Ryder System (R) Misses Q1 EPS by 60c

Ryder System (NYSE: R) reported Q1 EPS of ($1.38), $0.60 worse than the analyst estimate of ($0.78). Revenue for the quarter came in at $2.2 billion versus the consensus estimate of $2.11 billion.

COVID-19 Impacts to Date and Outlook

Ryder enhanced its solid liquidity position in April by executing a $400 million syndicated term loan, completing a $400 million public bond offering, and renewing its $300 million receivable-backed financing facility. The company's solid liquidity position as of April 28, 2020 includes approximately $1 billion in cash in the U.S., $565 million in available revolver borrowings, and $100 million in availability under its receivable-backed financing facility. The company is well positioned to support operations, fund $600 million of remaining 2020 debt maturities, and expects to continue paying its dividend.

Considered an essential business during the COVID-19 pandemic, Ryder continues to provide crucial supply chain and transportation services to its customers in the vast majority of its locations. The pandemic and measures taken to prevent its spread, however, negatively affected Ryder's first quarter pre-tax earnings by an estimated $70 million, primarily due to estimated impacts from additional accelerated depreciation of $27 million and valuation adjustments of $21 million resulting from lower expected used vehicle pricing. Additional COVID-19 impacts late in the quarter included decreased commercial rental demand and an increase in bad debt reserves, each of which impacted earnings by an estimated $8 million. Additionally, there was a negative impact of $6 million to earnings in supply chain due to the automotive industry shutdown.

The company now expects lower used vehicle pricing in the second half of 2020 due to lower demand versus the prior expectation of a modest increase. As a result, the company increased accelerated depreciation on vehicles expected to be sold through mid-2021. In addition, the value of used vehicles in inventory at quarter end was written down to reflect lower expected pricing.

Demand for commercial rental vehicles has decreased significantly due to a substantial reduction in business activity. Rental utilization percentage on power vehicles is estimated to be in the low-50s in April, compared to historical levels in the low-70s. Every percentage point change in utilization is estimated to impact monthly pre-tax earnings by approximately $1 million until the rental fleet size can be aligned with market demand.

SCS automotive volumes have declined significantly due to production shutdowns. Our automotive customers generally expect to resume production throughout May; however, the timing and pace of the ramp up are subject to change. Continued full production shutdowns in North America would impact SCS earnings by approximately $15 million to $20 million per month including fixed costs required to maintain production readiness.

ChoiceLease revenue has not been substantially impacted through April. However, Ryder has established additional bad debt reserves of $8 million, primarily in FMS, due to slower COVID-19 related payment activity with certain customers.

Assuming ongoing impacts from the pandemic, the company expects lower lease sales in 2020 which will result in significantly lower capital expenditures. Actions including the cancellation and deferral of lease and rental vehicle orders and the redeployment of rental equipment to fulfill lease contracts will further reduce capital spending. Capital expenditures are now expected to be between $1.0 billion to $1.4 billion for the full year, resulting in 2020 free cash flow above management's prior expectations and above the prior record of $600 million.

Ryder took significant actions in early April to reduce discretionary spending and overhead costs by a total of $20 million in the second quarter, including employee furloughs.

Due to the uncertainty relating to the magnitude and duration of COVID-19 crisis, Ryder has suspended providing earnings guidance.

For earnings history and earnings-related data on Ryder System (R) click here.

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