Why Shares of Avis Budget Group Declined 15% Despite Topping Earnings Estimates

What happened?

Shares of Avis Budget Group, Inc. (NASDAQ: CAR), a global leader in mobility solutions including car rentals, as well as car-sharing networks through its Zipcar brand, declined 15% Tuesday by 4 p.m. EST after the company beat earnings forecasts but reduced guidance.

So what

Digging into the numbers, Avis reported third-quarter revenue of $2.75 billion, a modest 4% increase over the prior year but still a record. However, investors also have to consider that that 4% gain was partly driven by a 5% increase in overall rental days. On the bottom line, the company reported adjusted earnings per share of $3.10, which checked in ahead of analysts' estimates calling for $2.97 per share.

"We had a record third quarter with both pricing and utilization improving in the Americas, strong volume growth partially offset by lower pricing in our International segment, and a relentless focus on cost reduction globally," said Larry De Shon, Avis Budget Group president and CEO, in a press release.

Now what

Despite the earnings beat and management's positive spin, Wall Street wasn't buying the story: The company admitted that hurricanes Harvey, Irma, and Maria caused massive damage, and as a consequence, lowered guidance to adjusted earnings of $2.45 to $2.65 per share on revenue between $8.8 billion and $8.9 billion. The move was enough to pull down competitor Hertz Global Holdings, Inc. (NYSE: HTZ) more than 17%, ahead of that company's third-quarter results due on Nov. 9.

The problem is that analysts anticipated the storms would benefit Avis and Hertz, as the damage would tighten supply of used vehicles and boost prices -- a similar scenario took place with new and used car demand and prices -- but that didn't materialize this quarter for Avis. However, while the lowered guidance is disappointing, this is a speed bump if you own shares and still buy into the long-term thesis.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.