Avis Budget shares fall on 1Q loss, weak guidance

NEW YORK—Shares of Avis Budget Group Inc. fell Wednesday, after the rental car company said it swung to a first-quarter loss and reiterated its expectation that sales will grow "modestly" in 2008.

Avis shares closed down 67 cents, or 4.9 percent, at $13, after dropping as low as $12 earlier in the day.

Avis late Tuesday posted a first-quarter loss of $12 million, or 11 cents per share, compared with profit of $13 million, or 12 cents per share, in the 2007 quarter.

Revenue rose 5.9 percent to $1.45 billion, from $1.37 billion in the year-ago period.

The profit missed Wall Street predictions. Analysts polled by Thomson Financial, on average, expected the company to break even on a per-share basis on $1.37 billion in revenue.

Parsippany, N.J.-based Avis said industry pricing pressure that began in December continued through January and early February before subsiding. Fleet costs rose 7 percent, the company said.

The company also said it still expects its 2008 revenue to modestly beat its 2007 total of $6 billion. Analysts, on average, expect $6.23 billion in revenue for the year.

Manav Patnaik of Lehman Brothers cut his price target on Avis shares by $2 to $18, saying he expects the stock to trade around the $13 mark for the near term. He rates the shares "Overweight."

Patnaik said the quarter's revenue was encouraging, with both the company's international and domestic segments both posting significant revenue growth. He attributed the loss to lower pricing and mark-to-market losses, which are expected to reverse as the year progresses.

"While we maintain our positive view long-term on the company, we would to note that the unpredictability of the mark-to-market hedge losses or gains, coupled with management's 'vague' (a.k.a. non-numerical) guidance could still keep shares range-bound," Patnaik wrote in a note to investors.

(This version corrects the revenue figures in the fourth paragraph.)

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