Avis Budget Group Reports Results For Second Quarter 2008
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- Second quarter revenue increased 4%, to a record $1.6 billion.
- Generated EBITDA of $77 million and pretax income of $25 million.
- Off-airport revenue grew 10% and cost-savings program accelerated as planned.
- Provides additional details on 2008 outlook.
PARSIPPANY, N.J., Aug. 6 -- Avis Budget Group, Inc. today reported results for its second quarter, which ended June 30, 2008. For the second quarter, revenue grew to $1.6 billion, an increase of 4% versus second quarter 2007. EBITDA totaled $77 million and pretax income was $25 million.
"The impact of rising fuel costs and a weak economy began to affect commercial travel volumes in the second quarter. Leisure traffic was less affected, as softer transaction volume was more than offset by longer length of rental. Enplanements declined sequentially throughout the quarter. This, combined with lower-than-expected time and mileage rates per day, made the second quarter a challenging operating environment," said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. "However, we maintained our revenue growth momentum, adjusted our fleet levels appropriately during the quarter, and continued to achieve solid results in our sales of used vehicles."
"More importantly, we continued to make significant progress in our Performance Excellence process improvement initiative, in ancillary revenue growth and in increasing our off-airport presence. In addition, we have seen tighter industry-wide fleet levels thus far in the third quarter, combined with year-over-year pricing gains; transaction volume, however, continues to reflect a slowdown in the travel environment," Mr. Nelson said.
"As a result, we remain cautious in our outlook for the seasonally slower fourth quarter, for commercial travel volumes and for the pricing environment, and are aggressively responding to the expectation of a soft travel climate. We are decreasing field and corporate staffing levels, adjusting the size and composition of our fleet to better match anticipated demand, reducing compensation costs and significantly curtailing discretionary spending. In addition, we are exploring additional opportunities among our revenue streams, costs and business mix to improve profitability. These steps will not only better position us to weather an anticipated weaker environment, but should also add additional coverage under the financial ratios included in our credit facilities."
Executive Summary
In the second quarter, our car rental revenues increased 5% year-over-year, driven primarily by a 3% increase in rental days and a 15% increase in ancillary revenues. Time and mileage revenue per day rates for our car rental operations were flat versus second quarter 2007, and down 1% excluding the impact of foreign exchange, as leisure pricing was challenged, especially in April due largely to the timing of the Easter holiday. Commercial time and mileage rates per day also decreased slightly.
Our car fleet costs increased 11% due to a 2% increase in our fleet to support volume growth, a 7% increase in our per-unit fleet costs and a 1% increase due to foreign exchange movements. Our disposition of risk cars progressed well, and our fleet costs benefited from longer hold periods. (As discussed previously, we had expected the second quarter per-unit increase in fleet costs to be higher than the first-quarter increase due to a more difficult comparison to 2007. Our forecast for the full year 2008 increase in fleet costs continues to be 4-6% on a per-unit basis.) Other operating expenses, excluding fleet-related costs, decreased by 40 basis points to 51.3% of revenue, primarily due to our cost-reduction efforts and lower self-insurance costs, partially offset by increased gasoline costs.
Truck rental revenue and EBITDA declined as a slight increase in rental days and lower fleet costs were offset by price declines compared to second quarter 2007. The increase in rental days reflected growth in commercial and local consumer rentals, while one-way rental volumes continued to experience softness as the housing market remained weak. Pricing declined across all sectors of our truck rental business, and the reduction in one-way rentals, which typically have a higher daily rate, magnified the decline in average daily rate.
Business Segment Discussion
The following discussion of second quarter operating results focuses on revenue and EBITDA for each of our operating segments. Revenue and EBITDA are expressed in millions.
Domestic Car Rental
(Consisting of the Company's U.S. Avis and Budget car rental operations)
2008 2007 % change
Revenue $ 1,241 $1,195 4%
EBITDA $ 46 $ 59 (22%)
Revenue increased primarily due to a 3% increase in rental days and a 13% increase in ancillary revenues. EBITDA declined as volume growth, cost savings and lower self-insurance costs were offset by the decline in time and mileage per day rates, higher gasoline expense and an increase in fleet costs year-over-year.
International Car Rental
(Consisting of the Company's international Avis and Budget car rental operations)
2008 2007 % change Revenue $ 230 $ 202 14% EBITDA $ 25 $ 21 19%
Revenue increased primarily due to an 8% increase in time and mileage per day rates, increased ancillary revenues and a 3% increase in rental days. Excluding the impact of foreign exchange rate movements, time and mileage per day rates decreased 2%. EBITDA increased year-over-year due to volume growth, increased ancillary revenues, lower self-insurance costs and favorable foreign exchange movements.
Truck Rental
(Consisting of the Company's Budget Truck rental business)
2008 2007 % change
Revenue $ 105 $ 114 (8%)
EBITDA $ 8 $ 10 (20%)
Revenue decreased primarily due to a 10% decrease in time and mileage per day rates. EBITDA decreased due to the revenue decline partially offset by operating cost-reduction efforts and decreased fleet costs.
Other Items
- Free Cash Flow - We generated $160 million of Free Cash Flow in the six months ended June 30, 2008. Excluding the effect of acquiring and refinancing fleet purchased in the acquisition of licensees (principally the Budget licensees for Newark, N.J. and Norfolk, Va.), we generated $137 million of Free Cash Flow in the six-month period, and we continue to target Free Cash Flow to be 85% or more of pretax income in 2008.
- Domestic Vehicle Financing Facility - In April, we completed a new $300 million fleet lease facility to finance program cars in 2008 and 2009.
- Carey - Our second quarter results include our equity in the results of Carey International, the leading international provider of chauffeured ground transportation services. These results are included in the Corporate and Other segment and did not have a meaningful impact.
- Separation Expenses - We incurred $1 million of expenses in second quarter 2008 for activities related to our 2006 separation into four independent companies, versus $3 million in second quarter 2007.
- Capacity to Repurchase Stock or Bonds - As of June 30, 2008, we have approximately $110 million of capacity to repurchase common stock or outstanding bonds under provisions in our credit facility that limit such activity. To date, we have repurchased $33 million of common stock under the $50 million share repurchase authorization announced in January 2008.
Outlook
The Company has updated its outlook for 2008. We project that domestic enplanements, which are a principal determinant of on-airport rental volumes, will decrease in 2008 compared to 2007 amid airline capacity reductions and a weak macroeconomic environment in second half 2008. In addition, the Company expects that its domestic time and mileage revenue per rental day will be approximately unchanged and its domestic rental day volume will increase approximately 0-2% in 2008 compared to 2007. We expect incremental year-over-year revenue growth from where2 GPS rentals and insurance replacement rentals.
Domestic fleet costs are expected to increase approximately 4-6% per vehicle in 2008 compared to 2007. For the 2008 model year, the Company expects the portion of its domestic fleet that is not subject to manufacturer repurchase agreements to be approximately 50%, up from approximately 20% in model year 2007. In addition, the Company has intensified its efforts to reduce costs and enhance productivity through its Performance Excellence and other initiatives and expects the impact of these initiatives to exceed $40 million over the course of 2008.
While it continues to be a difficult in the current environment to accurately forecast our future results, the Company projects that its 2008 revenue will increase compared to 2007, but that EBITDA will be approximately $350 million and pretax income will be approximately $140 million for full year 2008, excluding any unusual items. In 2007, the Company reported revenue of $6.0 billion, EBITDA of $409 million and pretax income of $198 million, excluding unusual items.
Investor Conference Call
Avis Budget Group will host a conference call to discuss second quarter results on Thursday, August 7, 2008, at 9:00 a.m. (ET). Investors may access the call live at www.avisbudgetgroup.com or by dialing (210) 234-0038, and providing the access code "Avis Budget." A web replay will be available at www.avisbudgetgroup.com following the call. A telephone replay will be available from 2:00 p.m. (ET) on August 7, 2008 until 8:00 p.m. (ET) on August 14 at (203) 369-0141, access code: "Avis Budget."
