Car rental services provider Avis (NASDAQ: CAR) missed Wall Street’s revenue expectations in Q4 CY2025, with sales falling 1.7% year on year to $2.66 billion. Its non-GAAP loss of $4.69 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Avis faced a challenging fourth quarter as both revenue and profitability missed Wall Street expectations, prompting a 16.8% share price decline. Management attributed the underperformance primarily to a sudden decline in discretionary travel in the Americas, compounded by excess industry capacity and fleet misalignment. CEO Brian Choi described the quarter as "a setback" and was candid about the company’s operational missteps, noting that "we fell significantly short of guidance, that's unacceptable and I have no excuses to offer." The team cited aggressive fleet reductions, unfavorable used vehicle pricing, and elevated recall-related costs as key headwinds.

Looking forward, management emphasized a shift in operational philosophy, focusing on tighter fleet discipline, utilization, and capital allocation to reduce volatility. Choi stated, "In 2026, we are prioritizing utilization over fleet growth in search of rental days." The company aims for a more balanced cost structure and is implementing organizational changes to align with these goals. CFO Daniel Cunha highlighted that improved utilization and reduced fleet size are intended to drive more durable earnings, while cautioning that external factors like used vehicle pricing and recall impacts remain significant uncertainties.

Key Insights from Management’s Remarks

Management detailed that the quarter’s miss was concentrated in the Americas and driven by industry-wide travel softness, aggressive defleeting, and unexpected costs.

• Americas segment underperformed: The bulk of the financial miss stemmed from the Americas, where a sudden drop in commercial and discretionary travel in November led to flat rental volumes instead of the anticipated growth. Management noted that external disruptions, like FAA-related flight reductions and extended TSA wait times, caused commercial rental days to decline sharply, particularly in November.
• Fleet reduction amid weak demand: Avis made the decision to aggressively reduce its fleet during a period of soft used vehicle prices, resulting in lower gains on vehicle sales and a negative impact on depreciation. CEO Brian Choi explained, "Given the speed and magnitude of the demand decline, we chose to defleet in November despite unfavorable market conditions."
• Industry-wide pricing pressure: Elevated industry capacity, combined with weakened demand, pressured rental pricing, with the Americas segment showing a 3.7% decline in revenue per day (RPD). Choi stated that this trend was not unique to Avis, but rather affected the entire industry.
• Recall and insurance reserve impacts: Recalls and an increase in personal liability and property damage (PLPD) reserves created additional costs, with $40 million in recall-related expenses and a substantial increase in insurance reserves. These actions, while costly, were described as deliberate steps to stabilize the balance sheet.
• EV fleet write-down and tax credit monetization: Avis took a $500 million write-down on its electric vehicle (EV) fleet, shortening the useful life of these vehicles to reduce future risk and monetize federal EV tax credits. This move generated $180 million in cash and was aimed at reducing exposure to residual value risk and technology obsolescence.

Drivers of Future Performance

Avis plans to focus on tighter fleet management, improved utilization, and disciplined cost control as key themes for stability and growth in 2026.

• Fleet discipline and utilization: Management is shifting from a strategy of maximizing fleet size to prioritizing utilization, aiming to run a leaner fleet that is more responsive to demand changes. Choi emphasized that this approach should reduce earnings volatility and improve capital efficiency.
• Cost rationalization and investment: The company implemented a global reduction in force and is reviewing all business segments for fit and return on capital. Cost savings will be redeployed to fund customer experience initiatives, such as the expansion of premium services and technology partnerships like the Waymo autonomous ride program.
• External risks and market conditions: While internal actions are expected to improve operational performance, Avis remains exposed to macroeconomic factors such as used vehicle price volatility, industry capacity, and recall impacts. Management noted that its 2026 guidance assumes conservative pricing and does not rely on a strong market rebound.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be monitoring (1) continued progress in aligning fleet size to demand and improving utilization rates, (2) stabilization of used vehicle depreciation costs, especially after the Q1 reset, and (3) execution on cost rationalization and investment in customer experience initiatives, including premium services and autonomous mobility partnerships. How Avis manages recall impacts and adapts to external market shifts will also be critical markers.

Avis Budget Group currently trades at $96.36, down from $116 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free).

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