Why Is Avis Budget (CAR) Down 28% Since Last Earnings Report?

It has been about a month since the last earnings report for Avis Budget Group (CAR). Shares have lost about 28% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Avis Budget due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Avis Budget Q2 Earnings Beat Estimates

Avis Budget reported solid second-quarter 2019 results wherein both earnings and revenues beat the Zacks Consensus Estimate.

Adjusted earnings per share of 79 cents beat the consensus mark by 6 cents and improved 39% on a year-over-year basis. The upside was driven by profitable rentals (as evident from its eighth consecutive quarter of increased leisure pricing in the Americas) and the company’s ability to capitalize on a strong residual fleet environment.

Total revenues of $2.34 billion came ahead of the consensus estimate by $5 million and increased 0.4% year over year due to a 2% increase in rental days, 2% increase in U.S. rental car pricing and $6 million increase in ancillary revenues. Overall per-unit fleet costs declined 8% year over year and utilization improved 70 basis points.

Revenues by Segment

Americas segment revenues of $1.63 billion increased 2% year over year owing to a 2% increase in rental days and 1% increase in revenues per day. The segment accounted for 70% of total revenues.

Revenues at the International segment were down 4% year over year to $710 million. The decline was due to an adverse impact of 6% from currency exchange movements and 1% decrease in revenues per day, partially offset by 3% rise in rental days. The segment contributed 30% to total revenues.

Profitability

Adjusted EBITDA of $175 million improved 9% year over year on a reported basis and 16% on a constant currency basis. Adjusted EBITDA margin rose to 7.5% from 6.9% in the year-ago quarter. The company witnessed record Net Promoter Scores in both the Americas and International regions.

Adjusted EBITDA for Americas was $152 million compared with $107 million in the prior-year quarter. Adjusted EBITDA margin expanded by more than 250 basis points to 9.3%. The upside was driven by a 10% decrease in per-unit fleet cost due to robust used vehicle values, growing development and usage of alternative disposition channels and effectiveness of proprietary fleet management system, which optimizes vehicle purchase and disposal decisions.

Internationally, adjusted EBITDA of $39 million declined 45% from the prior-year quarter. The decline was due to lower organic rates and foreign currency exchange rate fluctuations arising from reduction in intra-European travel and uncertainty around Brexit. The company is increasing its light commercial vehicle operations, which enjoys consistent rental demand.

Balance Sheet and Cash Flow

Avis Budget exited second-quarter 2019 with cash and cash equivalents of $534 million compared with $540 million at the end of the prior quarter. Corporate debt was $3.54 billion compared with $3.52 billion at the end of the prior quarter. The company generated $525 million of cash from operating activities in the reported quarter. Adjusted free cash flow totaled $13 million and capital expenditures were $60 million. The company raised its share repurchase authorization by an additional $100 million. The company now has $250 million available for share repurchases.

2019 Outlook

Avis Budget reaffirmed its guidance for 2019. Adjusted EPS is expected between $3.35 and $4.20. The company expects revenues to be in the range of $9.20-$9.50 billion. Further, adjusted net income is projected in the range of $260-$320 million. Adjusted pretax income is expected between $350 million and $450 million. Adjusted EBITDA is anticipated in the range of $750-$850 million. Adjusted free cash flow is expected between $250 million and $300 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Avis Budget has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Avis Budget has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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