Ryder System (R) Misses Q4 EPS by 4c, Revenues Beat; Offers FY20 EPS Guidance Below Consensus

Ryder System (NYSE: R) reported Q4 EPS of ($0.01), $0.04 worse than the analyst estimate of $0.03. Revenue for the quarter came in at $2.27 billion versus the consensus estimate of $2.26 billion.

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)

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 RyderTM 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."

GUIDANCE:

Ryder System sees FY2020 EPS of $1.10-$1.50, versus the consensus of $2.62.

• 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

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 RyderTM and our e-commerce fulfillment solution. We're encouraged by the progress we're making with RyderShareTM, 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."

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

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