Avis Budget Group Reports Increased Revenue and Earnings for Third Quarter 2010
Revenue totaled $1.5 billion, an increase of 3% year-over-year.
--
-- Adjusted EBITDA, excluding certain items, increased 33% and improved 320 basis points as a percentage of revenue.
-- Net income increased 58% compared with the prior year.
Avis Budget Group, Inc. (NYSE: CAR) today reported results for its third quarter, which ended September 30, 2010. The Company had revenue of $1.5 billion, an increase of 3% versus third quarter 2009, and net income of $90 million, an increase of 58% versus third quarter 2009.
Third quarter Adjusted EBITDA was $219 million compared with $165 million in third quarter 2009, excluding restructuring and transaction-related costs. Net income was $97 million, compared with net income of $69 million in third quarter 2009, excluding restructuring and transaction-related costs. All three of the Company's operating segments reported growth in Adjusted EBITDA and margins.
"We delivered strong earnings growth this quarter, driven by positive volume growth and our vigilant focus on cost containment," said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. "Rental day trends turned positive this quarter as demand from both commercial and leisure customers continued to strengthen, and margins expanded significantly, reflecting our emphasis on profitable transactions, our permanently lowered fixed cost base and lower fleet costs."
Executive Summary
In the third quarter, total car rental revenues increased 3% year-over-year, driven primarily by a 4% increase in rental days. While our average daily rate declined 2% year-over-year, reflecting difficult comparisons to last year's price growth, our average daily rate in third quarter 2010 was 6% higher than in 2008. In addition, ancillary revenues increased 3% per rental day in the quarter compared with third quarter 2009.
Our car rental depreciation costs decreased slightly due to a 5% reduction in per-unit depreciation costs and a 4% increase in our average fleet. Excluding gas, other operating expenses in domestic and international car rental decreased 220 basis points to 44.3% of revenue, principally reflecting cost-saving and productivity improvement initiatives. Selling, general and administrative costs in domestic and international car rental decreased compared to the prior year, excluding the effects of foreign currency, reflecting the benefits of our cost-saving initiatives, partially offset by higher on-line marketing expenditures.
Business Segment Discussion
The following discussion of third quarter operating results focuses on revenue and Adjusted EBITDA for each of our operating segments. Revenue and Adjusted EBITDA are expressed in millions.
Domestic Car Rental
(Consisting of the Company's U.S. Avis and Budget car rental operations)
2010 2009 % change
------- ------- --------
Revenue $ 1,127 $ 1,109 2%
------- ------- --------
Adjusted EBITDA $ 137 $ 102 34%
Revenue increased 2% primarily due to an increase in ancillary revenues. Rental days increased 4% and average daily rate decreased 4% in the quarter, reflecting difficult pricing comparisons with the prior-year third quarter. Adjusted EBITDA increased $35 million as a result of a 7% decrease in per-unit depreciation costs, 2% growth in ancillary revenues on a per-rental-day basis, and our cost-saving initiatives. Adjusted EBITDA includes $6 million of restructuring costs in third quarter 2010 compared with $1 million in third quarter 2009.
International Car Rental
(Consisting of the Company's international Avis and Budget vehicle rental
operations)
2010 2009 % change
------- ------- --------
Revenue $ 274 $ 250 10%
------- ------- --------
Adjusted EBITDA $ 62 $ 56 11%
Revenue increased 10% primarily due to a 3% increase in rental days and a 4% increase in average daily rate. Excluding foreign-exchange effects, average daily rate declined 2%, and ancillary revenues increased 7% per rental day. Adjusted EBITDA increased 11% year-over-year primarily due to increased revenues and a $3 million favorable impact from exchange-rate movements.
Truck Rental
(Consisting of the Company's Budget Truck rental business)
2010 2009 % change
------- ------- --------
Revenue $ 111 $ 106 5%
------- ------- --------
Adjusted EBITDA $ 19 $ 13 46%
Truck rental revenue increased 5% due to a 5% increase in rental days and a 1% increase in average daily rate. Adjusted EBITDA improved primarily as a result of increased revenue and lower fleet costs, as our average rental fleet declined 10%.
Other Items
-- Potential Acquisition of Dollar Thrifty - The Company continues to
pursue the acquisition of Dollar Thrifty Automotive Group, Inc.
(NYSE: DTG), the fourth largest car rental company in the United
States. Avis Budget Group and Dollar Thrifty have agreed to cooperate
in order to obtain antitrust clearance for the proposed acquisition.
In the third quarter, we incurred $5 million of expense related to this
potential transaction.
-- Fleet Negotiations - The Company has largely completed its
negotiations with its vehicle suppliers for the purchase of model-year
2011 vehicles. Based on these negotiations, the Company expects that no
single manufacturer will account for more than approximately 30% of its
U.S. rental car fleet, that model-year 2011 per-unit vehicle
depreciation costs will be consistent with, and possibly lower than,
the prior model-year costs, and that vehicles obtained under
manufacturer repurchase programs will continue to represent
approximately half of its average vehicle fleet.
-- Resolution of Tax Audit - In the third quarter, the Company and the
Internal Revenue Service finalized the audit of the Company's tax
returns for 2003 through 2006, as expected. The Company made payments
to the IRS in conjunction with the audit, all of which were funded by
its former Realogy and Wyndham subsidiaries. In connection with the
conclusion of the audit, Wyndham reimbursed the Company $86 million for
certain tax attributes, which the Company had not expected to utilize
until 2014 or later.
-- Co-Marketing Agreements - Over the last several months, the Company
has signed a number of significant marketing affiliations with leading
global travel providers. These new and expanded agreements give us
access to millions of leisure and business travelers and are expected
to generate incremental rental volumes for Avis and Budget.
Outlook
The Company expects year-over-year volume increases to continue in the fourth quarter and plans to keep the size of its rental fleet in line with rental demand. The Company also expects year-over-year pricing comparisons to remain challenging in the fourth quarter due to the substantial leisure price increases achieved last year.
The Company estimates its domestic vehicle depreciation costs will decline 9-11% on a per-unit basis in 2010. The Company is continuing its efforts to reduce costs and enhance productivity and expects that its cost-saving initiatives will provide $60-70 million of incremental savings in 2010 compared to 2009, bringing the total annual savings from the Company's actions to $475-485 million in 2010.
