Aug 5, 2014
Executives
Neal Goldner - VP, IR Ron Nelson - Chairman & CEO David Wyshner - SVP & CFO
Analysts
John Healy - Northcoast Research Chris Agnew - MKM Partners Chris Woronka - Deutsche Bank Afua Ahwoi - Goldman Sachs Kevin Milota - JPMorgan Chase
Operator
Good morning, and welcome to the Avis Budget Group Second Quarter Earnings Conference Call. Today's call is being recorded.
At this time, for opening remarks and introductions, I'll like to turn the meeting over to Mr. Neal Goldner, Vice President of Investor Relations.
Please go ahead, sir.
Neal Goldner
Thank you, Kimberly. Good morning, everyone, and thank you for joining us.
On the call with me are Ron Nelson, our Chairman and Chief Executive Officer; and David Wyshner, our Senior Executive Vice President and Chief Financial Officer. Before we discuss our second quarter results, I'd like to remind everyone that the company will be discussing forward-looking information that involves risks, uncertainties and assumptions that could cause actual results to differ materially from the forward-looking information.
Important risks, assumptions and other factors that could cause future results to differ materially from those expressed in the forward-looking statements are specified in the company's earnings release and other periodic filings with the SEC, which are available on the Investor Relations section of our Web site at avisbudgetgroup.com. We have provided slides to accompany this morning's conference call, which can be accessed on our Web site as well.
Our comments will also focus on our results excluding certain items and other non-GAAP financial measures that are reconciled to our GAAP numbers in our press release and in the earnings call presentation on our Web site. Now I'd like to turn the call over to Avis Budget Group's Chairman and Chief Executive Officer, Ron Nelson.
Ron Nelson
Thank you, Neal, and good morning. Needless to say, we're pleased with our second quarter results; increased pricing and disciplined execution on our strategic initiatives allowed us to grow revenue by 10% and earnings per share by 36%.
As you could see in our earnings release, both volume and pricing trends in North America not only maintained the momentum from the first quarter, but actually accelerated throughout the second. We achieved incremental synergies from our EMEA integration efforts, continued exponential growth of the budget brand in Europe, and further expanded the footprint of our Zipcar brand.
All of which ultimately resulted in margin expansion of 80 basis points. And all of this was achieved against the background of record levels of recalls in North America that [played havoc] (ph) with fleet and operational logistics.
The driving element of our performance, however, was North American pricing. So let me spend a few minutes on that.
As we exit the second quarter, I'm probably more enthusiastic about our business than I've ever been. And one of the reasons is the meaningful change in pricing that we've now seen play out over the past six quarters.
The strong pricing trends we experienced in the first quarter accelerated into the spring with price increasing 5% year-over-year, excluding Payless and the effects of currency movements. It also represented the second straight quarter of positive pricing in North America, not only across all three of our car rental brands, and in on and off airport locations and in both leisure and commercial segments.
As many of you know, we've been quite vocal about our need to drive improved pricing in order to strengthen our return on capital. Pricing hasn’t been the only we've used, we've taken numerous actions to improve the efficiency of our operations and we've taken advantage of opportunities to expand the business profitably.
But those alone were not enough. Pricing had to play a role and in particular, pricing in our commercial segment.
We're making progress. Our commercial pricing was up 2% in the second quarter, lead by growth in our small business segment, a richer mix of cars and historically low levels of contracted commercial customer flipping largely due to the impact of higher leisure pricing.
And the more difficult task that of improving our large commercial pricing is showing hint of progress. In both July and August, large commercial has flipped from modestly negative pricing in the second quarter to reflect modestly positive pricing gains.
An important part of our pricing gains this quarter are the benefits our demand fleet pricing initiative is generating. We've now implemented the first phase of this integrated yield management program in over 100 markets and it is exceeding our expectations.
This tool is allowing us to be more nimble in these markets by being able to shift prices multiple times a day based on competitive factors at the individual airport level. By automating many elements of our pricing processes, our pricing team can now spend more of their time making strategic decisions as opposed to manually implementing price changes into our reservation system.
And while we continue to refine the tool, it's impact has been significant helping to drive a 6% increase in leisure pricing and an 8% increase in leisure revenue in the second quarter. While the impacts on our North American pricing from this initiative have already been impressive, we're equally excited about the next steps.
Later in the year we'll begin to implement the second phase, which involves integrating a sophisticated new demand forecasting model with the yield manager. Once integrated, this enhanced toolset will serve as the foundation for the final phase, which will optimize fleet and pricing decisions in a very granular manner.
When fully operational next year, this system will literally integrate billions of demand fleet and pricing data points to help us better optimize our fleet pricing and revenue management decisions to deliver a maximum profitability. And while our North American team is focused on completing the roll out of this system, our early success in the first phase of this project has us looking to deploy the system in our international markets sooner than we've previously planned.
We also generated our pricing growth amid a reasonably healthy demand environment in North America. We grew our rental volume 8% in North America driven by five points of organic growth at both Avis and Budget and three points of incremental volume from the acquisition and subsequent growth of Payless.
To break it down a little bit; international inbound revenue, our single most profitable customer segment increased 17%. Small business revenue increased 10% with pricing that was more than $10 per day higher than our average large commercial rates.
Revenue from our higher margin specialty in premium vehicles increased 10% as we continue to expand the size of our non-core signature fleet as well as expand availability to more rental locations. We've also made our selection of these vehicles much more permanent on our Web sites and mobile apps resulting in a significant uptick in the click-through on these models.
And finally, revenue on our local market operations increased 11%, with pricing up 4%. We continue to be pleased with our local market strategy of focusing on higher margin generally use leisure and commercial rentals and de-emphasizing low priced insurance replacement business.
And to put a little finer point on it, not only as the type of business we get important, but so is how we generate that business. Over the past year, we've shifted almost 300 basis points more volume toward our proprietary Web sites.
Besides driving higher profitability, it is a critically important initiative for supporting and building Avis and Budget's brand strength. Notwithstanding our strong results, not everything was great in the second quarter.
We had an unprecedented number of vehicle recalls this year. Even though we achieved 7% volume growth throughout the first half of the year, the recalls were not without impact, because it is our policy to ground the car immediately when we receive a safety recall, our supply chain group was continuously shifting cars from one area to another and holding both program and risk cars instead of sending them to auction so as to minimize the impact on volume.
In addition, our maintenance teams were literally working around the clock to correct the issue necessitating the recall in order to return the cars to service. The total that was exacted was a hit to utilization, along with increased labor cost and the inability to take advantage of the peak used car selling season to the maximum extent possible.
The operational difficulties associated with this extra work are significant, and have continued into the third quarter. Moving to Zipcar; total revenue in the quarter grew nearly 10% with usage revenue, pricing and membership, all increasing.
We also made further progress on achieving the integration synergies we laid out in our acquisition plan more than a year ago. So far this year, we've expanded Zipcar to 18 new universities and five new markets, including Houston in the second quarter.
Zipcar is now available at over 325 colleges and universities and in 28 markets. We began to make Zipcar available to AARP members under our exclusive partnership with AARP.
We expanded Zipcar on airport by adding more fleet to existing airport locations and introducing Zipcar at six additional airports. Zipcar is now available at 38 different airports.
We moved more than 1000 vehicles from Avis and Budget locations to Zipcar pods for the summer months to capture more of the summer surge in demand. We added Zipcar to six of our corporate contracts this year.
This is an important step towards providing an industry-leading array of mobility solutions for our corporate customers. And finally we've started to roll out one way rentals beginning in Zipcar's hometown of Boston Mass.
More broadly, we continue to believe that our business generally, but in particularly Zipcar is in a unique position to benefit from the emergence of a sharing economy, and what that may imply for car ownership. To the extent that phenomenon manifests itself in a more meaningful way, the strength of the Zipcar brand is a meaningful competitive advantage for us driven by our obsession with the member experience that has led to world-class customer satisfaction scores.
Shifting gears; revenue on our international segment increased 7% in the quarter, 4.5% in constant currency, driven by growth in Europe. Our European operations had a good quarter led by the continued growth of budget, while Avis revenue which is probably more indicative of overall industry trends was largely unchanged.
The current rental demand environment we're seeing in Europe can best be described as a mixed bag. It's difficult to discern any real trends as one month has been different from the next even in the same country.
In general though the second quarter saw continued softness in Germany and Southern Italy, while Spain and Portugal were pretty good. In total, however, our results were reflective of a growing business.
Excluding currency effects, EMEA revenue increased 4%, driven primarily by 3% increase in volume and a 1% increase in total revenue per rental day. More importantly, as with North America, the pricing increase is only part of the story for Europe, as we continue to make progress in capturing the 100 million plus of annual synergies we outlined in our recent Investor Day.
First, our aggressive expansion in the Budget brand continued with revenue up nearly 30% year-over-year. The benefits of our consolidated fleet management activities continued with another record quarter of utilization gains of over 100 basis points.
We launched our new Avis Web site, mobile application in the U.K. in June, which we expect to drive more reservation through this channel particularly as we roll it out across Europe in the coming months.
We launched the first ever pan-European Avis TV campaign in June and saw an immediate increase in traffic to our Web site and then followed with a new target budget advertising campaign across the region. Our counter sales initiative is gaining further traction.
Ancillary revenue increased 13% per rental day, excluding currency effects. And finally, Zipcar is making good progress.
We're positioned to expand its global footprint by bringing it to Paris in the fall with Madrid and Istanbul to follow shortly thereafter. In the U.K., we'll flip from a loss to a profit this year as part of it's normal evolution as the start-up.
Total revenue growth in our Latin America, Asia-Pacific region was 5% in constant currency, driven by higher pricing and ancillary revenue gains as well as the 60% volume growth at our Apex brand. New Zealand was the standout performer in the region.
Between Avis, Budget and Apex, we have a strong market position in the Asia-Pacific region, which unfortunately doesn’t inflate us from the macro challenges that we have been highlighting for the last few quarters in Australia, which is our largest market in the region. Australia continues to experience the effect of the slowdown in the mining sector which is impacting government and corporate demand.
Our decision to remain firm on pricing is clearly impacting our leisure volumes, but we’ve managed through the weakness by pricing for profitability, growing ancillary sales and managing our costs. Moving to our outlook, here is the good news.
The positive demand in the pricing environment we experienced in North America in the first half of the year is continued into the summer. Pricing was up 4% in July, and was roughly 40% of our expected reservations for August already booked.
All indications are that August will follow soon. However, expectation should be tampered due to recalls despite the fact that we're expecting a record third quarter, recalls have continued to affect labor costs and utilization and will impact the overall fleet costs.
Holding cars instead of sending them to the auction to satisfy peak demand has a cost as we will end up wind up selling those cars -- as we will wind up selling those cars in the seasonally weaker used car pricing environment. And recalls are still occurring.
Our maintenance staffs are still working around the clock to return cars to service. By the way the perspective through July 31, we’ve had closed 225,000 recalls, approximately one third of our peak fleet compared to approximately 70,000 for all of last year.
David will provide some additional color on this in a minute. In our international segment, our census with the economic recovery in Europe continues on a somewhat uneven trajectory depending on the country.
Demand in India was okay in July, a little softer than what we and the industry had anticipated judging by the looseness of fleets across the region. As a result the demand environment in July was a challenge and was no doubt affected by the World Cup, which extended over most of the month.
The August picture is brighter with our existing reservations currently up year-over-year. So despite the soft July and our increased spending on advertising campaigns to support our brands, we are still hoping to exceed last year’s record third quarter results in our international segment.
Our full year outlook is summarized in the press release and we will go through it except to point out the obvious. There are two important parts.
One, we expect that third will ultimately deliver record results. And two, we’ve raised both the top and bottom of our guidance.
We take away from all this as the following; the principle driver for the increase in our projected earnings is clearly the strength we’ve seen in North American pricing. It’s not the whole story across the globe.
We’ve grown ancillary revenues, enhanced our car class mix, reduce vehicle related and corporate interest expense, increased our use of alternative disposition channels to hold fleet cost increases to a minimum and delivered on in a way of productivity initiatives. This work has allowed us to overcome the effects of manufacturer recalls, a severe winter, softer than expected European demand in July and the macro economic challenges in Australia.
Lastly, I want to give you an update on capital allocation. Since last August, our board is authorized to share repurchase program totaling $435 million and we’ve been actively executing on it.
Through just we’ve repurchased more than 4.5 million shares at a cost to approximately 200 million including 150 million this year along, and we not expect to spend between 225 million and 300 million on repurchases in 2014. The other principle use of our free cash flow continues to be tuck-in acquisitions.
Year-to-date we’ve spend 50 million on tuck-ins including the acquisition of the Budget Portugal, Budget Edmonton and 11 airport locations from Advantage. We have a couple of tuck-in acquisitions in our pipeline that we expect to close before year end and they are similar in size to our recently completed deals.
But at this point we continue to believe it’s unlikely we’ll spend much more than 100 million on acquisitions in 2014. With that, let me turn the call over to David.
David Wyshner
Thanks, Ron, and good morning, everyone. Today I’d like to discuss our second quarter results, our fleet costs, our continuing investment in technology, our balance sheet and our outlook.
My comments will focus on our results excluding certain items. As Neal mentioned, these results are reconciled to our GAPP numbers in our press release in the earnings call presentation on our Web site.
Revenue increased 10% in the second quarter and adjusted EBITDA grew 19% to $213 million. Margins expanded by 80 basis points and diluted earnings per share increased 36% to $0.68.
Our results represent the second highest second quarter adjusted EBITDA in our history, behind only 2012 when we were still experiencing historically low pre-unit fleet cost. Currency effects were $7 million headwind for us.
So our local currency results were even stronger than our 19% EBITDA growth would suggest. Our trailing 12 months adjusted EBITDA now stands at $827 million for those analysts who compare company margins and evaluations based on adjusted EBITDA before deferred financing fees and stock based compensation.
Our trailing 12 months adjusted EBITDA would be $874 million. Revenue in our North America segment grew 12% making it our second best quarter revenue growth since 2007 excluding Payless which we acquired last July, revenue increased 9%.
Total volume grew 8% in the second quarter while pricing was 3%. And excluding the acquisition of Payless, volume grew 5% and pricing was up 5% in constant currency.
Ancillary revenue per day also increased 5% as our in-car SiriusXM satellite radio product continues to expand at growth rates reminiscent of when we launched GPS rentals. Leisure revenues increased 8% in the quarter with volume up 2% and pricing up 6% both excluding Payless.
Commercial revenue was also strong. It grew 9% in the quarter including the 7% increase in volume and 2% increase in pricing.
North America, adjusted EBITDA grew 37% year-over-year primarily due to increased pricing and higher volume partially offset by 1% rise in per unit fleet cost. Margins improved by more than 200 basis points as our strategy to focus on the most profitable segments and channels continues to bear fruit.
Our Payless acquisition were small, is also delivering strong returns. Our $50 million investment contributed $5 million to adjusted EBITDA in the quarter and $12 million since being acquired almost a year ago.
In the second quarter Payless’s revenue was $31 million driven by both volume growth and increased pricing. Revenue in our international segment grew 7% in the second quarter primarily due to 23% volume growth for budget in Europe, increased pricing and ancillary revenue growth.
International adjusted EBITDA declined $1 million as increased revenue was offset by $5 million negative impact on adjusted EBITDA due to currency exchange movements. Excluding foreign exchange impacts adjusted EBITDA grew 7%.
Revenue in our truck rental segment declined 2% in the quarter due to the planned decline in our average number of vehicles. Adjusted EBITDA declined $4 million in the second quarter driven by higher premium and fleet cost as we refreshed a portion of our fleet.
Every time we expect these newly acquired trucks to improve customer loyalty and lower our operating cost. Importantly, the core statistics of the business, pricing and utilization remain a highlight, in the quarter pricing increased 4% and utilization increased over 250 basis points putting us in a position to drive increased profitability in the future.
Turning to fleet cost, North America fleet cost increased approximately 1% in the quarter. The used car market thus far in 2014 has generally behaved in line with our expectations.
As we anticipated the strength we saw in the first quarter due to lower supply levels at the auctions reversed in the second quarter causing prices to come in a bit which is still within our expectations for full year per unit fleet cost to be flat to up modestly. As Ron mentioned, the industry had to content with an unprecedented number of vehicle recalls this year.
But despite that we’ve been successfully implementing our strategies to combat the declining residual values we anticipated coming into the year. First, we’ve been actively disposing more of our fleet using alternative disposition channels such as online auctions, direct to dealer sales and our direct to consumer partnership with AutoNation.
Our use of alternative channels is important because we are looking for vehicles sold through these channels to provide a benefit of $250 or more per cat. So far this year we’ve sold about a quarter of our risk vehicles using alternative channels, an increase of more than 50% from the same period in 2013.
Second, we’ve been cascading fleet to Payless and we expect the majority if Payless’s fleet to be comprised of cars from Avis and Budget locations by the end of this year. And finally, we're seeing significant benefits from our fleet optimization system.
We are increasingly taking advantage of the seasonal ups and down in the used car market and using the manufacturer repurchase programs wisely to manage fleet availability during our peak periods. On a separate topic, I want to update you on an area that I believe is integrals to the future of our business that is increasingly become a focal point for us as a management team technology.
We will invest more in IT this year than we ever have. Of our expected $200 million in capital expenditures this year, over half will be spent on improving our technology platforms.
We are on already discussed the positive impacts of our yield management technologies or having and will have. In addition we are investing in modernizing our core Wizard reservation and operation system allowing us to standardize across brands and geographies, add functionality, capitalize on the profit opportunities more quickly and provide more customer information to our counter sales agents.
And the best part is that we expected savings in maintenance along provided positive return on this investment. We are upgrading our mobility platforms using Zipcar as a guide the new Avis and Budget apps will allow our customers to have full functionality from their mobile devices from reservation to rental to customer service.
We are updating in upgrading our Web sites throughout the world. In addition to launching the new Avis Web site in the U.K., we will also be rolling out the new Web site to France, Germany, Italy and Spain later this year.
Separately to handle the summer peak in locations where there are just not enough counter positions to prevent lines from building. We’ve introduced line buster tablets where agents can initiate rental transaction while they are in line improving the customer experience without a large capital equipment outlay.
We believe we are currently the only company in the industry doing this. We are also investing in standardizing our fleet management systems in Europe making wizard available in China, building one way in fleet sharing technologies for Zipcar, implementing a new customer service system and redesigning our truck rental Web site.
We believe strongly that technology is critical to our business and that the investments we are making today will position Avis Budget Group to be an industry leader in this regard. At the same time we expect these projects to generate attractive returns on investment for us.
Turning to the balance sheet our liquidity position remains strong with $2.4 billion of available liquidity worldwide. We ended the quarter with $537 million of cash, new borrowings under our corporate revolver and $750 million of availability under that facility.
We had unused capacity of $1.1 billion under various vehicle back funding programs. Our ratio of net corporate debt to LTM adjusted EBITDA at the end of the quarter was 3.4 times.
We took advantage of attractive financing available to us during the quarter completing $400 million offering of eight year debt with a yield of just over 5%. We use the proceeds from this offering to redeem the remaining $395 million of 8.25% senior notes due 2019.
The opportunity to reduce our corporate borrowing cost is still not exhausted. We have on our balance sheet roughly $225 million of debt with 9.75% interest rates.
These notes become callable next year. Before I wrap up, I’d like to discuss our expectations for the remainder of this year.
As Ron mentioned we are happy to have achieved significant pricing growth in North America in the first half of the year and to be realizing benefits from our strategic initiatives throughout the world. We are seeing some uneven economic conditions outside North America, but the growth of our Budget brand in Europe, and of Apex in Australia and New Zealand and incremental synergies from our acquisitions are contributing to our profitability.
Therefore as we announced last night we now expect our 2014 revenues to be $8.6 billion to $8.7 billion, 8% to 10% increase compared to 2013. We continue to expect total company premium fleet cost to be $295 to $305 per month in 2014.
In North America premium and fleet cost are expected to be approximately $300 to $310 or flat to up 3% compared to 2013. Given our experience with recalls in the first half of 2014 we have held extra cars to try to ensure we can satisfy our customer commitments.
These costs will impact our third quarter results. While this effect is embedded in our updated full year guidance, we will make our year-over-year third quarter comp tougher than it otherwise would have been.
We now expect full year adjusted EBITDA to be approximately $860 million to $910 million, an increase of 12% to 18% compared to 2013. Our year-over-year increases in adjusted EBITDA had been around $20 million to $40 million a quarter lately.
We expect that to continue to be the case in the second half of the year. Our 2014 pre-tax income excluding items is expected to be $500 million to $550 million.
We expect our effective tax rate in 2014 will be approximately 38%, and our diluted share count will be between 111 million and 112 million including the effect of repurchasing $225 million to $300 million of outstanding shares this year. Based on new expectations we will now estimate that our 2014 diluted earnings per share will be $2.75 to $3.05, an increase of 25% to 39% compared to 2013.
We are still expecting our performance excellence efforts to contribute $40 million to $50 million of incremental benefits again this year. We expect our cash taxes to be approximately $70 million.
And finally, we now expect our free cash flow to be approximately $425 million this year, absent any significant timing differences. So, to wrap up, North America reported it fastest revenue -- its second fastest revenue growth quarters since 2007 due to growth in volume and pricing.
Our international operations are seeing reasonable constant currency profit growth despite challenges in certain markets. And our investments in technology are already generating results and more importantly are positioning us for the future.
On the capital allocation front, we are pleased to have returned $115 million of free cash flow to our shareholders this year in the form of share repurchases. We expect to repurchase a total of $225 million to $300 million of stock this year.
And finally, due to the progress we’ve seen so far this year in achieving higher pricing, we are raising our expectations for the year for revenue, adjusted EBITDA and earnings per share. With that, Ron and I would be happy to take your questions.
Operator
Thank you. (Operator Instructions) Our first question comes from John Healy with Northcoast Research.
You may ask your question.
John Healy - Northcoast Research
Thank you, and congrats on the great results, guys. I wanted to ask a big-picture question for you, Ron.
When I listened to your prepared remarks, three things really jumped out at me -- just your confidence in the business, the description of what seems to be a really good operating environment and the continued focus on returns. And I wanted to ask a couple of follow-ups to that, meaning do you feel like the trends in the business that you are seeing are unique to you?
Do you feel like the trends in the industry are widespread? Do you feel like that your competitors are also approaching the business with the same focus on returns?
And then how sustainable do you think this period of success is for you guys barring any shakes in the economy?
Ron Nelson
Well, it’s hard for me to answer what’s in our competitor’s edge, John. But I think part of the reason from my optimism is that we've now had six quarters consistent pricing growth.
And as you know I've been loath to say one quarter or two quarters constitutes a trend, but I think six quarters does constitute a trend. We all have similar cost structures, we all have similar business models, we all have similar business mixes and we all have to raise an awful lot of capital to finance our businesses.
And so, the focus on maintaining and achieving a strong return on capital, I think has to be consistent for everyone. I think if you look across the industry, the only way you get pricing is if everybody is acting in similar ways, fleets have been tied over the course of the second quarter.
They have been tied moving into July and August, and I would say that’s true across everybody in the industry and particularly in North America. So I do think that based on the fundamentals of our business and the metrics that we look at that everybody analyzes what the necessities of the business are in a similar fashion.
John Healy - Northcoast Research
Great, I appreciate that. And a follow-up question, it's pretty clear that the recall is impacting the cost structure.
Is there any thoughts to what that might have cost you in the second quarter and what that may cost you in the third and fourth quarter?
Ron Nelson
Well, we are just pulling the number together now because it’s a constantly evolving issue and some cars have been grounded for literally months because of inability to get parts and in some cars we can fix overnight because it’s just a flash to the car computer. But I'd say at least through the first -- at least through July, let’s put it at that.
It’s an eight digit number.
John Healy - Northcoast Research
Great, thank you.
Operator
Our next question comes from Chris Agnew with MKM Partners. You may ask your question.
Chris Agnew - MKM Partners
Thanks very much. Good morning.
As a follow-up to the previous question, I just wonder, if you exclude the vehicle recalls, would your fleet cost guidance for the full year be lower this year?
Ron Nelson
Good morning, Chris. Certainly the cost would be lower.
Probably the clear impacts that recalls are having on fleet cost. One doesn’t impact per unit cost, but its utilization.
And that will show up on the fleet cost line in terms of increased cost as a result of holding the cars. The second impact is still playing out and that is that we have to adjust our fleet claims because of the recalls.
Holding on to cars in April, May and June and even July and not selling some of the cars we plan to and are typically stronger months for selling cars. And so there is a sub optimization associated with holding on to those cars until late summer or fall to meet the summer peak, and there were cost associated with that.
At this point, we are still comfortable with the range we started the year with at $300 to $310 per month. But clearly the recalls are having and impact that we are looking to mitigate in other ways including the use of alternative disposition channels and other activities we’ve been undertaking.
Chris Agnew - MKM Partners
Thanks. And then, if I switch to local market, you had another good quarter of growth.
Can I ask are you taking share in the local market or is the local market off-airport generally growing faster than on-airport and if so, what is driving that trend and how sustainable do you think it is? Thanks.
Ron Nelson
Yes. I think historically local market has grown faster than the airport market at least going back to 2006 when we started collecting this data.
Whether or not we are taking share I don’t know -- I think because we’ve shifted our emphasis and are de-emphasizing insurance replacement, our percentage growth in general market is actually higher than it would otherwise been in a normal state. But if you look at the first half of this year volume in local market was up five, pricing was up four, so it wasn’t too far out of sync with what we saw at the airport.
I don’t know that we're taking a lot of share, but I'm sure we are certainly giving up share in the insurance replacement business.
Chris Agnew - MKM Partners
Great, thank you.
Operator
And our next question comes from Brian Johnson. Your line is open.
You may ask your question.
Unidentified Analyst
This is Dan. (Technical difficulty) a question for you; just trying to get a sense, first of all, in 2Q, what the impact of the Easter holiday was on volume and pricing?
Also, whether you think that the fact that you had the GM recall, and you had a bunch of fleet grounded weather, the extent to which that positively impact the pricing by withholding supply?
Ron Nelson
I think our sense is that Easter probably added two points to April volume and maybe a point to pricing. It wasn’t affected very much by the GM recalls, because the big recall was the Cruze, and that actually didn’t occur until after the Easter session.
I think one of the things that we did see from Easter break this year is that it actually extended the Easter season. Usually Easter is about a week and out, but for this year we were still getting check-ins into early May.
And so, I think it actually did help propel some of the May pricing and May volume that we saw.
Unidentified Analyst
Got you. And just a follow-up, if we look at your 2014 price guidance, you were pacing up 3% ex-Payless in the first half and you're up 4% in July.
So it just seems like unless you have a deceleration in the pace of pricing, it seems like your guidance of 2% maybe conservative. So, is it possible that there is upside to that number or is it possible that -- are you looking for a deceleration of pricing in later months of the year.
And also, just to confirm, your 2014 guidance assumes price of plus 2%, correct?
Ron Nelson
That's correct. There is one thing I've learned in the time that I've been involved in this business is never get out over your skis on pricing guidance.
So we always tend to air on the conservative side. Do I think there is an opportunity for upside?
Sure, but you got to remember that we're moving into our seasonally lowest quarter. There is a lot of deflating that goes in the September-October-November period.
And so it's just -- it's always an uncertain environment over how quickly people can deflate and how much impact that can have on pricing. So, I think we feel comfortable with our guidance of 2%.
If I had to take the over and under, I'll probably take the over, but again, you really don’t know until you see how the deflating goes in the fourth quarter.
Unidentified Analyst
Okay, thank you very much.
Operator
And our next question comes from Chris Woronka with Deutsche Bank. You may ask your question.
Chris Woronka - Deutsche Bank
Hey, good morning, guys and nice quarter. I don't know if you gave out this data point, but with the pricing tower accelerating, are you guys reducing your reliance on some of the opaque discount channels?
Ron Nelson
Well, we've been reducing our reliance on opaque for probably the last 18 months. I think sequentially every quarter since fourth quarter of '12, our opaque volume has been down, and I think we're satisfied with the level at which we participate in that channel.
Chris Woronka - Deutsche Bank
Okay, very good. And then on the stock repurchase, you did $75 million both quarters and obviously, a few less shares this past quarter with the higher price.
How do you guys approach in terms of price sensitivity on the stock buybacks? Is it more about you want to return a certain level of capital to shareholders and the price of the stock is not everything and then there are other factors or is there some price sensitivity in terms of the timing of the repurchase?
David Wyshner
This is David. I think it really is at this point primarily about returning capital to shareholders and in doing so, in a relatively consistent fashion over time.
We certainly think about the stock price and are aware that it's moved up, but I think among a number of different metrics including our cash earnings per share, it's still quite attractive to us. And as a result, I don’t see our plans over the intermediate term being impacted a lot by the stock price; really it's about consistently returning capital to shareholders as we said when we announced the program.
Chris Woronka - Deutsche Bank
Okay, very good. Thanks, guys.
Operator
And our final question comes from Afua Ahwoi with Goldman Sachs. Your line is open.
You may ask your question.
Afua Ahwoi - Goldman Sachs
Thank you, good morning. So two questions from me; first, on the international segment, the sequential volume deceleration we've been seeing.
I know in the top points you called out Australia and you mentioned some other markets are uneven. Is Australia the only market that is seeing the sequential deceleration because of the economy, or are there any other markets you would highlight?
And if that's it, maybe -- are you seeing any signs of a turnaround or how should we think about volume trends there? And then, I guess just going back to the question that has been asked in a different form, just on the fleet costs, I guess given that your guidance is unchanged from what you said at the beginning of the year, is it fair to say either your expectations coming into the year were conservative or has the used-car market or fleet cost sort of surprised to the upside and barring the recalls, you'd have been better than expected?
Thanks.
Ron Nelson
Hi, Afua. With respect to your first question, I think the only other market we'd probably call out is Germany.
The irony is that it's the strongest economy I think across European continent. Volumes were down in the first quarter.
They were down modestly in the second quarter. We actually think that they'll pick up moving into July and August.
But it is a little surprising that market, which is economically doing okay, is the one where the volume reductions are most pronounced. The other volume that we're seeing trending down, Switzerland, I mean the exchange rate between anything in the Swiss dollars has got pretty pricy and so, well, it's not a big market.
We’re seeing some erosion in volume there. Now I'd say the other market is probably the U.K., and a lot of the U.K.
volume declines that we've experienced in the first half of this year have been self-inflicted. There is a practice of deliver and collect that is prevalent in the U.K.
and it makes for a lot of unprofitable business. And so, we've been pulling back from the insurance replacement market where we had to do deliver and collect in order to secure the business.
But I think the slowdown in mining in Australia and whatever is the retrenching that's going on with German consumers are probably the only two that are meaningful to standout.
David Wyshner
And let me try to clarify little bit; with respect to fleet cost, holding on to cars, having more cars in our fleet doesn’t really change our per unit cost, but it does increase fleet cost as a percentage of revenue. And so, the principle issue we've seen so far this year needing to have more cars in our overall fleet, because some are unavailable due to recalls, really isn't -- doesn’t show up in the per unit number, but does show up in our fleet cost.
With respect to the issue of sub-optimizing some of our dispositions that will show up in fleet cost, and I think we're in a situation where it's probably pushing our per unit cost up more likely to the upper half of the range rather than potentially having been in the lower half of the range. I don’t think we were particularly conservative or aggressive when we set up our expectations for the year.
We're really managing this and working it as much as we possibly can to keep it in the 300 to 310 range. And I think what you're seeing as a result of everything that's been going on is more likely ending up in the upper half of the range rather than in the lower half.
Afua Ahwoi - Goldman Sachs
Okay, great. Thank you.
Operator
And we have time for one additional question, and that question comes from Kevin Milota with JPMorgan Chase. You may ask your question.
Kevin Milota - JPMorgan Chase
Hey, good morning, guys. Obviously, you have been very much the price leader for the industry.
I was hoping you could talk about follow-through rates by the different brands, so at the Avis level and then Budget and Payless, to see what the follow-through has been with your price increases by the competition.
Ron Nelson
Well, the last price increase that we put in that was followed almost universally was back in January. I think there have been periodic price increases over the course of the ensuing five or six months.
I think it's been erratic as to who follows. What I'd say is that there has been fairly consistent pricing amongst the premium brands, particularly over the course of the last couple of three months.
On-airport premium pricing is actually held pretty good. Budget has done very well pricing against Alamo and its other counterparts.
And I think we've been fairly successful at trying to drive our pricing at Payless. I don’t know if that answers your question, Kevin, but I guess the answer is that -- I'd say in the last couple of months, it's more based on fleet tightness that we've gotten in incremental pricing, then, it's been on our throwing out price increases and having people follow.
Kevin Milota - JPMorgan Chase
Okay. Thanks a lot, guys.
Operator
And for closing remarks, the call is being turned back to Mr. Ronald Nelson.
Please go ahead, sir.
Ron Nelson
Thank you. So, before we close today, I just think it's important to reiterate what I believe were the key points from today's call.
We had an excellent first half of the year driven by strong volume and pricing in North America, which has continued into the summer months. We're achieving incremental synergies from our acquisition of Avis Europe, Zipcar and Payless.
And we're continuing to return cash to shareholders through our share repurchases. We have a very full investor calendar this quarter, and I hope to see many of you during our travels.
And with that, I want to thank you for your time and interest in our company.
Operator
And this concludes today's conference call. You may disconnect at this time.