On August 8, as of 9:30 a.m. EDT, Avis Budget Group (NASDAQ:$CAR) shares dropped nearly 10%. Why? It all started after the New Jersey-based company posted disappointing Q2 results.
What Does This Mean?
Before moving on, it’s important to clarify that Avis Budget Group is a worldwide provider of mobility solutions through its Budget, Avis, and Zipcar brands.
Looking at the top line, Avis Budget Group revenue came in at $2.24 billion. This is significant, as it is flat compared to the 2016 period and marginally below analysts’ forecasts calling for $2.27 billion. Additionally, the car rental company’s Q2 adjusted EBITDA came in at $140 million, or adjusted EPS of $0.30. Again, this is significant, as it is below analysts’ estimates forecasting $0.51 per share.
“Our second quarter results in the Americas reflected both a 4% reduction in pricing resulting from industry over-fleeting and higher per-unit fleet costs due to lower used-vehicle values. Consequently, we have identified $25 million of additional savings opportunities globally, bringing our total expected savings this year to $75 million, and have lowered our full-year earnings guidance to reflect the difficult first half,” said Larry De Shon, Avis CEO, in a press release.
What Does The Future Hold?
In regards to the bottom-line miss, this was a massive issue for investors. However, Avis Budget Group management’s lowered guidance was just as detrimental. As of right now, management expects 2017 earnings to be between the range of $2.40 and $2.85 per share. If this were to happen, it would only reach analysts’ forecasts of $2.85 at the very high end.
The truth of the matter is that this Q2 report is yet another reason why Wall Street is concerned there’s an overlap between conventional car rental business and newly formed rideshare companies like Lyft and Uber. Not only that, original automotive manufacturers are starting to expand both their projects and services.
With that said, this isn’t the final blow for rental companies. Why? They still possess a broad network and big operations, however, it does act as a warning that it’s time for the business to either adapt to the new environment or perish. On the upside, Avis investors have the company’s recent partnership with Waymo, which offers a snippet of hope.
Featured Image: twitter
