Car rental services provider Avis (NASDAQ:CAR) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 4.7% year on year to $2.43 billion. Its non-GAAP loss of $5.23 per share was 12.1% above analysts’ consensus estimates.
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Avis Budget Group (CAR) Q1 CY2025 Highlights:
- Revenue: $2.43 billion vs analyst estimates of $2.5 billion (4.7% year-on-year decline, 2.9% miss)
- Adjusted EPS: -$5.23 vs analyst estimates of -$5.95 (12.1% beat)
- Adjusted EBITDA: -$93 million vs analyst estimates of -$112.9 million (-3.8% margin, 17.6% beat)
- Operating Margin: -22.7%, down from -2.1% in the same quarter last year
- Available rental days - Car rental: 56.82 million, down 3.91 million year on year
- Market Capitalization: $4.43 billion
StockStory’s Take
Management attributed Avis’s first quarter performance to a combination of calendar-related demand shifts and ongoing strategic fleet rotation. CEO Joe Ferraro emphasized that accelerated vehicle disposals—setting a company record—helped bring newer, lower-mileage cars into the fleet, reducing future operating costs and enhancing customer experience. Ferraro noted that, while total company pricing declined 2% year over year, it improved sequentially compared to the previous quarter. The company also cited calendar shifts, such as the loss of a day in February due to leap year and the movement of Easter from March to April, as factors behind softer year-over-year revenue and volume, particularly in commercial rentals. Despite these challenges, management highlighted progress in vehicle utilization, with utilization rates improving nearly four percentage points compared to the prior year.
Looking ahead, management’s forward guidance centers on the continued execution of its flexible fleet strategy and the expectation of improved per-unit fleet costs as the year progresses. CFO Izzy Martins said, "Momentum remains strong, with leisure demand growing year-over-year in Q1 and extending into April." The team expects further reduction in fleet costs due to the introduction of model year 2025 vehicles and ongoing strength in used vehicle residual values, while maintaining discipline in fleet size relative to anticipated demand. However, management expressed caution regarding the uncertain macroeconomic environment, noting that the evolving impact of automotive tariffs and potential shifts in travel demand could influence outcomes in the second half of the year. Martins reiterated, "We are still working through the positive impacts of tariffs on used car prices against the negative impacts of an unclear travel demand environment in the back half of the year."
Key Insights from Management’s Remarks
Avis’s leadership attributed the quarter’s trends to accelerated fleet rotation, enhanced utilization, and external market shifts, with a heavy focus on cost optimization and flexible fleet management.
- Accelerated fleet rotation: Management executed an aggressive vehicle refresh, disposing of a record number of older vehicles and replacing them with newer, more efficient models. This strategy was designed to lower average fleet age and operating costs, as well as to position the company for improved utilization and customer satisfaction.
- Calendar-driven demand shifts: The first quarter was shaped by the loss of a rental day from leap year and the timing of Easter, which moved from March to April. These changes affected both commercial and leisure demand, contributing to a year-over-year revenue decline. CEO Joe Ferraro noted that, when adjusted for these factors, revenue would have been relatively flat.
- Improved vehicle utilization: The company reported a nearly four-point year-over-year increase in utilization, attributed to disciplined fleet management and new digital tracking tools. This improvement allowed Avis to better align fleet size with demand, supporting operational efficiency.
- Leisure versus commercial mix: While commercial rental demand softened, leisure demand remained stable and even grew year-over-year. The company emphasized its focus on capturing higher-margin leisure travel, which typically supports greater ancillary revenue.
- Technology and operational efficiency: Investments in technology—such as digital fleet tools and mobile app enhancements—were highlighted for their role in streamlining operations and improving customer experience, with early feedback from pilot programs described as positive. These initiatives are expected to contribute incremental adjusted EBITDA over time.
Drivers of Future Performance
Management’s outlook for the remainder of the year focuses on disciplined fleet management, evolving travel demand, and the potential impact of tariffs on fleet costs and residual values.
- Fleet flexibility and cost discipline: The company intends to maintain a flexible fleet position, enabling rapid adjustments to supply in response to shifting demand. Management expects ongoing improvements in per-unit fleet costs as newer vehicles are integrated and as used car residual values remain favorable. These actions are viewed as essential for supporting margins, particularly in a dynamic pricing environment.
- Leisure demand and seasonal trends: Forward bookings for leisure travel are up compared to last year, offsetting continued weakness in commercial demand. Management expects this positive trend in leisure to drive volume through the summer peak, but cautions that overall travel demand could be influenced by broader macroeconomic factors.
- Tariff and market uncertainties: The company is closely monitoring the impact of automotive tariffs, which could affect both the cost of acquiring new vehicles and the value of vehicles at disposition. Management highlighted the need for ongoing flexibility to navigate these uncertainties, emphasizing that fleet procurement strategies may be adjusted as market conditions evolve.
Catalysts in Upcoming Quarters
In the coming quarters, key areas to watch will include (1) the pace and effectiveness of further fleet rotation and cost reductions, (2) trends in leisure travel bookings and the sustainability of higher vehicle utilization, and (3) the operational impact of automotive tariffs on both new vehicle procurement and used vehicle residual values. Additionally, management’s ability to maintain flexibility in fleet size and composition as market conditions evolve will be closely monitored.
Avis Budget Group currently trades at a forward EV-to-EBITDA ratio of 3.9×. Should you double down or take your chips? Find out in our full research report (it’s free).
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