Car rental companies issue profit warning

Published: 03 Jul 2008

Avis Budget Group Inc indicated that its second-quarter results will be below last year's due in part to rising fuel costs and lower commercial travel volumes, sending its shares to a 16-year low.

"The second quarter has turned out to be a significantly more challenging operating environment than expected. As with the entire industry, we are confronting rising fuel costs, weaker-than-expected enplanements, lower commercial travel volumes and lower time and mileage rates per day," said Chairman Ronald Nelson.

The Parsippany, N.J.-based company estimates that 2008 earnings before interest, taxes, depreciation and amortisation will be $350.0 million and pretax income will be $140.0 million, excluding any unusual items. In 2007, Avis posted $409.0 million in EBITDA and pretax income of $198.0 million. Sales were $6.0 billion.

Another car rental company Dollar Thrifty Automotive Group Inc also cut its full-year profit forecast, citing a decline in industry-wide demand on the backdrop of a weak economy.

Shares of Dollar Thrifty Automotive Group Inc. lost more than half their value on Wednesday after analysts responded negatively to the car rental company's lowered 2008 outlook. The stock plunged $2.18, or 38.3 percent, to $3.52 Wednesday and touched an all-time low of $3.43.

On Tuesday, the Tulsa, Okla., company said it expects to miss its previous full-year profit estimate of between $1 and $1.50 per share.

Hertz Global Holdings shares shed $1.37, or 16.2%, to close at $7.10.

Comments

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Jim said on 7 Jul 08:

It is too easy to blame the drop in revenue for car rentals on the sharply increasing price of oil. That's part of the problem, for sure, but the travel industry should realize that the US economy is in a tailspin, and this may well have global ramifications. I would say it's time for travel executives to examine the fundamental reasons of why the US economy is in poor health, then speak publicly about the necessary reforms.

A healthy travel industry is critical for all countries to have strong economies.

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