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Investors in car rental company Avis Budget Group had their worst day in four years Tuesday. The company announced that it sold a record number of vehicles in the fourth quarter, despite a slump in the used car market due to an oversupply of vehicles and soaring car prices. with interest costs.
Meanwhile, the company reported fourth-quarter profits that far exceeded expectations, despite the unexpected drop in sales.
“There’s a lot of volatility in the used car market right now,” Chief Financial Officer Izzy Martins said, according to a transcript of a post-earnings conference call with analysts by AlphaSense. “However, despite the state of the used vehicle market, we believe that exiting the fleet is prudent for our operations and healthy for the industry as a whole.”
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The stock plunged 22.7% in afternoon trading, hitting its lowest close since October 7, 2021. It was also expected to be the biggest single-day decline since the stock plunged 36% at the start of trading on March 18, 2020. The novel coronavirus disease (COVID-19) pandemic.
The stock’s $38.15 decline was about 233 points below the Dow Jones Transportation Average DJT, which fell 474 points, or 2.9%.
One of the reasons the company sold a record number of vehicles is because it believes the used car market is “normalizing” and hopes to take advantage of that to “profit” from older models. Because it was there.
Another reason is that some automakers have delayed deliveries of new model vehicles until after the summer peak, resulting in the need to retire older vehicles in order to right-size fleets to meet demand. ” said CEO Joe Ferraro.
The company posted a profit of about $50 million on vehicle sales in the quarter, but that profit fell 60% in the latest quarter, even though “many more vehicles” were sold, Martins said. Ta.
The need to sell into a bad market is due to a 70% increase in monthly interest costs per unit from $62 per unit a year ago to $106 per unit.
Total depreciation per vehicle was $306, compared to previous guidance of “approximately $300” per vehicle. It is currently expected to rise to $325 by the end of the first quarter.
Monthly fleet costs per vehicle increased by 53.9% to $277.
“In an environment where both our core input costs, vehicle costs and financing costs, are rising, we need to be very careful about matching vehicle supply to demand at the very edge,” Ferraro said. “And this year it’s more important than ever.”
Ferraro also addressed its electric vehicle fleet and EV demand in light of rival Hertz Global Holdings.
HTZ
announced last month that it would sell 20,000 EVs, citing weak demand and high maintenance costs.
He said Avis’ approach was “conservative” given the uncertainty about demand from a rental perspective. Therefore, he said, he is “very satisfied” with the supply and demand situation for Avis’ EV vehicles.
“We have not experienced any substandard headwinds related to EV supply chain or maintenance-related issues,” Ferraro said.
For its fourth quarter results, Avis reported net income of $260 million, or $7.10 per share, down from $424, or $10.10 per share, in the year-ago period.
The FactSet consensus for earnings per share was $4.15.
Revenue fell 0.3% from $2.77 billion to $2.76 billion, although FactSet consensus had called for an increase to $2.81 billion.
Rental days increased 5.3% to 42.03 million days, but revenue per day decreased 5.3% to $65.78.
The average number of rental vehicles increased by 11% to 518,928 vehicles, and vehicle utilization decreased from 68% to 65%.
Avis stock has fallen 30.2% in the past three months, while rival Hertz has fallen 6.5% and the S&P 500 index SPX has risen 12%.
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