Avis Budget’s equity took a dive this morning as investors questioned the rental car company’s ability to sustain its high rental prices in the Americas, according to an analyst following the company. Meanwhile, the company’s bonds ticked up as 2Q21 brought in stellar results.

On today’s earnings call, management described 2Q as having the “best revenue, the best adjusted EBITDA and the best margin” in its 75-year history.

Avis’s USD 500m 4.75% senior unsecured notes due 2028 traded today at 103.5 to yield 3.918%, compared to 102.5 to yield 4.153% yesterday (3 August), according to MarketAxess.  

The equity traded today as low as USD 77.26 per share today before rising slightly to USD 80 per share and a USD 5.586bn market cap, down 10.93% from yesterday’s close.  

For the quarter, the company booked USD 2.4bn of revenue, compared to USD 760m in 2Q20 and USD 2.337bn in 2Q19. The rise was driven by increased revenue per day and rental days.  

Adjusted EBITDA totaled USD 624m in 2Q21, compared to negative USD 382m in 2Q20 and positive USD 175m in 2Q19. 

Revenue for the Americas totaled USD 1.974bn, compared to USD 565m in 1Q20. Adjusted EBITDA for the segment shook out to USD 634m, compared to negative USD 233m.  

Moreover, utilization in the quarter was 71.3%, indicating that Avis’s fleet was well positioned to meet increased levels of demand.

The rental car industry faces multiple constraints such as a tight fleet supply, a semiconductor shortage and a surge of the Delta variant, as reported by Debtwire.  

Major car rental operators sold off more than 770,000 cars last year to counteract suppressed demand from the pandemic and fewer travelers, according to media reports. The depletion left the market with less than two of every three rental cars in service before the pandemic. 

But now, many companies can’t rebuild their fleet fast enough, resulting in scarcity of supply and surging rental prices. 

As such, Avis is taking steps to address the shortage. In 2Q, Avis grew its America fleet size to 378,000 vehicles from 295,000 vehicles in 1Q21. The company said the increase is due to working with OEM partners to ensure timely deliveries while the company also sold fewer vehicles in 1Q21 to serve increased consumer demand. 

As of 30 June, liquidity totaled USD 1.854bn through USD 1.324bn of cash and USD 530m of revolver availability.  

2021 Debtwire