Avis Budget Earnings Preview

| About: Avis Budget (CAR)

Avis Budget Group (CAR), a leading provider of vehicle rental services, is scheduled to report its fourth-quarter 2011 financial results after the market closes on February 15, 2012. The current Zacks Consensus Estimate for the quarter is 6 cents per share. For the quarter under review, revenue is expected to be $1,676 million, according to the Zacks Consensus Estimate.

Third-quarter 2011, a synopsis

Avis Budget posted third-quarter 2011 net income of $82.0 million compared with a net income of $90.0 million in the year-ago period. Excluding extraordinary items, quarterly net income came in at $129 million or $1.02 a share.

Net income per share for the quarter beat the Zacks Consensus Estimate of 99 cents, reflecting considerable improvement from the prior-year quarter net income of 78 cents a share.

The company reported a 7.0% jump in net revenue to $1,623.0 million from $1,512.0 million in the year-ago period. Total revenue outpaced the Zacks Consensus Estimate of $1,594.0 million. The year-over-year increase was mainly attributable to a 5.0% rise in volume. Ancillary revenue growth of 12.0% also contributed to the revenue increase.

Guidance for fourth-quarter and fiscal 2011

Avis Budget expects domestic vehicle depreciation costs to fall by approximately 20% on a per unit basis in 2011 compared with 2010 and in the range of 3%-5% in fourth-quarter 2011. The company is also anticipating an increase in the domestic volume in the range of 4%-6% in fourth-quarter 2011.

Avis Budget is continuing with its efforts to reduce costs while enhancing 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 $65 million of year-over-year savings in 2011. Total annual savings from these initiatives are expected to be $575.0 million in 2011.

Zacks Consensus

The analyst covered by Zacks expects Avis Budget to post fourth-quarter 2011 earnings of 6 cents a share compared with a loss of 6 cents delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of 2 cents and 10 cents a share.

For fiscal 2011, the Zacks Consensus Estimate stood at $1.82 per share, more than double its previous fiscal earnings of 90 cents. The current Zacks estimate ranges between $1.79 and $1.86 per share.

Agreement of Estimate

In the last 7 and 30 days, no movement in estimates has been noticed in either direction either for fourth-quarter 2011 or fiscal 2011.

Magnitude of Estimate Revisions

The magnitude of estimate revisions for Avis Budget depicts a neutral outlook for the upcoming fourth quarter and fiscal 2011. Over the last 7 and 30 days, estimates for the upcoming quarter and fiscal 2011 have remained unchanged at 6 cents and $1.82 per share, respectively.

Surprise History

With respect to earnings surprises, Avis Budget has topped the Zacks Consensus Estimate over the last four quarters in the range of 3% to 320%. The average remained at positive 110.1%. This suggests that Avis Budget has surpassed the Zacks Consensus Estimate by an average of 110.1% in the trailing four quarters.

Our View

We believe that the company is pro-actively looking for strategic acquisitions and alliance opportunities to enhance its growth opportunities. The recent acquisition of Avis Europe is one of the major steps to enhance its operational footholds in global market, especially in China and India. Moreover, Avis Budget has launched its own sales force in the European region as a means to own and leverage the local opportunities and customers to drive inbound business.

Moreover, in an effort to take advantage of the other inbound revenue opportunities, Avis Budget is focusing on new ideas and investments in its brands and technology up gradation. Recently, the company has entered into a $14 million deal with I.D. Systems to install virtual car rental technology in over 25,000 vehicles. The technology will permit travelers for reserving, picking up and returning rental vehicles through their smart phones. Besides, they will also get an automated electronic receipt after the completion of rental, enabling the company to minimize cost while boosting profitability.

However, the company faces intense competition from well established players, such as Hertz Global Holdings Inc. (HTZ), Dollar Thrifty Automotive Group Inc. (DTG) and Ryder System Inc. (R). Consequently, the company may face challenges to maintain its high level of operating performance.

Avis Budget maintains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ recommendation. Besides, the company retains a long-term ‘Outperform’ recommendation.

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