Avis Budget Group, Inc. yesterday reported results for its fourth quarter and full year ended December 31, 2010. The company reported full year revenue of $5.2 billion, an increase of 1% compared with 2009. Excluding certain items, Adjusted EBITDA increased 69% to $410 million and pretax income increased to $158 million.
Reported pretax income, which includes debt extinguishment costs, was $72 million. All three of the company's operating segments reported significant growth in Adjusted EBITDA in 2010, and the company's Adjusted EBITDA margin expanded by 320 basis points compared to the prior year, excluding certain items.
For the fourth quarter, the Company reported revenue of $1.2 billion, a 6% increase compared with the prior year fourth quarter. Excluding certain items, Adjusted EBITDA was $54 million compared with $14 million in fourth quarter 2009, with margins expanding by 320 basis points. The Company reported a pretax loss of $35 million in the traditionally slower fourth quarter compared with a pretax loss of $88 million in fourth quarter 2009.
"We delivered strong earnings growth in 2010 as a result of the strength of our customer value proposition, the rebound in commercial and leisure travel demand, and our vigilant focus on cost containment," said Ronald L. Nelson, Avis Budget Group chairman and chief executive officer. "Our momentum accelerated in the back half of the year resulting in our full year 2010 Adjusted EBITDA equaling pre-recession levels, despite revenue that was $800 million lower. As we move into 2011, we look to invest in initiatives that will allow us to continue to grow revenue, earnings and margins."
Revenue increased 6% in fourth quarter 2010 compared to fourth quarter 2009 primarily due to a 7% increase in rental day volume, partially offset by 2% lower pricing. Ancillary revenues, excluding gas and customer recoveries, grew 10%. Fourth quarter Adjusted EBITDA more than tripled to $54 million, excluding certain items, with margins improving by 320 basis points. The 2 increase in margin was primarily due to a 12% decline in per-unit fleet costs, lower vehicle financing costs and incremental savings from our cost-saving initiatives.
Full year revenue increased 1% year-over-year due to a 1% increase in average daily rate and a 6% increase in ancillary revenues excluding gas and customer recoveries, partially offset by a 2% decrease in volume. Full year Adjusted EBITDA margin improved 320 basis points, excluding certain items. The increase in margin was primarily due to a 9% decline in per-unit fleet costs and a 60 basis point improvement in direct operating expenses as a percentage of revenue.
Business Segment Discussion
The following discussion of fourth quarter operating results focuses on revenue and Adjusted EBITDA for each of our operating segments. Revenue and Adjusted EBITDA are expressed in millions.
Domestic Car Rental
(Consisting of the Company's U.S. Avis and Budget car rental operations)
Revenue increased 4% primarily due to a 7% increase in volume, partially offset by a 3% year-over-year decline in pricing. The decline in pricing reflects difficult comparisons with the prior year's fourth quarter, when our average daily rate increased 9%. Adjusted EBITDA increased $40 million driven by a 16% decrease in per-unit fleet costs, 5% growth in ancillary revenues on a per-rental-day basis, and our cost-saving initiatives. Adjusted EBITDA includes $2 million of restructuring costs in fourth quarter 2010 compared with $4 million in fourth quarter 2009.
International Car Rental
(Consisting of the Company's international Avis and Budget vehicle rental operations)
Revenue increased 11% primarily due to a 7% increase in rental days and a 4% increase in pricing; excluding foreign-exchange effects, average daily rate declined 2%. The decline in average daily rate reflects difficult comparisons with the prior year's fourth quarter, when average daily rate increased 10%, excluding foreign-exchange effects. Excluding exchange-rate effects, Adjusted EBITDA increased slightly. Adjusted EBITDA includes $1 million of restructuring costs in fourth quarter 2009.
Truck rental revenue increased 5% primarily due to a 13% increase in rental days and a 4% decline in pricing. The decline in pricing was primarily due to strong growth in commercial rentals, which have a lower rate and longer length of rental than local consumer and one-way rentals. Adjusted EBITDA improved primarily as a result of increased revenue and increased vehicle utilization.
- Potential Acquisition of Dollar Thrifty - The company continues to pursue the acquisition of Dollar Thrifty Automotive Group, Inc., the fourth largest car rental company in the United States. Avis Budget Group and Dollar Thrifty have been working together to obtain antitrust clearance for the proposed acquisition. In the fourth quarter, the company incurred $15 million of expense related to this potential transaction, including approximately $8 million of acquisition-related interest expense.
- Corporate Debt - In the fourth quarter, the company issued $600 million of corporate debt securities due 2019, redeemed $175 million of corporate debt securities due 2014, and repaid $52 million of term loan borrowings and associated swaps. The remaining $349 million of proceeds from the fourth quarter debt offerings will be used either to help fund the acquisition of Dollar Thrifty or to repay additional corporate debt. Interest expense on such debt, the proceeds of which have not been deployed, is excluded in calculating income excluding certain items. The company's year-end cash balance was more than $900 million.
- Annual Stockholders Meeting - The company has scheduled its 2011 Annual Meeting of Stockholders for May 20, 2011 in Wilmington, Del. Stockholders of record as of the close of business on March 24, 2011 will be entitled to vote at the annual meeting.
Avis Budget generally does not provide projections of volume, price, revenue or income. The company does expect that its car rental fleet size will move in tandem with rental day volume, which will result in year-over-year utilization comparisons remaining fairly steady. The company estimates its per-unit domestic vehicle depreciation costs will be consistent with, and possibly lower than, its prior-year costs. In addition, the company expects that no single manufacturer will account for more than approximately 30% of its U.S. rental car fleet, and that vehicles obtained under manufacturer repurchase programs will continue to represent approximately half of its average vehicle fleet.
The company is continuing its efforts to reduce costs and enhance productivity and expects that such initiatives will provide $45-55 million of incremental savings in 2011 compared to 2010, bringing the annual savings from the company's actions since 2008 to more than $550 million. The company also expects that its effective tax rate in 2011 will be approximately 38-40%.
Investor Conference Call
Avis Budget Group will host a conference call to discuss fourth quarter results on February 17, 2011, 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." Investors are encouraged to dial in approximately 10 minutes prior to the call. A web replay will be available at www.avisbudgetgroup.com following the call. A telephone replay will be available from 12:00 p.m. (ET) on February 17 until 8:00 p.m. (ET) on February 24 at (402) 998-1544, access code: "Avis Budget."
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