Avis Cuts Loss, Grows Top Line

| About: Avis Budget (CAR)
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Avis Budget Group Inc. (NASDAQ:CAR) posted a fourth quarter 2010 net loss of $24 million, compared with a net loss of $49 million in the year-ago period. Excluding extraordinary items, quarterly loss came in at $6 million or 6 cents a share. Loss per share for the quarter was marginally lower than the Zacks Consensus Estimate of a loss of 7 cents and was also an improvement from the prior-year quarter loss of 25 cents a share.

For fiscal 2010, the company reported adjusted net income of $107 million or 90 cents a share, up substantially from a loss of $4 million or 4 cents a share reported in 2009.

The company reported a 6.0% jump in net revenues to $1,226 million from $1,160 million in the year-ago period. Total revenue also surpassed the Zacks Consensus Estimate of $1,201 million. The increase was mainly attributable to a 7% rise in rental days. However, the growth was partially offset by a 2% decline in pricing. Growth in Ancillary revenues of 10% also contributed to the revenue increase.

By segment, domestic car rental revenue rose 4.0% to $905 million in the quarter primarily attributable to a 7% volume expansion. This was partially offset by a 3.0% fall in pricing. International car rental revenue growth was 11% at $235 million, while truck rental increased 5.0% to $85 million, both on a year-over-year basis.

The company’s adjusted EBITDA increased more than threefold to $54 million from $14 million reported in the year-ago period. EBITDA margin improved 320 basis points, attributable to lower fleet and financing cost and incremental savings from cost-saving initiatives. Avis Budget’s total expenses rose marginally by 1.0% to $1,261 million from $1,248 million in the year-ago quarter. Consequently, the company reported loss before income taxes of $35 million, compared with a loss of $88 million in the year-ago quarter.

The company ended the year with cash and cash equivalents of $911 million and total debt of $2,502 million, compared with $482 million of cash and $2,131 million of debt in the year-ago period.

Avis Budget expects domestic vehicle depreciation costs to be at par or lower on a per-unit basis in 2011 compared with 2010. 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 $45-55 million of year-over-year savings in 2011. Total annual savings from these initiatives are expected to be more than $550 million in 2011.

Avis Budget Group is the leading general-use vehicle rental company in North America, Australia and New Zealand. Moreover, a formidable network of more than 6,500 rental locations and 350,000 vehicles enables the company to strengthen its well-established position in a highly competitive vehicle rental industry.

The company faces intense competition from other established players, such as Hertz Global Holdings Inc. (NYSE:HTZ), Enterprise Rent-A-Car, Dollar Thrifty Automotive Group Inc. (NYSE:DTG) and Ryder System Inc. (NYSE:R).

Avis Budget shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation.