Avis Budget Reports Narrower-Than-Expected Q1 Loss

On May 6, Avis Budget Group Inc. reported a Q1 loss of $0.44 per share, ex-items, better than consensus analyst estimates for a loss of $0.63. Revenues fell 17 percent year-over-year to $1.2 billion, inline with consensus estimates of $1.25 billion. Excluding unusual itemsQ1 EBITDA was a loss of $3 million. Avis also reported that it cut 1,000 positions in the first quarter. Chairman and CEO Ronald Nelson commented, “Despite the economic headwinds, we also continued to focus on innovating, competing and providing our customers with outstanding service… In the first quarter, we successfully launched a new and enhanced Avis Web site, achieved virtually 100 percent renewal rate on commercial agreements along with several new client signings, and achieved continued growth in ancillary revenue per rental day.” Avis said it continues to be in full compliance with the financial covenants under its senior credit facility and that it is achieving targeted cost savings, which continue to be forecast at a $300 million annual run rate. The company expects the macroeconomic environment, conditions in the credit markets, and demand for vehicle rentals to continue to be challenging in second quarter 2009.

Demand for car rental services has been weaker than we anticipated, with declines outpacing those recorded in first quarter 2002 (following 9/11). The company expects the macroeconomic environment, conditions in the credit markets, and demand for vehicle rentals to continue to be challenging in second quarter 2009. Airline capacity and domestic enplanements, which are a principal determinant of on-airport rental volumes, will decrease markedly in the first half of 2009 compared to the year-earlier period. It is expected that comparisons to 2008 will begin to improve in the second half of 2009, although it is very difficult to estimate the pace of such improvement at this time. The company expects to continue to adjust its fleet levels to reflect car rental demand, so that fleet utilization in 2009 should be consistent with 2008 levels.

Domestic fleet costs are expected to increase several percentage points on a per-unit basis in 2009, but not at the double-digit rate reported in the first quarter. The used-car market rebounded significantly over the course of the first quarter. The company is continuing its efforts to reduce costs and enhance productivity through its performance excellence initiative and continues to expect the benefits of this program to exceed $100 million over the course of 2009. Such benefits are expected to be incremental to the $150-$200 million of annual savings generated by the company's five-point cost-reduction and efficiency improvement plan and the approximately $50 million of annual savings from the cost-reduction actions Avis implemented in third quarter 2008.

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