Viking Global adds position in Avis Budget Group
Hedge fund Viking Global acquired a 5% stake in Avis Budget Group (CAR). In it’s 13G filing, Viking said the shares weren’t acquired for the purpose of changing or influencing ownership control of Avis. In this part of the series, we’ll provide a brief overview of Avis Budget Group, or Avis.
Overview of Avis Budget Group
Avis (CAR) is a leading global provider of vehicle rental services through its brands Avis and Budget. It offers a car-sharing network service through its brand, Zipcar.
It operates in three business segments:
- North America
- Truck Rental
On December 15, the company announced its plan to combine its three segments into two, the Americas and International.
3Q14 revenue driven by higher pricing and high volumes
Avis’s revenue increased 6% year-over-year in 3Q14 to $2.5 billion. This was primarily due to a 6% increase in rental days and a 3% increase in North American pricing. The company said, “Trends that it is seeing in its business are result of strategic initiatives. These trends include pricing, demand growth, and fleet cost in North America, record results in its European operations, continued expansion of its Zipcar brand, and use of free cash flow for both bolt-on acquisitions of Payless and Zipcar and share repurchases.”
Third-quarter adjusted earnings before interest, tax, depreciation, and amortization (or EBITDA) increased 9% to $417 million. This was primarily due to higher rental volumes and increased year-over-year pricing in North America, partially offset by higher fleet costs.
Like Avis, rivals Hertz Global Holdings (HTZ) and Ryder System (R) also benefited from increased pricing and increased demand from North America. United Rentals (URI) also experienced improved demand due to the “North American construction recovery.”
Narrowed outlook for 2014
Avis Budget Group (CAR) narrowed its full-year 2014 projections of adjusted EBITDA and earnings per share. The company now expects full-year 2014 revenue to be approximately $8.5 billion, roughly a 7% increase compared to 2013. Total fleet costs are expected to be $305 to $310 per unit per month in 2014, an increase of approximately 5% to 7% compared to 2013. Interest expense related to corporate debt will be approximately $210 million, a reduction of $18 million compared to 2013.
The company estimates that its 2014 diluted earnings per share, excluding certain items, will increase 28% to 36% compared to $2.82 to $3.00 in 2013. The company also continues to target $1 billion or more of adjusted EBITDA in 2015.
In its outlook for fiscal year 2015, Avis’s peer AMERCO (UHAL) reported that, “It continues to focus its attention on increasing transaction volume and improving pricing, product and utilization for self-moving equipment rentals.”
In the next part of this series, we’ll discuss some trends that Avis Budget Group is experiencing in its business.