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Earnings Results: Avis stock tanks as bears focus on revenue-per-day disappointment over earnings beat

Shares of Avis Budget Group Inc. took a dive Tuesday, after the car rental company reported upbeat fourth-quarter earnings, but investors focused instead on disappointing revenue-per-day and rental-fleet metrics.

The stock
CAR,
-12.05%

tumbled 12.1% to $171.25, on volume that was nearly four times the full-day average.

The stock’s reaction to fourth-quarter results was in stark contrast to the reaction to the third-quarter report, when it rocketed 108.3% to $357.17 on Nov. 2 to garner “meme-stock” status. Since then, the stock has lost a little more than half its value.

Avis reported late Monday that it swung to net income of $382 million, or $6.63 a share, from a loss of $90 million, or $1.29 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $7.08 beat the FactSet consensus of $6.15.

Revenue grew 89.6% to $2.57 billion, above the FactSet consensus of $2.34 billion, with Americas revenue surging 104.1% to $2.10 billion and international revenue climbing 43.9% to $469 million.

That marked the ninth-straight quarter that Avis beat Wall Street projections for both bottom- and top-line results.

Avis also reported revenue per day (RPD) for the quarter that rose 26.1% from a year ago to $74.92, but dropped 9.9% from $83.15 in the sequential third quarter.

The average rental fleet in the Americas increased 40.1% from last year, and was up 0.2% from the third quarter to 435,403, while per-unit fleet costs per month fell 21.3% from last year but increased 18.9% sequentially to $170.

Morgan Stanley analyst Bill Kovanis said that while earnings showed strength and fleet costs were lower, he believes bears are focusing on RPD that came in shy of $75, which he said was below Wall Street projections of $78.

Keep in mind that Kovanis is one of the Avis bears, as he reiterated his underweight rating. He kept is stock price target at $170, which was 0.7% below Tuesday’s closing price.

Avis Chief Executive Joseph Ferraro said on the post-earnings conference call with analysts that Q4 was the first quarter in more than a year in which RPD declined sequentially. He said the omicron variant of the coronavirus that causes COVID-19 kept the company from experiencing a return to “normal” seasonality. Read MarketWatch’s “Coronavirus Update” column.

“In normal years, December is a month with the highest RPD in the fourth quarter, given the peakiness of Christmas,” Ferraro said, according to a FactSet transcript. “However, in 2021, December represented our lowest RPD in the fourth quarter.”

He believes rates will return to normal seasonality “once we move past omicron.”

Meanwhile, Morgan Stanley’s Kovanis also expressed concern that the size of the Americas fleet was “creeping up” faster than investors anticipated, as the 435,403 number was well above expectations of 405,000.

“[A]vis may be holding onto more cars than they typically do during this seasonally weaker quarter, as they anticipate higher volumes coming over the next few quarters,” Kovanis said in a note to clients.

Another worry is that used car pricing will start to become a headwind to fleet costs going forward, as prices have already inflected as of last month.

Avis’ stock has dropped 39.2% over the past three months, while the Dow Jones Transportation Average
DJT,
+0.62%

has shed 9.4% and the S&P 500 index
SPX,
+1.58%

has eased 4.9%.

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