Yahoo Finance Avis Budget Group Inc (CAR) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Quarterly Revenue: Over $2.5 billion
Adjusted EBITDA: $12 million, down from $535 million in Q1 2023
Americas Revenue: Nearly $2 billion
Americas Adjusted EBITDA: $44 million
International Revenue: $558 million, up 3% year-over-year
Vehicle Sales Loss: Approximately $40 million
Interest Expense Increase: $106 million due to higher rates
Direct Operating and SG&A Expenses: Increased by less than 2 percentage points as a percentage of revenue
Net Corporate Leverage Ratio: 2.3x
Available Liquidity: Over $700 million with additional borrowing capacity of approximately $3.8 billion
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Avis Budget Group Inc (NASDAQ:CAR) reported a strong first quarter with record rental volume, demonstrating robust demand.
The company successfully rightsized its fleet by selling a record number of vehicles, which improved utilization and flexibility.
Sequential improvements in Revenue Per Day (RPD) were observed, with March showing stronger exit trends, indicating potential future pricing stability.
The Americas segment generated nearly $2 billion in revenue with strong demand, contributing significantly to the overall performance.
Avis Budget Group Inc (NASDAQ:CAR) is leveraging technology to enhance operational efficiencies and cost management, which has led to significant savings and improved productivity.
Negative Points
Adjusted EBITDA for the first quarter was $12 million, a substantial decline from the $535 million reported in the first quarter of 2023.
Pricing was down 6% compared to the first quarter of 2023, although it showed some improvement from the previous quarter.
The company faced increased vehicle interest expenses due to higher rates, impacting overall financial performance.
There was a small loss of approximately $40 million from fleet dispositions in the quarter compared to a $250 million gain in the same period last year.
Residual values of vehicles are expected to potentially decline as the year progresses, which could impact profitability from fleet sales.
Q & A Highlights
Q: With regard to capital allocation over the balance of the year, how would you rate the relative attractiveness of using cash from operations to either pay down corporate debt or fleet debt or to buy back shares? A: Izilda P. Martins, Executive VP & CFO of Avis Budget Group, emphasized the company's belief that its shares are undervalued relative to future earnings trajectories. The focus for the first half of the year is on managing fleet disposition strategy and technological investments while addressing rising interest rates. For the second half, the company will continue to evaluate all opportunities, including M&A, CapEx, debt repayment, dividends, and share repurchases.
Q: Could you talk about what you're seeing on residual values for both newer and older cars in your fleet? A: Izilda P. Martins noted that while residual values were relatively stable during the quarter, the company anticipates potential declines as the year progresses. She highlighted a nominal $40 million loss from vehicle disposals in the quarter, emphasizing the ongoing challenge of high consumer interest rates affecting used car sales.
Q: Are you sticking to the guidance for depreciation per unit of around $325 for 2024, or has there been any adjustment? A: Izilda P. Martins clarified that depreciation per unit was within guidance at about $318 in Q1, with expectations of increasing to around $350 by late Q2. She indicated that model year '25 vehicles might be more affordable, which could normalize depreciation rates in the future.
Q: With the OEMs indicating that prices on the '25 models will become more affordable, are those discounts being offered to you this year? A: Joseph A. Ferraro, CEO & President, explained that the company commits to model year purchases within the year, and the prices will apply as cars arrive later in the year and into the next. He expects to benefit from lower new car prices reported in public sources.
Q: Can you provide an overview of your ABS coverage and address any potential funding requirements? A: Izilda P. Martins reassured that there are no issues with ABS coverage, highlighting a substantial cushion of about $2.8 billion, effectively $3.6 billion when accounting for certain reporting adjustments. This positions the net advance rate in the low 80s, with capacity to increase to the high 80s.
Q: What are your expectations for fleet growth in Q2 and Q3, and could positive pricing be anticipated for Q3? A: Joseph A. Ferraro expressed optimism about pricing trends, noting efforts to align fleet sizes and improve utilization. He anticipates that pricing could potentially be flat or positive compared to the previous year, driven by strategic fleet management and pricing systems.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
