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    AVIS BUDGET GROUP (CAR)

    CAR Q3 2024: Maintains $1B EBITDA Outlook Despite High Depreciation

    Reported on Nov 1, 2024 (After Market Close)
    Pre-Earnings Price$92.06Last close (Nov 1, 2024)
    Post-Earnings Price$92.06Last close (Nov 1, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • Fleet Optimization and Lower Holding Costs: The management’s focus on disciplined fleet management and a largely completed model year '25 fleet buy is expected to lower holding costs and depreciation rates, ultimately supporting sustainable EBITDA growth above $1 billion. [index: 8][index: 13]
    • Operational Efficiency and Pricing Discipline: Ongoing initiatives in data analytics and process improvements are enhancing operational efficiencies. Coupled with a focus on higher-margin business and maintaining stable pricing—even amid inflation—this positions the company to offset cost pressures effectively. [index: 7][index: 11]
    • Diversified Revenue Streams and Growth Opportunities: Active participation in growing segments, such as the ride share business, along with investments in digital transformation (e.g., the revamped customer app), create additional avenues for revenue growth and improved customer engagement. [index: 9]

    What went wrong

    • Elevated Fleet Costs and Depreciation Pressure: The Q&A revealed that even with the approaching model year ’25 buy, the company is still facing high depreciation costs (around $347–$350 per unit per month) and elevated holding costs. If the fleet rotation or spot buys do not materialize as expected, these persistent costs could continue to erode margins.
    • Exposure to External Disruptions: Discussions around the impact of the Florida hurricanes and the national election highlight vulnerabilities in travel demand and rental volumes. These external events can adversely affect operational performance and fleet utilization, thereby hurting revenue.
    • Competitive Pressures in Fleet Management: The Q&A indicated that competitors might be obtaining more aggressive deals on fleet replenishment, and while the company remains disciplined in its fleet sizing, such competitive dynamics could lead to margin pressure if rivals manage to secure better terms or expand their fleets more effectively.

    Q&A Summary

    1. EBITDA Floor
      Q: Anything changed on $1B EBITDA floor?
      A: Management confirmed nothing has changed on their outlook, maintaining a sustainable $1B EBITDA target as fleet efficiencies and cost reductions proceed.

    2. Holding Cost Reduction
      Q: How will fleet rotation cut holding costs?
      A: They expect incremental cost improvements as older, high-cost vehicles are rotated out, though precise numbers are pending further analysis.

    3. Fleet Cost Benchmark
      Q: Will fleet cost hit 2019 sub-300 level?
      A: Current guidance shows gross depreciation at $347–$350, indicating costs remain above the lower 2019 benchmarks.

    4. OEM & Competitor Deals
      Q: Are OEMs offering aggressive fleet pricing now?
      A: Management noted disciplined OEM pricing with selective spot deals, mitigating competitive risks while normalizing fleet buys.

    5. Pricing Outlook
      Q: Can lower costs support robust pricing?
      A: Despite cost pressures, stable and improved pricing is expected due to a focus on margin-enhancing, high-quality business.

    6. Capital Flexibility
      Q: What is the current capital allocation strategy?
      A: They continue to balance flexible capital allocation between fleet investments and share repurchases, maintaining liquidity.

    7. Tech & Efficiency
      Q: What new technology initiatives are planned?
      A: Investments in data-driven fleet analytics and an enhanced demand pricing system are underway to boost operational efficiency.

    8. Competitive Pressure
      Q: How is competition affecting volume trends?
      A: The focus remains on high-margin business, selectively passing on lower-margin volume to manage competitive pressures effectively.

    9. Fleet Buy Cycle
      Q: Are fleet buy negotiations more predictable now?
      A: Management sees the model year '25 buy approaching historical norms, with improved predictability in outcomes.

    10. Rental Pricing Mix
      Q: Will lower inventory costs boost rental pricing?
      A: A balanced rental pricing strategy is expected, supported by efficient cost management and a favorable rental mix.

    11. Ride Share
      Q: Will ride share add further growth?
      A: They are actively growing their ride share segment, which is contributing profitably to overall rental days.

    12. Hurricane Impact
      Q: How did recent hurricanes affect operations?
      A: Initial rental day losses were noted due to disruptions, later partially offset by increased emergency relocations.

    13. Election Impact
      Q: Will the election notably disrupt travel?
      A: Historically, elections cause brief, minor travel dips without significant long-term impact on demand.

    14. Fleet Tightness Comparison
      Q: How do competitors’ fleet tightness levels compare?
      A: Management believes peers are also rationalizing fleets, with overall industry discipline in controlling inventory levels.

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