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Car rental services provider Avis (NASDAQ:CAR) missed analysts' expectations in Q2 CY2024, with revenue down 2.4% year on year to $3.05 billion. It made a GAAP profit of $0.41 per share, down from its profit of $11.01 per share in the same quarter last year.
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Avis Budget Group (CAR) Q2 CY2024 Highlights:
- Revenue: $3.05 billion vs analyst estimates of $3.14 billion (2.8% miss)
- EPS: $0.41 vs analyst estimates of $2.45 (-$2.04 miss)
- Gross Margin (GAAP): 49.7%, up from 42% in the same quarter last year
- Adjusted EBITDA Margin: 7%, down from 23.6% in the same quarter last year
- Free Cash Flow was -$468 million compared to -$471.4 million in the previous quarter
- Sales Volumes rose 2.3% year on year, in line with the same quarter last year
- Market Capitalization: $3.01 billion
The parent company of brands such as Zipcar and Budget Truck Rental, Avis (NASDAQ:CAR) is a provider of car rental and mobility solutions.
Ground TransportationThe growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Unfortunately, Avis Budget Group's 5.6% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Avis Budget Group's recent history shows its demand slowed as its annualized revenue growth of 3% over the last two years is below its five-year trend.
We can better understand the company's revenue dynamics by analyzing its sales volumes, which reached 64.17 million in the latest quarter. Over the last two years, Avis Budget Group's sales volumes averaged 7.5% year-on-year growth. Because this number is better than its revenue growth, we can see the company's average selling price decreased.
This quarter, Avis Budget Group missed Wall Street's estimates and reported a rather uninspiring 2.4% year-on-year revenue decline, generating $3.05 billion of revenue. We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.
Operating MarginAvis Budget Group has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.8%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Avis Budget Group's annual operating margin rose by 21.3 percentage points over the last five years, showing its efficiency has meaningfully improved.
In Q2, Avis Budget Group generated an operating profit margin of 38.3%, up 16.8 percentage points year on year. This increase was solid, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, R&D, and administrative overhead.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Avis Budget Group's EPS grew at an astounding 53.7% compounded annual growth rate over the last five years, higher than its 5.6% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Avis Budget Group's earnings quality to better understand the drivers of its performance. As we mentioned earlier, Avis Budget Group's operating margin expanded by 21.3 percentage points over the last five years. On top of that, its share count shrank by 53.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Avis Budget Group, its two-year annual EPS declines of 29.5% show its recent history was to blame for its underperformance over the last five years. We hope Avis Budget Group can return to earnings growth in the future.
In Q2, Avis Budget Group reported EPS at $0.41, down from $11.01 in the same quarter last year. This print missed analysts' estimates, but we care more about long-term EPS growth than short-term movements. We also like to analyze expected EPS growth based on Wall Street analysts' consensus projections, but there is insufficient data.
Key Takeaways from Avis Budget Group's Q2 Results We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street's estimates. Overall, this quarter could have been better. The stock traded down 5.3% to $79.50 immediately following the results.
