Viking Global initiated position in Avis Budget Group
Hedge fund Viking Global started a position in Avis Budget Group (CAR). It owns a 5% stake in Avis Budget Group, or Avis. Previously in this series, we learned about how the North America segment is contributing to Avis’s revenues. In this part, we’ll discuss the company’s International and Truck Rentals segments.
Avis Budget Group’s International segment
This segment provides and licenses the company’s brands to third parties for vehicle rentals and ancillary products and services in Europe, the Middle East, Africa, Asia, South America, Central America, the Caribbean, Australia, and New Zealand. It also operates the company’s car-sharing business in some of these markets.
International is expanding its global footprint. It acquired Avis Europe and Apex Car rentals in 2011 and 2012. It contributed ~32% toward Avis’s total revenues in the third quarter of 2014.
International’s record results despite “soft macroeconomic conditions”
In 3Q14, revenue grew 4% to $815 million. This was primarily driven by a 12% increase in ancillary revenues. Excluding currency, revenue was up 2%. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 7% to a record $160 million. This is how the numbers break down:
- Latin America, Asia-Pacific region – revenue increased 4% in constant currency thanks to strong cost controls and efficiency gains
- Europe, Middle East, Africa – saw a softer summer demand due to the “macro economic conditions of Europe” – revenue increased 2%
- Australia – “economic weakness suppressed car rental demand”
Avis Budget Group’s Truck Rentals
This segment provides truck rentals and ancillary products and services to consumers and commercial users in the United States. It contributed ~4% toward Avis’s total revenues in the third quarter of 2014.
3Q14 revenue declined due to decreased volume
Revenue declined 5% in 3Q14 to $104 million. This was due to the planned 5% decline in average fleet size. Adjusted EBITDA declined 5% to $19 million, driven by higher per-unit fleet costs associated with a newly acquired rental fleet. The company acquired new trucks for its fleet to improve customer experience. It basically rightsized its fleet to approximately 20,000 trucks.
Avis and its competitors
In 3Q14, Avis reported revenues of $2.5 billion, a 6% increase year-over-year. The increase was driven by “a continuation of the strong volume and pricing trends it experienced in North America.” Like Avis Budget Group, Hertz Global Holdings (HTZ) and Ryder System (R) also benefited from increased pricing and increased demand in North America. United Rentals (URI) also experienced improved demand due to the “North American construction recovery.” Meanwhile, AMERCO (UHAL) is expanding its rental fleet to serve more customers.
In the next part of this series, we’ll look at how Avis is creating value for its shareholders.