Avis Budget Group Inc. Sees Sharp Decline in Stock Amidst Challenging Used-Car Market Conditions
In a striking turn of events, Avis Budget Group Inc. witnessed its stock nosedive, marking its most significant downturn in four years. This sharp decline comes in the wake of the car rental giant selling a record number of vehicles during the fourth quarter, amidst a particularly challenging used-car market environment. Increased vehicle supply and rising interest costs have contributed to the tough market conditions, yet the company’s fourth-quarter profit exceeded expectations, notwithstanding an unexpected dip in revenue.
Chief Financial Officer Izzy Martins highlighted the volatility within the used-car market, maintaining that the company’s strategy to sell off vehicles was a prudent move for operations and beneficial for the industry’s overall health. Despite these assertions, Avis’s stock plummeted 22.7%, signaling its lowest value since October 2021, and represented the largest single-day percentage loss since the onset of the COVID-19 pandemic in March 2020. This significant stock price drop removed approximately 233 points off the Dow Jones Transportation Average.
A primary motive behind the record vehicle sales was Avis’s belief in the normalizing used-car market, aiming to capitalize on this to realize gains on older models. Additionally, delays in new-model-year vehicle deliveries by several automakers necessitated this move to align the fleet size with demand, explained Chief Executive Joe Ferraro.
Despite a 60% decrease in gains from vehicle sales compared to the previous year, a staggering 70% increase in monthly per-unit interest costs was reported, surging to $106 per vehicle from $62 per vehicle a year ago. Consequently, gross depreciation per vehicle rose, with expectations set for a further increase by the end of the first quarter.
Addressing the electric-vehicle (EV) market, Ferraro noted Avis’s conservative approach amidst uncertain rental demand, differentiating it from rival Hertz Global Holdings Inc.’s recent reduction of their EV fleet due to weak demand and high maintenance costs. Avis’s careful supply-and-demand management of its EV fleet appears to shield it from significant supply chain and maintenance-related challenges.
In terms of financial results for the fourth quarter, Avis reported a decline in net income to $260 million, from $424 million in the same period a year earlier, albeit surpassing earnings expectations. Revenue experienced a slight decrease, contradicting the anticipated increase. Despite these financial outcomes, both rental days and the average rental fleet saw growth, though vehicle utilization saw a slight decline.
The last three months have seen Avis’s stock taking a 30.2% hit, while rival Hertz’s shares dropped by 6.5%, in stark contrast to the S&P 500 index, which enjoyed a 12% gain. The challenging used-car market, coupled with strategic fleet management and financial performance, paints a complex picture for Avis Budget Group Inc. as it navigates through the current market volatility.
Analyst comment
Positive news: Avis Budget Group Inc. experienced a record number of vehicle sales in Q4, exceeding profit expectations. The company’s conservative approach to the electric-vehicle market offers protection against supply chain challenges. Vehicle utilization and rental fleet both grew.
Negative news: Avis’s stock plummeted 22.7%, reaching its lowest value since Oct 2021, due to challenging used-car market conditions and rising interest costs. Net income declined in Q4.
Neutral news: Avis faced a volatile used-car market but strategically sold off vehicles to align fleet size with demand. The market volatility and financial performance create a complex situation for Avis as it navigates through the current market conditions.
Market analysis: Avis’s stock may continue to face downward pressure due to the challenging used-car market and rising interest costs. The company’s conservative approach to the EV market and strategic fleet management may help mitigate some challenges. Overall, the market is uncertain and volatile, requiring careful navigation by Avis.
