Avis's stock soars as robust demand and improved pricing fuel revenue beat

By Tomi Kilgore

Rental-car company lost $40 million on the record number of cars it sold during the quarter

Shares of Avis Budget Group Inc. rocketed Thursday, bouncing from a three-year low, after the car-rental company reported first-quarter revenue that beat expectations for the first time in a year as what it called continued robust travel demand led to record rental volume.

Meanwhile, the company reported a wider-than-expected loss for the quarter - the first loss recorded in three years - amid an increase in the depreciation of its fleet and losses booked on a record number of cars sold.

"The strong travel demand from last year continued into the first quarter with record volume in the Americas as well as improved pricing trends as the quarter progressed," said Chief Executive Joe Ferraro. "We took the necessary actions to get our fleet size in line by disposing of a record number of vehicles in the quarter, allowing us to exit March with utilization in line with the prior year."

The stock (CAR) shot up 22.6% in afternoon trading, putting it on track for the biggest one-day gain since it rallied a meme-like 108.3% on Nov. 2, 2021.

The rally comes after the shares closed Wednesday at $94.75, which was the lowest closing price since Sept. 21, 2021. It also comes a week after rival Hertz Global Holdings Inc.'s stock (HTZ) plunged 19.3% on April 25 following a disappointing earnings report, which also had been weighing heavily on Avis shares.

With Avis's upbeat results, Hertz's stock rose 12.3% on Thursday.

Avis said late Thursday that revenue for the quarter to March 31 was $2.55 billion, up 0.2% from the same period a year ago and above the FactSet consensus of $2.52 billion. That marked the first top-line beat since the first quarter of 2023.

Rental volume was up 5% to a record for the quarter, as travel demand led to sequential improvements in revenue per day.

"We've said on previous calls [that as] people get on planes, they're getting cars," Ferraro said on the post-earnings call with analysts on Friday, according to an AlphaSense transcript. "And for the quarter, [Transportation Security Administration] volumes were consistently higher than the first quarter of 2023."

On the downside, Avis swung to a net loss of $113 million, or $3.21 a share, from income of $312 million, or $7.72 a share, a year ago.

Adjusted per-share losses of $3.07 were wider than the average analyst loss estimate of $2.94, according to FactSet. That was the first loss recorded since the first quarter of 2021 and marked the first bottom-line miss since the third quarter of 2019.

Among the reasons for the quarterly loss, the record number of vehicles sold during the quarter generated a loss of $40 million, said Izzy Martins, executive vice president for the Americas. That marked a $290 million swing from a profit of $250 million booked from vehicle sales last year.

In addition, depreciation per car increased roughly 8%, resulting in a negative impact of $80 million.

"The primary driver of this increase is the additional absorption of model year 2024 vehicles into our fleet mix and declining residual values," Martins said.

She expects depreciation to increase through the third quarter until it peaks at a level about 17% higher than it is now before "potentially decreasing" in the fourth quarter.

Heavy vehicle sales and increasing depreciation were issues Hertz also noted as weighing on its bottom-line results.

What also added to losses was a 6% decline in pricing from a year ago. On the bright side, January pricing was down 7%, but improved each month to be down less than 4% in March.

Avis's Ferraro said the pricing improvement has continued into the current quarter, which leads him to believe second-quarter pricing will be about the same as last year.

Avis's stock has tumbled 34.5% year to date and Hertz shares have plunged 51.7%, while the S&P 500 index SPX has gained 6.1%.

-Tomi Kilgore

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05-02-24 1511ET

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