July 26, 2023

Ryder forecasts improved finances despite Q2 earnings decline


Most performance measures at Ryder System in the second quarter were down from a year earlier but the company made a significant upward revision in its forecast for the remainder of this year.

That was the key driver in the company’s stock performance Wednesday. At approximately 1:30 p.m. EDT, Ryder (NYSE: R) was up $6.21, or 6.77%, to $98. 

The company’s second quarter earnings per share figure was down to $3.61 from its record level a year ago of $4.43, “largely reflecting weaker market conditions in used vehicle sales and rental,” the company said in its earnings release Wednesday morning.

But at the same time, Ryder said its EPS forecast for the full year was being increased to $12.20 to $12.70 from its previous forecast of $11.30 to $12.05. Its return on equity forecast was moved up to 17%-19% from 16%-18%, but its operating revenue growth projections were cut to an increase of 2% from 4%, “reflecting lower rental demand and volumes in the omnichannel retail vertical,” according to the earnings release.

It was Ryder’s traditional leasing business, which operates as Fleet Management Solutions (FMS), that took the brunt of the downturn on a year-over-year (y/y) comparison. Operating revenue in the division, a non-GAAP measure that is net of fuel, declined 4% y/y to $1.25 billion from $1.3 billion.

Earnings at FMS declined 37% y/y, down to $180 million from $286 million. 

But the two other operating segments of Ryder turned in improved bottom lines. Supply Chain Solutions (SCS), which provides a suite of logistics solutions, saw its operating revenue net of fuel rise to $865 million from $798 million a year earlier. Its earnings before income taxes were up 23%, to $76 million from $62 million.

On the company’s earnings call, CEO Robert Sanchez said he viewed the quarter favorably because he sees fruits of a shift in the company’s strategy beginning to pay off, particularly in the improved performance at the SCS and DTS.

SCS’ earnings before taxes percentage of operating revenue of 8.7% was within Ryder’s profitability target for the group, Sanchez said, and arrived earlier than expected. “We were really pleased to be there this quarter, and certainly expect to be there for the balance of the year,” he said.

DTS, which provides trucking and transportation services, saw its operating revenue net of fuel rise 7% to $327 million from $306 million. Segment earnings before income taxes were up 43%, to $33 million from $23 million.

Even in light of the increased forecast in company earnings for the rest of this year, Sanchez on the earnings call was not optimistic about the state of the market, saying he saw further declines in freight volume ahead.  

“I think we’re showing that even in a pretty significantly difficult freight environment, we have higher earnings [and] less risk in the business hierarchies,” he said. “That’s really been a result of all the actions we’ve taken in the last almost four years now that we’ve been working on this balanced growth strategy.”

A presentation released with the earnings call laid out some of the key progress in that strategy.  Among its highlights: less reliance on used vehicle sales; getting out of the U.K. market; reducing costs in vehicle maintenance by $100 million; and bringing the asset-light part of the business — SCS and DTS — up to 55% of revenue from 44% in 2018.

Used vehicle sales results are in the figure for Fleet Management Solutions. Sales prices for tractors were down 41% y/y, compared to a 91% increase last year, while truck sales prices declined 34% compared to 81% a year ago. 

Ryder did sell more vehicles, with total sales of 5,500 up from 4,000 a year ago. Its end-of-quarter fleet count stood at 7,000, significantly higher than the 3,900 a year ago. Ryder management had noted last year that its inventory of vehicles for sales was at levels less than it considered desirable. But new vehicles are starting to come in; the company said one of the reasons for its improved forecast was “accelerated timing of OEM deliveries.” 

Ryder said it expects proceeds of about $100 million in used vehicle sales this year. 

Ryder’s fleet has been growing in outright size, but the relative softness of the rental market can be seen in the comparison between the active fleet count and the total fleet count in the company’s ChoiceLease program. While the average fleet count for the quarter rose to 137,800 units, up from 133,600 units, the average active fleet count — which is made up of vehicles actually being leased — was 129,700 from 128,500 a year earlier. That is roughly a 94% utilization this year compared to 96% last year.

In its rental operations, rental utilization was 75% in the second quarter of this year compared to 85% a year ago. Unlike the growth in the fleet for ChoiceLease, the size of the fleet for commercial rental operations declined to an average of 40,200 vehicles from 40,500 a year ago.

Ryder saw its debt rating upgraded by S&P Global Ratings in April, but some of the key measures tied to debt repayment softened year on year. Its earnings before interest, taxes, depreciation and amortization — which ratings agencies view as a key determinant of an ability to repay debt — was $674 million, down from $688 million a year earlier. The average cost of debt rose to 4.5% from 3.4%. In the six first months of the year, free cash flow plummeted to $16 million from $551 million a year earlier. But the debt-to-equity ratio declined to 211% from 216% a year ago.

More articles by John Kingston

Golfer Sam Ryder the face of Ryder System ads after famous hole in one 

Ryder buys logistics tech startup Baton, which it had invested in previously

Ryder’s nonleasing activities grow revenue but FMS provides profits


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