Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ryder System Inc (R, Financial) reported operating revenue of $2.6 billion in Q2 2024, up 10% from the prior year, primarily due to recent acquisitions.
- The company achieved a comparable EPS of $3.00, which, although down from $3.61 the previous year, exceeded internal forecasts.
- Ryder System Inc (R) increased its quarterly dividend by 14% and returned $207 million to shareholders through share repurchases and dividends year-to-date.
- The integration of recent acquisitions, Cardinal Logistics and Impact Fulfillment Services, is on track, contributing to growth and strengthening Ryder's market position.
- The company’s adjusted ROE for the trailing 12-month period was 16%, reflecting strong returns despite challenging market conditions.
Negative Points
- Comparable EPS from continuing operations decreased from $3.61 in the prior year to $3.00, reflecting weaker market conditions in used vehicle sales and rental.
- Rental utilization on the Powerfleet was 69%, down from 75% in the prior year, indicating weaker rental demand.
- Used vehicle sales market conditions continued to weaken, with used tractor proceeds declining 19% and used truck proceeds declining 27% year-over-year.
- The company’s inventory of used vehicles increased to 9,500 units, slightly above the targeted range, due to higher lease expirations.
- Economic uncertainty and extended freight downturn have caused some customers to delay decisions or downsize their fleets, impacting near-term contractual sales.
Q & A Highlights
Q: Would love to just start on the guidance and digging in a little bit more particularly at the high end. It seems like cycle recovery has pushed out to the right a little bit, but we'd just love to hear what you guys are seeing and what's underpinning that. It does seem like some of the early cycle data points that we tracked are seeing a little bit of light, so we'd just be curious your thoughts on that.
A: (Robert Sanchez, CEO) The higher end of the range continues to assume a gradual recovery in rental and used vehicles in the second half. The lower end of the forecast contemplates ongoing weak conditions. We have not seen an inflection in rental and used vehicles but maybe signs of stabilization. Seasonal uptick in rental, lease miles per unit increase, and stable used tractor pricing are indicators.
Q: It's interesting. You're talking about the positive changes you're seeing in customer behaviors in the environment. But when I look at capital spending, it's being taken down pretty aggressively across more and more companies. Do you view this more as a delayed reaction where the industry P&Ls have just been under pressure and people are now coming to grips with that in terms of their equipment orders?
A: (Robert Sanchez, CEO) We're coming off a hot period in terms of orders for new trucks. Most companies are probably re-evaluating how many they need right now. The need to order in order to get in line has slowed down. We aren't seeing a huge pick up in sales on our contractual businesses. Customers are delaying decisions due to economic uncertainty.
Q: Question on dedicated, at least what I was thinking especially with the acquisition and what have you, the margins seem to be tracking right in that high single-digit range, longer term target, maybe a little bit ahead of what I was thinking or where we were thinking. So curious if you could maybe talk to some of the drivers behind the performance.
A: (Robert Sanchez, CEO) We are very pleased with the results in dedicated. Earnings growth was primarily driven by the base business performing better. The power of long-term contracts in dedicated, supply chain, and lease is evident even in a difficult environment. These businesses are holding up the earnings of the company.
Q: Given there's some signs of stability but a little bit of uncertainty out there and some pulling back from the customers, what are you seeing in terms of competition and pricing trends across the different segments?
A: (Robert Sanchez, CEO) On the leasing side, there's decent pricing discipline. In dedicated, more vanilla freight type of freight is seeing pressure, but customized dedicated is less challenged. In supply chain, the challenge is getting customers to make decisions. Some aggressive pricing in multi-client e-commerce, but traditional business has decent pricing discipline.
Q: When I just look at the third quarter guide, it's up a good amount from Q2 in terms of earnings, probably a little bit better than normal seasonal. So it doesn't sound like that's reflective of used and rental getting much better in the third quarter.
A: (Robert Sanchez, CEO) It's core earnings getting better from Q2 to Q3. More of the seasonal uptick would be in the fourth quarter. The third quarter improvement is primarily due to the contractual business continuing to deliver.
Q: I think you showed the used inventories above the long-term target, and then I think the tractor price is now at the residual value range. Is it realistic that used is going to get better with inventory where it is, and do we need to do anything with residual assumptions?
A: (John Diez, CFO) Inventory levels are just above our target range. We expect inventory levels to start coming down through the end of the year. We are seeing stability in tractor classes and expect some recovery based on capacity demand imbalance. We should see used vehicle market conditions get better as we exit the year and go into 2025.
Q: I know you talked about pre-buy at the Analyst Day a month ago, but I guess we've had the Chevron ruling since then. Does that in any way change your views and how you think about timing, magnitude of a pre-buy in '25?
A: (Robert Sanchez, CEO) The pre-buy doesn't have a big short-term earnings impact on us. It provides an opportunity to win more business and a lift for used equipment for the years after the technology change. We expect the pre-buy to start in the second half of '25.
Q: I want to start on the dedicated market. You guys noted in the slides, I think a lot of the DTS growth from Cardinal. If we exclude the Cardinal, how is the rest of the business growing either on a revenue and an EBT basis?
A: (Robert Sanchez, CEO) Excluding Cardinal, dedicated is flattish on the growth side. Earnings are growing due to operational improvements. We are focused on integrating the Cardinal acquisition and delivering synergies for next year.
Q: Maybe just on the supply chain business. What are you guys seeing in the e-commerce omnichannel verticals and what customers are currently telling you about their volume outlook as you look to the back half of the year in peak season?
A: (Steve Sensing, President Supply Chain Solutions) The omnichannel business, specifically e-commerce and last mile, is kind of flattish year over year. Customers are projecting a slight uptick, more seasonal as we go into the peak period, but nothing significant at this point.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
