Shares of Avis Budget Group Inc. CAR fell 8.6% in the after-market session following the company’s announcement of third-quarter 2015 results, wherein both the top and bottom lines lagged expectations.
Despite facing unfavorable currency fluctuations, quarterly earnings of this Zacks Rank #2 (Buy) stock jumped 3.7% year over year to $1.98 per share, backed by lower per-unit fleet costs, acquisition-related gains and robust European demand in summer. Earnings fell a penny short of the Zacks Consensus Estimate.
On a GAAP basis, earnings came in at $1.77 per share, up 2% year over year.
Net revenue climbed 1.4% to $2,577 million, missing the Zacks Consensus Estimate of $2,615.4 million. The year-over-year improvement in the top line was driven by a 10% rise in rental days (including the Maggiore acquisition), partly offset by a 6% adverse impact from currency headwinds. Revenue was up 8% on a currency neutral basis.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 3% to $431 million, backed by factors that drove earnings, together with greater rental volumes and tough cost management.
Segment Performance
Americas, which consists of the company’s operations in North America, South America, Central America and Caribbean, reported 2% year-over-year revenue growth to $1,776 million, driven by 4% volume expansion and a 3% improvement in ancillary revenue per rental day. Pricing was down 2% (flat on a currency neutral basis). Adjusted EBITDA inched up 1% to $279 million on account of higher volume and lower fleet costs, somewhat negated by greater commissions and marketing costs.
The International segment’s revenues came in at $801 million, flat year over year, due to a 17% impact from negative currency movements. However, the segment’s revenues benefited from a 23% rise in rental days, while in constant currency, total revenue per rental day fell 2%. Adjusted EBITDA for the segment rose 6% to $168 million, backed by higher volumes and lower per-unit fleet expenses, partially offset by currency headwinds. On a currency neutral basis, adjusted EBITDA rose 27%.
Financials
Avis Budget ended the quarter with cash and cash equivalents of $585 million, and total corporate debt of $3,532 million. As of Sep 30, 2015, the company’s shareholders’ equity was $600 million. During the first three quarters, the company generated $2,038 million in operating cash flow.
In Oct 2015, the company penned a deal to acquire its Avis licensee in Poland. The transaction is anticipated to conclude in November.
Share Repurchase
During the quarter, Avis Budget bought back nearly 3.7 million shares for $161 million. With this, the company repurchased a total of 13.1 million shares for about $627 million under its share repurchase program initiated in Aug 2013.
Guidance
On account of the strong ongoing currency headwinds, Avis Budget narrowed its guidance for 2015. The company now expects 2015 revenue to rise 1% over 2014, down from 1%–3% growth projected earlier.
The company’s Americas segment rental days are now expected to grow 4%, against the previous guidance range of 4%–5%. Pricing is still anticipated to remain mainly unchanged on a currency neutral basis, and the company continues to expect revenue to bear a 5 points negative impact from currency translations.
Adjusted EBITDA is projected to be in the range of $900–$925 million, down from the previous guidance of a $900–$950 million range. Adjusted EBITDA for the year is expected to include a $50 million negative impact from foreign exchange movements.
Per-unit fleet costs in the Americas for 2015 are now estimated to be about $300 million per month, compared with $300–$310 per month anticipated earlier. Additionally, per-unit fleet costs for the total company are anticipated to be about $280–$285 million per month, compared with the prior prediction of $280–$290 per month.
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 pegged at about $165 million.
The company’s effective tax rate in 2015 is expected to be 39%, while diluted shares outstanding are projected to be approximately 105 million.
Based on the above expectations, the company’s adjusted earnings are now envisioned in a range of $3.10–$3.25 per share, reflecting 5%–10% year-over-year growth. This compares unfavorably with the previous guidance of $3.15–$3.45 per share, reflecting a 6%–17% year-over-year increase. Earnings are now expected to bear the brunt of currency headwinds to an extent of roughly 20 cents a share, against 15 cents predicted earlier.
Stocks to Consider
Other well-ranked stocks in the same industry include SPS Commerce, Inc. SPSC, with a Zacks Rank #1 (Strong Buy), and comScore, Inc. SCOR and Core-Mark Holding Company, Inc. CORE, both carrying a Zacks Rank #2.
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