Ryder System (R) Q3 Earnings call transcript Oct 24, 2024

In the third quarter of 2024, Ryder System Inc. reported a solid financial performance, showcasing resilience in the face of a freight recession and market conditions that have remained weak in used vehicle sales and rental. The company's management team, led by Robert Sanchez, highlighted the effectiveness of their balanced growth strategy, focusing on contractual lease, dedicated, and supply chain businesses, which have demonstrated enhanced quality and increased resilience.

Contractual Lease, Dedicated, and Supply Chain Businesses

The key driver of Ryder's outperformance is the earnings growth in the contractual lease, dedicated, and supply chain businesses. These businesses have shown improved performance and position Ryder well for the future. The company's initiatives are focused on enhancing returns, operational excellence, and customer-centric innovation, with adjusted ROE of 16% over the trailing 12-month period. The contractual portfolio's earnings power has provided increased capital deployment capacity, leading to a new $2 million share repurchase program, bringing the total cash returned to shareholders to $382 million year-to-date.

Fleet Management Solutions and Supply Chain

Fleet Management Solutions (FMS) reported a 1% increase in operating revenue, driven by higher ChoiceLease revenue and the acquisition of Cardinal. Despite weaker market conditions in used vehicle sales and rental, FMS demonstrated operational excellence and cost savings initiatives from maintenance. On the other hand, the supply chain segment reported a 10% increase in operating revenue, thanks to the acquisition of IFS and Cardinal. Stronger omnichannel retail performance and lower overhead spending contributed to the growth in earnings.

Capital Expenditures and Outlook

Ryder's full year 2024 forecast for operating cash flow remains unchanged at $2.4 billion, with a forecast for free cash flow in the range of positive $150 million to $215 million. The company's balance sheet remains strong, with leverage at 249%, just below the target range, providing ample capacity to fund capital allocation priorities. Looking ahead, Ryder expects to see earnings growth from its contractual businesses, with initiatives like lease pricing, maintenance cost savings, and acquisition synergies playing a significant role. The company is also well-positioned to benefit from the cycle upturn, with the potential for an annual pretax earnings benefit of approximately $200 million at the next cycle peak.

Challenges and Opportunities

Despite the challenges faced in the current freight cycle, Ryder remains optimistic about its future prospects. The company is focusing on managing through the downturn and positioning itself for the cycle upturn. With a strong balance sheet and a clear strategy, Ryder is well-positioned to capitalize on the opportunities that lie ahead. The company's commitment to operational excellence, customer-centric innovation, and strategic investments will continue to drive its growth and return value to shareholders.

In conclusion, Ryder System Inc.'s third quarter earnings call highlighted the company's resilience and strategic focus amidst a challenging freight environment. With a strong financial position and a clear path forward, Ryder is poised to navigate the current downturn and capitalize on the opportunities presented by the cycle upturn.