Avis Budget Tops Estimate - Analyst Blog

Avis Budget Group, Inc. (CAR) posted third quarter net income of $90 million, compared with a net income of $57 million in the year-ago period. Excluding extraordinary items, quarterly income came in at $97 million or 78 cents a share. Earnings per share for the quarter were better than the Zacks Consensus Estimate of 74 cents and also beat the prior-year quarter earnings of 65 cents a share.  

The company reported a 3.0% jump in net revenues to $1,512 million from $1,465 million in the year-ago period. Total revenue also surpassed the Zacks Consensus Estimate of $1,508 million. The increase was mainly attributable to a 4% rise in rental days. However, the growth was partially offset by a 2% decline in average daily rate. Growth in Ancillary revenues of 3% per rental day also contributed to the revenue increase.  

By segment, domestic car rental revenue inched up 2.0% in the quarter primarily attributable to growth in Ancillary revenue. International car rental revenue growth was 10% while truck rental increased 5.0%, both on a year-over-year basis.

Avis Budget's total expenses fell marginally by 1.0% to $1,368 million from $1,382 million in the year-ago quarter. Total expenses declined as a result of management's cost-saving and productivity improvement efforts coupled with a 3.6% reduction in operating expenses. Consequently, the company reported profit before income taxes of $144 million, compared with $83 million in the year-ago quarter.

The company ended the quarter with cash and cash equivalents of $623 million and total debt of $5.3 billion, compared with $470 million of cash and $4.5 billion of debt in the year-ago period.

Moving forward, Avis Budget expects volume trends to continue to show improvements in the fourth quarter of fiscal 2010 while pricing comparison is expected to get tougher.

Avis Budget expects domestic vehicle depreciation costs to decrease 9% – 11% on a per unit basis in 2010 compared with 2009. The company is continuing with its efforts to reduce costs and enhance productivity through its Performance Excellence initiative and five-point cost-reduction and efficiency improvement plan.

The company expects its cost-saving initiatives to provide an incremental $60– $70 million of year-over-year savings in 2010. Total annual savings from these initiatives are expected to be $475 – $485 million in 2010.

Avis Budget shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation. Our long-term recommendation for the stock remains Outperform.