Avis Budget Group (CAR)

Q4 2012 Earnings Call

February 14, 2013 8:30 am ET

Executives

Neal Goldner

Ronald L. Nelson - Chairman, Chief Executive Officer, President, Chief Operating Officer and Chairman of Executive Committee

David B. Wyshner - Global Chief Financial Officer and Senior Executive Vice President

Analysts

Afua Ahwoi - Goldman Sachs Group Inc., Research Division

John M. Healy - Northcoast Research

Brian Arthur Johnson - Barclays Capital, Research Division

Christopher Agnew - MKM Partners LLC, Research Division

Adam Jonas - Morgan Stanley, Research Division

Yejay Ying - Morgan Stanley, Research Division

Fred T. Lowrance - Avondale Partners, LLC, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Presentation

Operator

Good morning, and welcome to the Avis Budget Group Fourth Quarter Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations. Please go ahead, sir.

Neal Goldner

Thank you, Tanya. Good morning, everyone, and thank you for joining us. On the call with me are Ron Nelson, our Chairman and Chief Executive Officer and David Wyshner, our Senior Executive Vice President and Chief Financial Officer.

Before we discuss our results for the fourth quarter, I would like to remind everyone that the company will be making statements about its future results and expectations which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Such statements are based on current expectations and the current economic environment, and are inherently subject to economic, competitive and other uncertainties and contingencies beyond the control of management. You should be cautioned that these statements are not guarantees of future performance.

Actual results may differ materially from those expressed or implied in the forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements are specified in our earnings release, which was issued last night, our Form 10-K, our most recent Form 10-Q and other SEC filings. If you did not receive a copy of our press release, it is available on our website at ir.avisbudgetgroup.com. We've also provided slides to accompany this morning's conference call, which can be accessed on our website as well. Also, certain non-GAAP financial measures will be discussed on this call, and these measures are reconciled to the GAAP numbers in our press release.

Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.

Ronald L. Nelson

Thanks, Neal, and good morning to all of you. Let me start with the headline. We delivered record results in 2012 with strong revenue growth, continued margin expansion and record earnings per share. We capped the year by delivering a strong fourth quarter, highlighted by positive volume growth in all segments, further margin expansion and a significant improvement in North American pricing trends.

Let's talk about how we got there. We said in our last earnings call that we are going to take an aggressive posture on pricing. That's exactly what we did. In North America, we instituted 4 price increases in the fourth quarter alone, all with good effect. Pricing in North America declined less than 1% in the fourth quarter, which is a significant improvement compared to the prior 3 quarters. For the month of December alone, pricing increased over 100 basis points. But we didn't stop there. We instituted 2 price increases for January, 2 for February and 2 effective for March rentals. The results of these actions continue to be encouraging. January pricing was up year-over-year, more in fact than December was, and our existing reservations give us a measure of confidence that pricing could end the quarter being positive. And don't forget that our reported pricing includes a contracted commercial pricing component that continues to track down in the 2% range. Most of the price increases were the typical $5 a day, $30 a week variety and they primarily impact leisure rentals. For those on the call who don't follow the industry closely, these price increases are generally not cumulative and directly only impact a portion of our overall rental volume.

There are a couple of reasons for this. One, price increases tend to atrophy over time as competitive rates get out of balance with demand. And two, only a portion of the rentals are booked at the quoted undiscounted rates that serve as the reference rates for measuring price increases. With that said, our increased ability to sustain price increases over the last several months without sacrificing rental volumes is encouraging.

As encouraging as these recent price trends are, our North American segment had many other accomplishments in 2012, just to note a few. We increased volume over 5% despite tepid employment growth. That included a 9% increase in high-margin international inbound volume and 8% growth in higher-priced small business volume. We implemented Avis Preferred Select & Go in more than 40 airports. Not only does Select & Go give customers the opportunity to choose their vehicle, but it also gives us the opportunity to upsell customers that traditionally by-pass the counter. We continued with robust advertising and marketing initiatives, particularly for the Avis brand. And while advertising success is always difficult to measure, it would appear to be working. Leisure volume growth at Avis strongly outpaced commercial for 10 months of the year, with over 9% growth in the fourth quarter alone. And late last year, we signed a new commercial account that is expected to generate more than 1 million rental days annually.

Read the rest of this transcript for free on seekingalpha.com

Copyright 2013 Seeking Alpha