Avis Budget Group Inc. reported results on Nov. 2 for its third quarter, which ended Sept. 30. The company reported revenue of $1.6 billion, an increase of 7 percent versus third quarter 2010.
Excluding certain items, adjusted EBITDA increased 24 percent to $272 million and margins expanded by 230 basis points compared to the prior-year third quarter. Net income was $129 million and diluted earnings per share increased to $1.02, excluding certain items. Reported net income and diluted earnings per share, which include those items, were $82 million and $0.65, respectively.
"We delivered record earnings this quarter driven by increased revenue, our strategic initiatives to accelerate profitable growth, our continued focus on cost containment and lower fleet costs," said Ronald L. Nelson, Avis Budget Group chairman and CEO. "We also completed our acquisition of Avis Europe on Oct. 3 and are excited about the growth and profit opportunities that combining our brands across a global platform will afford us."
Executive Summary Revenue increased 7 percent in third quarter 2011 compared to third quarter 2010 primarily due to a 5 percent increase in volume. Ancillary revenues increased 12 percent, excluding gas and customer recoveries, driven by increased penetration of the emergency roadside protection, damage waiver and insurance products.
Excluding certain items, third quarter adjusted EBITDA increased 24 percent to $272 million, with margins improving by 230 basis points. The increase in margin was primarily due to a 19 percent decline in per-unit fleet costs, including gains on vehicle dispositions, lower vehicle interest costs and incremental savings from the productivity initiatives, partially offset by foreign-exchange effects, increased gas expense and the strategic decision to invest in incremental marketing spending to support Avis brands.
Domestic Car Rental (U.S. Avis and Budget operations)
Revenue increased 6 percent primarily due to a 5 percent increase in volume and 7 percent growth in ancillary revenues on a per-rental-day basis, partially offset by a 1 percent decline in pricing.
Adjusted EBITDA increased 31 percent, driven by a 24 percent decrease in per-unit fleet costs and by Avis productivity initiatives, partially offset by higher gas expense and increased marketing investment in our brands. Adjusted EBITDA includes $6 million of restructuring costs in third quarter 2010.
International Car Rental (International Avis and Budget operations)
Revenue increased 16 percent primarily due to a 6 percent increase in rental days and a 9 percent increase in pricing. Excluding foreign-exchange effects, pricing declined 1 percent, per-unit fleet costs declined 5 percent, and Adjusted EBITDA increased $3 million.
Other Items
• Acquisition of Avis Europe plc -- On October 3 the company acquired Avis Europe plc, combining the global operations of the Avis and Budget brands under one corporate owner. The Company incurred $73 million of expenses in connection with the transaction in the third quarter, including $26 million of losses on foreign-currency transactions related to the purchase price.
• Domestic Vehicle-Backed Financing -- In August the company's subsidiary, Avis Budget Rental Car Funding (AESOP) LLC, completed an offering of $650 million of asset-backed bonds with a weighted average interest rate of 3.5 percent. And in October AESOP renewed its asset-backed bank conduit facility, expanding its borrowing capacity by $450 million to $2.5 billion, and extended the entire facility's maturity to October 2013.
• European Vehicle-Backed Financing -- In October the company completed a EURO350 million multi-country European fleet facility maturing in 2013. The facility will help Avis Budget Group fund its European fleet and implement vehicle securitization structures.
Outlook
Avis believes the strategic initiatives it has implemented have accelerated its revenue and profit growth and that it is well positioned to realize significant benefits from the acquisition and integration of Avis Europe.
• As previously announced, the company expects Domestic volume to increase 4-6 percent in the fourth quarter and plans to keep its rental fleet in line with rental demand.
• The company estimates its Domestic per-unit vehicle depreciation costs will decline approximately 20 percent in 2011 compared with 2010 and will decline 3-5 percent in fourth quarter 2011 compared to fourth quarter 2010.
• The Company expects its initiatives to reduce costs and enhance productivity will provide approximately $65 million of incremental savings in 2011 compared to 2010, bringing the annual savings from the company's actions since 2008 to $575 million.
• The Company expects that its effective tax rate in 2011 will be approximately 40 percent, excluding certain items.
