News Details

Fourth Quarter 2019

• Record Q4 Total Revenue of $2.3 Billion, up 0.7%; Record Q4 Operating Revenue (non-GAAP) of $1.8 Billion, up 2.9%
• Q4 GAAP EPS from Continuing Operations Loss of $(1.02) Versus $2.12 in Prior Year, Reflecting the Impacts of Previously Announced Change in Residual Value Estimates and One-Time Pension Settlement Charge
• Q4 Comparable EPS (non-GAAP) from Continuing Operations Loss of $(0.01)

Full Year 2019

• Record Full-Year Total Revenue of $8.9 Billion, up 6.1%; Record Full-Year Operating Revenue (non-GAAP) of $7.2 Billion, up 7.9%
• Full-Year GAAP EPS from Continuing Operations Loss of $(0.45) Versus $5.43 in Prior Year, Reflecting the Impacts of Previously Announced Change in Residual Value Estimates and One-Time Pension Settlement Charge
• Full-Year Comparable EPS (non-GAAP) from Continuing Operations of $1.01 Versus $5.95 in Prior Year

2020 Forecast

• 2020 GAAP EPS Forecast of $0.22 - $0.62
• 2020 Comparable EPS (non-GAAP) Forecast of $1.10 - $1.50
• 2020 Net Cash Provided by Operating Activities Forecast of $2.1 Billion and Free Cash Flow Forecast of $350 Million

MIAMI--(BUSINESS WIRE)-- Ryder System, Inc. (NYSE: R), a leader in commercial fleet management, supply chain and dedicated transportation solutions, reported record total and operating revenue for the fourth quarter and full year 2019. Total and operating revenue increased in all three segments reflecting new business and higher volumes for the full year. GAAP and comparable EPS for both the fourth quarter and full year were impacted by higher depreciation expense resulting from the previously announced change in residual value estimates.

Results for the three months ended December 31 were as follows:

Total and operating revenue for the three months ended December 31 were as follows:

Commenting on the company’s results, Ryder Chairman and CEO Robert Sanchez said, "In the fourth quarter, we delivered record total and operating revenue, driven by continued favorable outsourcing trends. Our earnings reflect the impact of the previously announced vehicle residual value estimate change. Comparable EPS in the fourth quarter was at the lower end of our forecast range, reflecting a modest increase in the depreciation impact of the vehicle residual value estimate change. As anticipated, the impact in the fourth quarter was less than in the prior quarter and is expected to continue to lessen which will benefit sequential earnings comparisons in future periods.

"In our supply chain and dedicated businesses, we saw pre-tax earnings improvement driven by strong operating performance, with SCS earnings overcoming the impact of customer labor strikes, previously announced lost business, and the impact of the previously announced vehicle residual value estimate change.

"In our fleet management business, rental demand softened and came in slightly below our expectations. We made significant progress in rightsizing the rental fleet and redeploying equipment for a slower demand environment. Used vehicle sales results were in line with our expectations. Used vehicle sales volumes were up both year over year and sequentially, while used vehicle pricing was down and inventory levels were above our long-term target.

"Looking back to the full year of 2019, we delivered comparable EBITDA growth of 11%. We continued to track ahead of expectations to achieve our multi-year maintenance cost-savings target. Additionally, we continued to realize significant benefits from our zero-based budgeting initiative.

"In connection with our initiatives to drive higher returns, we further increased ChoiceLease pricing and closed some underperforming FMS locations in the U.S. and Canada. We expanded the used vehicle retail sales capacity by increasing locations and are enhancing our online sales capability.

"We continued to benefit from long-term outsourcing trends, with approximately 36% of growth coming from customers new to lease, and the impact of our sales and marketing initiatives.

"We continue to lead the market with new technologies in transportation and logistics. We expanded our commercial truck sharing platform COOP by Ryder^TM from Georgia and Florida into the Texas market and announced a new strategic partnership with In-Charge Energy, Inc. for electric vehicle charging infrastructure as we continue to invest in areas that can provide long-term revenue and earnings growth opportunities."

Fourth Quarter Business Segment Operating Results

Fleet Management Solutions

In the Fleet Management Solutions (FMS) business segment, total revenue was $1.4 billion, up 4% from the year-earlier period. FMS operating revenue (a non-GAAP measure excluding fuel) was $1.2 billion, up 6% from the year-earlier period. Ryder ChoiceLease^TM (lease) revenue increased 9%, reflecting a larger average fleet size as well as higher prices on new vehicles. The lease fleet grew by 10,500 vehicles or 7% for the full year. Commercial rental revenue decreased 4% from the year-earlier period due to lower demand for heavy-duty tractors.

FMS loss before tax was $80 million compared with earnings before tax of $111 million in 2018, reflecting $118 million of higher depreciation expense resulting from the vehicle residual value estimate change effective July 1, 2019, as well as lower rental earnings, higher insurance-related costs, and increased expense related to a higher number of vehicles being prepared for sale. Earnings in lease benefited from fleet growth and higher pricing. Commercial rental performance was negatively impacted primarily by lower demand for heavy-duty tractors, partially offset by higher demand for trucks and increased pricing on all vehicle types. Rental power fleet utilization was 76% in the fourth quarter, down from 82% in the year-earlier period, primarily driven by lower heavy-duty tractor utilization. The ending commercial rental fleet declined by 6% sequentially as compared to the third quarter, driven by the company's initiative to rightsize the fleet to align with current demand conditions. FMS loss before tax as a percentage of FMS total revenue and FMS operating revenue (a non-GAAP measure) were (5.6)% and (6.5)%, respectively.

Supply Chain Solutions

In the Supply Chain Solutions (SCS) business segment, total revenue was down 3% to $649 million and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was down 5% to $466 million compared with the year-earlier period. The decline in SCS total revenue and operating revenue primarily reflects previously announced lost business and customer labor strikes, partially offset by higher pricing.

SCS earnings before tax of $32 million increased 3.3% in the fourth quarter of 2019 compared with $31 million in 2018. This increase was driven by improved operating performance and partially offset by impacts from customer labor strikes and a $3 million impact from the change in residual value estimates for vehicles used in this segment (which is eliminated in consolidation). SCS earnings before tax as a percentage of SCS total revenue and SCS operating revenue (a non-GAAP measure) were 5.0% and 6.9%, respectively, up 30 and 50 basis points from the prior year.

Dedicated Transportation Solutions

In the Dedicated Transportation Solutions (DTS) business segment, total revenue was down 5% to $346 million and operating revenue (a non-GAAP measure excluding fuel and subcontracted transportation) was up 4% to $241 million compared with the year-earlier period. The decline in DTS total revenue reflects lower subcontracted transportation revenue and lower fuel costs passed through to customers. DTS operating revenue growth reflects higher pricing and new business.

DTS earnings before tax of $18 million increased 14.6% compared with $16 million in 2018 due to improved operating performance and favorable developments from prior-period insurance claims, partially offset by $6 million from the change in residual value estimates on vehicles used in this segment (which is eliminated in consolidation). DTS earnings before tax as a percentage of DTS total revenue and DTS operating revenue (a non-GAAP measure) were 5.2% and 7.5%, respectively, up 80 and 70 basis points from the year-earlier period.

Corporate Financial Information

Central Support Services

In the fourth quarter of 2019, unallocated CSS costs were $15 million, unchanged from the year-earlier period.

Income Taxes

Tax rates in the fourth quarter were impacted by higher depreciation expense related to the previously announced vehicle residual value estimate change. Our effective income tax rate from continuing operations for the fourth quarter of 2019 was a benefit of 56.6% as compared to an expense of 3.6% in the prior year. The comparable effective income tax rate (a non-GAAP measure) from continuing operations for the fourth quarter of 2019 was a benefit of 98.7% as compared to an expense of 21.0% in the prior year.

Capital Expenditures

Full-year capital expenditures increased to $3.6 billion in 2019 compared with $3.2 billion in 2018. The increase in capital expenditures reflects higher planned investments to grow and refresh the lease fleet to fulfill customer contracts. Proceeds of $518 million were up $122 million from the prior year and include $43 million from the sale of property in the second quarter of 2019. Net capital expenditures (including proceeds from the sale of assets) were $3.1 billion in 2019 up from $2.8 billion in 2018.

Cash Flow and Leverage

Full-year operating cash flow was $2.1 billion in 2019, up from $1.7 billion in 2018. Total cash generated (a non-GAAP measure that includes proceeds from used vehicle sales) was $2.7 billion compared with $2.1 billion in 2018. Free cash flow (a non-GAAP measure) was negative $1.1 billion, compared with negative $936 million in 2018, reflecting increased net capital spending.

Total debt as of December 31, 2019 was $7.9 billion, up from $6.6 billion in 2018. Debt-to-equity as of December 31, 2019 was 320% compared with 262% at year-end 2018, above the company's long-term target of 250-300%. The increase in debt-to-equity reflects the impacts from capital spending on vehicles and a reduction in equity related to higher non-cash depreciation expense from the previously announced vehicle residual value estimate change. Ryder plans to reduce leverage over time as the company moves past the near-term impact of the residual value estimate change.

2020 Earnings Forecast

Commenting on the company’s outlook, Mr. Sanchez said, "Going forward, we anticipate executing a strategy of moderate growth in FMS and accelerating growth in dedicated and supply chain, delivering a balance of revenue and earnings growth with positive free cash flow over a cycle.

"The demand for our core services remains strong, and we continue to benefit from favorable outsourcing trends in large, attractive markets. As a reminder, we continue to expect leases signed since 2014 to provide returns at or above target levels, including the record number of leases signed in the last two years. Additionally and in light of the increased volatility in the used truck market, we are taking actions that we expect will further improve returns in the coming years. These initiatives include additional up-pricing of leases, pruning lower-return accounts upon renewal, expanding used vehicle retail sales capacity, and accelerating cost-savings initiatives. As an industry leader, we are confident in our ability to execute on our initiatives.

"In 2020, we expect year-over-year operating revenue to be unchanged. While we anticipate growth in lease and supply chain, we expect this growth to be offset by a slowdown in rental and dedicated transportation solutions.

"In ChoiceLease, we forecast revenue to grow but at a slower pace than last year, partially due to an anticipated decline in new vehicle production by OEMs and from our initiatives to improve returns, including additional price increases on new and renewing leases. We expect our active lease fleet count to be higher by up to 1,000 vehicles.

"We anticipate softer conditions in rental throughout the year reflecting a weaker freight environment, particularly for heavy duty tractors. We expect the rental fleet to be substantially rightsized by the end of first quarter in line with the anticipated demand environment. As a result year-over-year utilization comparisons are forecast to improve in the second half. We expect modestly higher rental pricing in 2020.

"In used vehicle sales, we anticipate a higher number of vehicles to be sold during the year. Used vehicle pricing is forecast to remain soft during the first half of 2020, with a modest recovery in the second half of the year.

"In supply chain, while first half 2020 revenue growth will continue to be impacted by two previously announced customer losses, we anticipate the revenue growth rate in the second half of the year to be near our long-term target. We expect supply chain earnings to benefit from higher pricing and new business, offset by strategic investments, prior-year favorable insurance developments, and residual value estimate changes on vehicles used in this segment.

"In dedicated, we anticipate that 2020 revenue growth will be impacted by lower than expected sales in the second half of 2019, following two years of record sales. We expect earnings headwinds from prior-year favorable insurance developments, residual value estimate changes on vehicles used in this segment, and strategic investments. We have taken additional steps to expand the sales force and implement targeted marketing initiatives in this segment. We remain confident in our expectation that we will achieve our multi-year target growth rates, although sales in this segment can be uneven due to the impact of large deals.

"As for our earnings outlook, we expect an increase in EPS reflecting a lessened impact from the previously announced vehicle residual value estimate change and growth in our contractual business. These benefits are expected to be partially offset by lower rental demand, strategic investments, and costs related to our actions to improve future returns. Benefits related to our zero-based budgeting cost savings program are anticipated to offset higher employee compensation and benefit costs.

"We expect a near-term negative earnings impact related to some of our return-on-capital action plans which are expected to improve performance in future years. These include impacts from the termination of our lease insurance program in order to reduce future risk, the closure of underperforming facilities, and the non-renewal of lower-return accounts.

"To drive future earnings growth, we plan to continue to invest in strategic initiatives in sales and marketing including additional resources in dedicated and supply chain, information technology, and new product development related to disruptive trends in the industry. These investments in recent years have allowed us to grow revenue and launch exciting new products like COOP by Ryder^TM and our e-commerce fulfillment solution. We're encouraged by the progress we're making with RyderShare^TM, which is aimed at digitizing the supply chain and creating real-time visibility and collaboration for our customers.

"We anticipate a significant reduction in capital spending as a result of slower market conditions in rental and lower lease growth. Free cash flow is forecast to turn positive and significantly increase to $350 million. We anticipate our balance sheet leverage to decline modestly at year-end.

"First quarter earnings in 2020 reflect the impact of the previously announced vehicle residual value estimate change and are typically the lowest quarter seasonally in the year. Additionally, first quarter earnings comparisons are challenging versus very strong results in the first quarter of 2019."

Forecast and results for full year and first quarter are as follows:

Total revenue for the full-year 2020 is forecast to be up 0.8% to approximately $9.0 billion. Operating revenue for the full-year 2020 is forecast to be unchanged at approximately $7.2 billion.

Supplemental Company Information

Fourth Quarter Net Earnings

Full-Year Operating Results

Business Description

Ryder System, Inc. is a FORTUNE 500^® commercial fleet management, supply chain, and dedicated transportation solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the S&P MidCap 400^® index. The company’s financial performance is reported in the following three, inter-related business segments:

• Fleet Management Solutions – Ryder’s FMS business segment provides a broad range of services to help businesses of all sizes, across virtually every industry, deliver for their customers. From leasing, maintenance, and fueling, to commercial rental and used vehicle sales, customers rely on Ryder’s expertise to help them lower their costs, redirect capital to other parts of their business, and focus on what they do best – so they can grow.

• Supply Chain Solutions – Ryder’s SCS business segment optimizes logistics networks to make them more responsive and able to be leveraged as a competitive advantage. Globally-recognized brands in the automotive, consumer goods, food and beverage, healthcare, industrial, oil and gas, technology, and retail industries rely on Ryder’s leading-edge technologies and world-class logistics engineers to help them deliver the goods that consumers use every day.

• Dedicated Transportation Solutions – Ryder’s DTS business segmentcombines the best of Ryder’s leasing and maintenance capability with the safest and most professional drivers in the industry. With a dedicated transportation solution, Ryder helps customers increase their competitive position, reduce risk, and integrate their transportation needs with their overall supply chain.

For more information on Ryder System, Inc., visit http://investors.ryder.com/.

Note Regarding Forward-Looking Statements:

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, outlook, expectations regarding market trends and economic environment; our financial condition; our fleet growth; performance in our product lines and segments; the strength of our contractual sales pipeline; projections related to customer retention; demand, utilization and pricing in our commercial rental business; demand, sales and pricing in used vehicle sales; used vehicle inventory levels; residual values and depreciation expense; return on capital; operating cash flow; free cash flow; capital expenditures; leverage; our ability to make investments in and obtain our projected benefits from sales, lease pricing, marketing, IT, e-commerce and new product initiatives; costs of implementing our ERP system; the impact and adequacy of steps we have taken to address our cost structure and improve return on capital; our ability to implement our asset management strategy to right size the rental fleet; our ability to successfully implement our maintenance cost-savings initiatives; our ability to gain market acceptance of our new products and services; and OEM production levels. Our forward-looking statements also include our estimates of the impact of our changes to residual value estimates on earnings and depreciation expense. The expected impact of the change in residual value estimates is based on our current assessment of the residual values and useful lives of revenue-earning equipment based on multi-year trends and our outlook for the expected near-term used vehicle market. Our assessment is subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results related to vehicle residual values to materially differ from estimates include, but are not limited to, changes in supply and demand, competitor pricing, regulatory requirements, driver shortages, requirements and preferences, as well as changes in underlying assumption factors.

All of our forward-looking statements should be evaluated with consideration given to the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, among others, our ability to adapt to changing market conditions, lower than expected contractual sales, decreases in commercial rental demand or utilization or poor acceptance of rental pricing, worsening of market demand for or excess supply of used vehicles impacting current and/or estimated pricing and our anticipated proportion of retail versus wholesale sales, lack of customer demand for our services, higher than expected maintenance costs, lower than expected benefits from our cost-savings initiatives, lower than expected benefits from our sales, marketing and new product initiatives, higher than expected costs related to our ERP implementation, setbacks or uncertainty in the economic market or in our ability to grow and retain profitable customer accounts, implementation or enforcement of regulations, decreases in freight demand or volumes, poor operational execution including with respect to new accounts and product launches, our difficulty in obtaining adequate profit margins for our services, our inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences, competition from other service providers and new entrants, lower than anticipated customer retention levels, loss of key customers, driver and technician shortages resulting in higher procurement costs and turnover rates, higher than expected bad debt reserves or write-offs, changes in customers' business environments that will limit their ability to commit to long-term vehicle leases, a decrease in credit ratings, increased debt costs, adequacy of accounting estimates, higher than expected reserves and accruals particularly with respect to pension, taxes, depreciation, insurance and revenue, impact of changes in our residual value estimates and accounting policies, including our depreciation policy, the sudden or unusual changes in fuel prices, unanticipated currency exchange rate fluctuations, our ability to manage our cost structure, and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note Regarding Non-GAAP Financial Measures: This news release includes certain non-GAAP financial measures as defined under SEC rules. Refer to Appendix - Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure and why management believes that presentation of each measure provides useful information to investors. Additional information regarding non-GAAP financial measures as required by Regulation G and Item 10(e) of Regulation S-K can be found in our most recent Form 10-K, Form 10-Q and our Form 8-K filed as of the date of this release with the SEC, which are available at http://investors.ryder.com.

CONFERENCE CALL AND WEBCAST INFORMATION
Ryder’s earnings conference call and webcast is scheduled for 2/13/2020 at 11:00 a.m. ET. To join, click here.

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