February 15, 2024

Ryder continues shift toward less reliance on leasing, talks up Cardinal


Ryder System’s fourth quarter saw the continued rise of its Supply Chain Solutions (SCS) segment as a growing contributor to revenue and profitability, with used vehicle sales hurting the performance of its signature Fleet Management Solutions (FMS) vehicle leasing division. 

In prepared remarks released with the earnings, CEO Robert Sanchez, who has been leading the push to have FMS account for a declining percentage of the Ryder business while SCS and Dedicated Transportation Solutions (DTS) rise, said the company has been operating in a “challenging” freight market, but “the transformative actions we’ve taken to de-risk the model, enhance returns and drive profitable growth have meaningfully improved business model resilience.”

SCS provides contract logistics services while DTS provides dedicated transportation services. DTS recently grew significantly bigger with the acquisition of Cardinal Logistics.

In the fourth quarter of 2023, SCS operating revenue of $972 million came in at 76% of the FMS operating revenue total of $1.27 billion. A year earlier, the SCS figure was 70.5% of what FMS produced.

On the profitability front, SCS and FMS went in significantly different directions quarter to quarter.

In the fourth quarter of 2023, FMS earnings before taxes as a percent of total revenue declined to 9.1% from 16% a year earlier. As a percent of operating revenue, it dropped to 10.6% from 19.4%. On an outright basis, EBT at FMS dropped to $134 million from $256 million. 

At SCS, EBT rose to $57 million from $42 million a year earlier. Other measurements of profitability such as EBT as a percent of total revenue were higher, rising to 4.4% from 3.4%, while as a percent of operating revenue SCS climbed to 5.8% from 4.8%.

Hit by the fall in used truck prices

Meanwhile, used vehicle sales at Ryder (NYSE: R) weighed on the performance of FMS. 

The vast difference in used vehicle markets between 2022 and 2023 was stark in the Ryder data. In the fourth quarter of 2023, the average price Ryder received for a tractor was down 39% from the previous year. In the fourth quarter of 2022, when the freight market’s downturn was advancing but not yet at a low point, the year-on-year decline for tractors was 6%.

For the full year, the decline in used tractor prices received by Ryder was 37% from 2022. But in 2022, Ryder saw an increase in used tractor prices of 43% from 2021.

Used vehicle inventory increased to 8,000 vehicles at the end of the quarter. Ryder said that figure is in line with the target of 7,000 to 9,000 vehicles for sale.

The challenging freight market referred to by Sanchez led to a earnings per share from continuing operations — a GAAP measurement — of $2.74 compared to $4.06 a year earlier. On a non-GAAP basis, the decline was narrower, down to $2.95 from $3.89, “reflecting weaker market conditions in used vehicle sales and rental, partially offset by improved SCS results.”

The consensus pre-earnings estimate on the non-GAAP figure was $2.74, according to SeekingAlpha.

For the full year, Ryder posted non-GAAP EPS from continuing operations of $12.95.

Wall Street reaction to the earnings was not positive. Although Ryder has been regularly recording 52-week highs in recent months, at about 2:10 p.m. Eastern time Wednesday, the stock was down $7.80, or 6.58%, to $110.71. Its intraday low was $107.85.

In providing its first guidance for 2024, the company didn’t see earnings improving that much this year. Its projection is non-GAAP EPS of $11.50-$12.50. 

Ryder also foresees an increase in operating revenue of approximately 13%, but that would include Cardinal Logistics. Full-year revenue for Ryder in 2023 was $11.78 billion, and 13% of that would be about $1.5 billion. Elsewhere during the call, Sanchez put Cardinal’s revenue at about $1 billion.

Company’s first talk about Cardinal acquisition

When the Cardinal Logistics acquisition was announced, it was unusual in that it already had been closed, and Ryder’s media relations department made a point to note that it was not taking additional questions about the purchase. It also said the acquisition would be discussed further on the Ryder conference call, and it was, with an emphasis on where Cardinal would fit with existing DTS operations.

In the fourth quarter, DTS reported flat EBT of $31 million. Total revenue was down just 3% to $443 million, while operating revenue, which would not reflect the volatile fuel segment of revenue, rose to $324 million from $320. EBT as a percent of total and operating revenue were little changed.

Sanchez said the DTS segment at Ryder had “demonstrated a resilient earnings profile … during the most recent freight downturn, as well as during prior cycles.” Earnings there had “held up well, benefiting from favorable driver market conditions and reduced turnover cost as well as our initiatives.”

It also has the advantage of a new customer pipeline directly from some of Ryder’s FMS customers, “which has been the largest source of new sales activity for DTS for some time.”

Sanchez moved from that recap of DTS to Cardinal, saying the acquired company’s “national footprint and complementary contractual services provides us with the opportunity to build scale and density in our dedicated transportation network.” Cardinal, inside of DTS, “will gain greater economies of scale and we’ll have even more flexibility to optimize resources across our network.”

Integration of the acquisition, which closed Feb. 1, is underway, Sanchez said. Revenue gains from the purchase are expected to be about $1 billion in total and $800 million in operating revenue, with fuel and subcontracted transportation making up the difference.

But not all of Cardinal will be under DTS. Sanchez said about 15% of the company’s operating revenue is generated by Cardinal’s brokerage, contract logistics and last-mile services; that will be under Ryder’s SCS segment. Fleet maintenance for the Cardinal acquisition will be shifted to FMS.

Sanchez said the Cardinal acquisition will be “marginally accretive” to earnings in 2024 and more “meaningfully accretive” next year. 

During the earnings call with analysts, Sanchez talked about the “balanced growth strategy,” as Ryder has termed its plan to have FMS provide a smaller base of the company’s business by growing the other two legs.

He cited numbers from 2018, a strong freight year, when Ryder had a comparable EPS of $5.95 and return on equity of 13%. But in 2023, a weak freight year, the comparable numbers were $12.95 and 19%, with SCS and DTS supplying a bigger part of the company’s operations last year than in a strong 2018.

“Through organic growth, strategic acquisitions and innovative technology, we have shifted our revenue mix toward Supply Chain and Dedicated, with 56% of 2023 revenue coming from these asset-light businesses compared to 44% in 2018,” Sanchez said.

The CEO was eager enough to talk about the change in the business that even as the earnings call’s moderator signaled that no more questions from analysts were forthcoming, Sanchez didn’t just say goodbye like most CEOs; he wanted to get his key point in one final time.

A transformed Ryder, he said, means that “you’re going to have the ups and downs of rental and used vehicle sales.” But shifting more toward longer-term business like that found in SCS and DTS means “that contractual earnings number is going to continue to grow and we certainly are focused on continuing to grow that number.”

More articles by John Kingston

As lower used truck prices loom, Ryder sees a drop in ’23 profitability from last year

Ryder’s debt rating upgraded by S&P

Ryder loyalty program payoff: Reduced used vehicle prices


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