved roughly 1% year over year. The top line was driven by a 3% increase in volume and higher Americas underlying pricing under the company’s historical T&M per day metric, partially offset by a 1% impact from currency exchange rate movements.

So far this year, shares of Avis Budget have lost 32.7% compared with the 5% decline of the industry it belongs to.

Revenues by Segment

Revenues at the Americas segment increased by a slight margin year over year to $1.8 billion. Revenue growth was driven by 1% higher rental volumes and offset by a $9 million negative effect from exchange rate effects. Revenue per Day remained unchanged mainly due to change in loyalty accounting but was 1% higher under the company’s historical T&M per day metric. The segment accounted for 66% of total revenues.

Revenues at the International segment were up 2.3% year over year to $934 million. The upside was driven by a 7% higher volume, partially offset by a 2% lower Revenue per Day (excluding exchange rate effects and a 2% impact from currency exchange movements). The segment contributed 34% to total revenues.

Avis Budget Group, Inc. Revenue (TTM)

Adjusted EBITDA in the third quarter totaled $476 million, down 1.2% from the prior-year quarter number, with adjusted EBITDA margin contracting 40 basis points (bps).

Adjusted EBITDA for Americas was $313 million, up 3.3% from prior-year quarter. The uptick was driven by volume growth and 10% lower per-unit fleet costs, partially offset by increased vehicle interest expenses, higher gasoline expenses and lower utilization related to vehicle recalls.

Adjusted EBITDA for International declined 8.2% year over year to $178 million. The decrease can be attributed to a 3% increase in per-unit fleet costs, excluding exchange rate effects, higher airport concession fees, increased marketing and a $5 million impact from currency, partially offset by benefit of revenue growth.

Balance Sheet and Cash Flow

Avis Budget exited the quarter with cash and cash equivalents of $605 million compared with $489 million in the prior quarter. Corporate debt at the end of the third quarter summed $3.6 billion, roughly flat with the prior-quarter tally.

The company generated $974 million of cash from operating activities compared with $618 million in the previous quarter. Adjusted free cash flow totaled $232 million in the reported quarter.

2018 Outlook Revised

For 2018, Avis Budget updated its guidance for revenues, adjusted EPS, adjusted net income, adjusted pretax income and adjusted EBITDA. It reiterated adjusted free cash flow guidance for the year.

Adjusted EPS is expected between $3.30 and $3.70 compared with $3.00 and $3.85 projected earlier. The mid-point of the guided range is above the Zacks Consensus Estimate of $3.47.

Further, adjusted net income is envisioned in the range of $265-$300 million compared with the prior anticipation of $245-$315 million. Adjusted pretax income is expected between $370 million and $410 million. The prior expectation was in the $340-$420 million band.

The company expects revenues to be in the range of $9.10-$9.20 billion compared with the $9.05-$9.30 billion anticipated earlier. The mid-point of the guided range is below the Zacks Consensus Estimate of $9.17 billion.

Adjusted EBITDA is anticipated in the range of $760-$800 million compared with $740-$820 million projected earlier. Adjusted free cash flow is consistently expected between $325 million and $375 million.

Zacks Rank and Stocks to Consider

Avis Budget currently has a Zacks Rank #4 (Sell).

A few better-ranked stocks in the broader Business Services sector include Broadridge Financial Solutions, Inc. (NYSE:BR) , Genpact Limited (NYSE:G) and WEX Inc. (NYSE:WEX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected EPS (three to five years) growth rate for Broadridge, Genpact and WEX is 10%, 10% and 15% respectively.

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