Avis Budget Group Reports Results for Third Quarter 2008
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PARSIPPANY, N.J., November 6, 2008: Avis Budget Group, Inc. today reported results for its third quarter, which ended September 30, 2008. For the third quarter, revenue was $1.7 billion, virtually the same as in third quarter 2007. EBITDA totaled $141 million and pretax income was $87 million, excluding $1.3 billion of impairment charges and $11 million of restructuring and other unusual items recorded in the quarter. Including these items, EBITDA was $130 million, and the Company's pretax loss was $1.2 billion.
"Despite accelerating weakness in the global economy and travel industry, our steadfast focus on providing our customers with outstanding service enabled the Company to record third quarter revenue comparable to a year ago, the strongest quarter in our history. Commercial and leisure travel declined faster than anticipated during the quarter, creating a more difficult operating environment for our industry overall and for our business," said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. "Our flexible business model enabled us to respond quickly to this challenging environment by taking aggressive action to lower our costs. We reduced the size of our fleet, continued to achieve solid results in our sales of used vehicles, and have aggressively cut costs."
Cost-Reduction and Efficiency Improvement Plan
During the third quarter, the Company eliminated more than 700 positions to reduce costs and streamlined infrastructure in its headquarters, sales, contact center and field operations, with most of the reductions occurring in the United States and Canada. These reductions and other actions are expected to save the Company more than $50 million annually.
"The ongoing weakness in our industry, the economy and the credit markets makes it imperative that we now take further action to strengthen the foundation of our business. We will build on what we have done in the third quarter and the savings achieved from our ongoing Performance Excellence initiative with a five-point plan that we anticipate will provide annual cost savings and other benefits totaling $150-$200 million by the middle of 2009, which will be incremental to savings from our Performance Excellence initiative and the cost-reduction actions we took in third quarter 2008. These actions will help us run our business as efficiently as possible during these tough market conditions and position the Company well for the future," Mr. Nelson said.
The Company intends to realize these savings through the following specific actions:
Significant reductions in fleet costs, operating costs and selling, general and administrative expenses;
A thorough review of station, segment and customer profitability to identify and respond appropriately to unprofitable aspects of the business;
Targeted increases in pricing in order to improve revenue per day and overall profitability;
Further consolidation of purchasing programs and streamlined procurement practices; and
Further consolidation of customer-facing, and back-office functions and locations across our operations, which is expected to provide considerable synergies.
Financing
As discussed below, in October the Company extended $1.35 billion of its principal $1.5 billion asset-backed bank conduit facility, which is used to finance cars in its rental fleet, for sixty days while it continues to work with lenders on a further renewal. As a result of recent decreases in demand for vehicle rental services and increases in borrowing costs associated with fleet financing, the Company may in the future be unable to comply with financial covenants contained in its principal corporate credit facility. The Company therefore intends to seek an amendment to the terms of the facility to relax the covenant requirements. The Company was in compliance with the required financial covenants as of September 30, 2008.
Executive Summary of Third Quarter Results
In the third quarter, our car rental revenues were essentially unchanged year-over-year, reflecting a 3% decrease in rental days offset by a 10% increase in ancillary revenues. Time and mileage revenue per day rates for our car rental operations were down slightly versus third quarter 2007, and down 1% excluding the impact of foreign exchange, due to leisure pricing being challenging and the mix effect of longer length of rental and lower corporate volumes. Commercial time and mileage rates per day also decreased slightly.
Our car fleet costs increased 9% driven by a 2% decrease in our fleet to support volume levels and an 11% increase in our per-unit fleet costs. While our disposition of risk cars progressed well, our per-unit costs increased more than anticipated as we defleeted to meet lower demand levels. Other operating expenses, excluding fleet-related costs and unusual items, increased by 20 basis points year-over-year to 48.8% of revenue, entirely due to increased gasoline costs. Excluding the impact of higher gasoline prices, operating expenses declined by more than 90 basis points as a percentage of revenue year-over-year as our cost-saving initiatives gained traction. Sales, general and administration costs, excluding unusual items, declined slightly as a percentage of revenue primarily due to our cost-reduction efforts.
Truck rental revenue and EBITDA declined as rental days and price decreased compared to third quarter 2007. One-way rental volumes continued to experience softness as the housing market remained weak. Pricing declined across all sectors of our truck rental business, and the reduction in one-way rentals, which typically have a higher daily rate, magnified the decline in average daily rate.
Outlook
The Company has updated its outlook for 2008. We expect that domestic enplanements, which are a principal determinant of on-airport rental volumes, will decrease in 2008 compared to 2007 amid airline capacity reductions and a weak macroeconomic environment in second half 2008. In addition, the Company expects that its domestic time and mileage revenue per rental day will be down 1-2% and its domestic rental day volume will be unchanged in 2008 compared to 2007. We expect incremental year-over-year revenue growth from where2 GPS rentals and insurance replacement rentals.
Domestic fleet costs are expected to increase approximately 8% per vehicle in 2008 compared to 2007, which is higher than previously estimated due to costs and inefficiencies associated with reducing our fleet size to reflect decreased demand. In particular, the incrementally higher costs result primarily from decreased vehicle hold periods, due to the accelerated reduction of our fleet, and a corresponding increase in expenses incurred to prepare vehicles for disposition, which are a component of our fleet costs. For the 2009 model year, the Company expects the portion of its domestic fleet that is not subject to manufacturer repurchase agreements to be approximately 50%, consistent with its mix of vehicle purchases in model year 2008. In addition, the Company has intensified its efforts to reduce costs and enhance productivity through its Performance Excellence and other initiatives and continues to expect the benefit of these initiatives to exceed $40 million over the course of 2008.
It has become increasingly difficult to accurately forecast our future results in the current environment. The Company currently expects that its full-year 2008 revenue, EBITDA and pretax income, excluding unusual items, will be significantly lower than our previous estimates primarily due to lower vehicle rental revenues than expected. The Company is not publishing new estimates at this time.
The Company expects the macroeconomic environment, conditions in the credit and used vehicle markets and demand for vehicle rentals to be particularly challenging in fourth quarter 2008. Our planned actions to reduce costs and improve efficiencies will likely result in our incurring restructuring costs, as did our third-quarter staffing reductions. Despite these actions, however, we currently estimate that our Domestic Car Rental segment will report an EBITDA loss in the fourth quarter and that the Company will, in aggregate, report a pretax loss in the fourth quarter, excluding any restructuring costs or other unusual items.
Investor Conference Call
Avis Budget Group will host a conference call to discuss third quarter results on Friday, November 7, 2008, at 9:00 a.m. (ET). Investors may access the call live at AVISBUDGET GROUP or by dialing (210) 234-0038, and providing the access code "Avis Budget." A web replay will be available at AVISBUDGET GROUP following the call. A telephone replay will be available from 2:00 p.m. (ET) on November 7, 2008 until 8:00 p.m. (ET) on November 14 at (203) 369-0936, access code: "Avis Budget."
