Dollar Thrifty Automotive Group Inc. today reported results for the second quarter ended June 30, 2011. Net income for the 2011 second quarter was $42.5 million compared to net income of $42.3 million for the second quarter of 2010.
The company noted that earnings were negatively impacted by merger-related expenses of $1.1 million and $6.8 million incurred during the second quarter of 2011 and 2010, respectively.
For the quarter ended June 30, 2011, the company's total revenue was $395.1 million, consistent with the comparable 2010 period. Vehicle rental revenue for the quarter was unchanged with prior year as a 3.0 percent increase in rental days was offset by a 3.4 percent decrease in revenue per day.
"We are very pleased with our results for the quarter, particularly the corporate Adjusted EBITDA margin of 20.5 percent achieved during a period when our car gains declined and rental revenue per day was under pressure," said Scott L. Thompson, President and Chief Executive Officer. "Our ongoing efforts to maintain very competitive fleet costs and to control operating expenses allowed us to continue to generate increased Corporate Adjusted EBITDA and profits in a less favorable environment," said Thompson.
Car Rental Metrics
Additionally, the company noted that gains on risk vehicle sales totaled $17.8 million in the second quarter of 2011, down from $27.5 million in the second quarter of 2010. The decline was attributable to an approximate 10,500 unit decrease in vehicles sold compared to 2010, as the company deferred disposition of certain vehicles to protect against potential vehicle supply disruptions resulting from the crisis in Japan in March.
The company noted that there were ultimately no significant vehicle supply disruptions during the quarter, and none are currently expected throughout the remainder of 2011.
The average fleet for the quarter was up 7.6 percent compared to the prior year period as the company held additional fleet to protect against potential supply disruptions, and to support increased rental day demand.
"While we were pleased with our continued rental day growth during the quarter, the rate per day environment was a headwind, negatively impacting top line revenue growth. We believe that fleet decisions in the industry following the crisis in Japan impacted fleet levels and pricing in the quarter. The rate environment is improving in the third quarter compared to the first half of 2011; however it is still slightly negative to prior year levels," said Thompson.
Fleet cost per vehicle was $188 per month in the second quarter of 2011, compared to $193 per month in the second quarter of 2010. The decrease in fleet cost per vehicle was due primarily to a decrease in the base depreciation rates on the vehicles given the ongoing strength of the used car market in 2011 and the resulting favorable impact on residual values. The impact of the base depreciation rate change was offset by a $9.7 million reduction in gains on sales of risk vehicles from $27.5 million in the second quarter of 2010 to $17.8 million in the second quarter of 2011. As previously noted, the decline was due to an approximate 10,500 unit decrease in the number of units sold on a year-over-year basis. On a per unit basis, the average gain per vehicle sold during the second quarter of 2011 was $2,116 per unit, compared to $1,459 per unit in the second quarter of 2010.
Direct vehicle and operating expenses and selling, general and administrative expenses (operating expenses) declined from $248.5 million in the second quarter of 2010 to $239.8 million in the second quarter of 2011, in spite of an increase in the average rental fleet of 7.6 percent on a year-over-year basis. The decline was primarily attributable to favorable loss experience in the company's vehicle insurance programs, as well as a $5.7 million decrease in merger-related expenses on a year-over-year basis. Excluding merger-related expenses incurred in both periods, operating expenses declined to 60.4 percent of revenues for the second quarter of 2011, compared to 61.0 percent of revenues in the second quarter of 2010.
The company is currently continuing to cooperate with Avis Budget Group, Inc. and Hertz Global Holdings, Inc. with respect to FTC review. The company does not have an agreement, written or verbal, regarding merger terms, including price, with either Hertz or Avis Budget.
2011 Outlook Update
The company is also providing updated guidance for revenue, corporate adjusted EBITDA and fleet cost expectations for the full year of 2011. The company's updated revenue guidance is primarily influenced by the rate per day environment experienced in the first six months of 2011. If the rate environment continues to remain under pressure during the second half of 2011, the company would expect that rate environment, combined with single digit rental day growth, to result in full year 2011 revenues in line with 2010.
The company reported that it has substantially completed its 2012 fleet purchase negotiations and the overall economics were favorable to expectations. Additionally, the company noted that the used vehicle market has been very robust throughout the first half of the year, and the company expects that trend to continue through the back half of the year, subject to normal seasonal adjustments. Finally, the company noted that it expects the used car market to be slightly less robust in 2012 than 2011, although better than its previously stated outlook for 2012 and beyond. Accordingly, the company is lowering its fleet cost outlook for the full year of 2011, which it now expects to range from $215 - $225 per vehicle per month.
Based on the factors outlined above, the company is currently targeting corporate adjusted EBITDA for the full year of 2011 to be within a range of $270 million to $290 million. This estimate excludes the impact of merger-related expenses incurred to date and that may be incurred in the second half of 2011.
"We are continuing to benefit from our strong balance sheet, low cost structure, established brands and fleet management initiatives, which have been augmented by the overall strength of the used vehicle market. We produced record financial results in 2010 and are optimistic that we are on track to have another outstanding year in 2011," said Thompson.