Reuters Events | Supply Chain & Logistics Business Intelligence

Q2 Comparable EPS from Continuing Operations Up 15% to $1.25 Q2 EPS from Continuing Operations Up 31% to $1.19 Q2 Operating Revenue Grows 4%; Total Revenue Up 3% Full-Year 2013 Comparable EPS Forecast Narrowed to $4.75 to $4.85

Ryder System, Inc. (NYSE: R), a leader in transportation and supply chain management solutions, today reported earnings per diluted share from continuing operations for the three-month period ended June 30, 2013 were $1.19, compared with $0.91 in the year-earlier period. Earnings from continuing operations were $62.6 million, compared with $46.8 million in the year-earlier period. Earnings per diluted share and earnings from continuing operations in the second quarter of 2013 included non-operating pension costs of $0.06 or $2.9 million. Earnings per diluted share and earnings from continuing operations for the year-earlier period included expense of $0.18 or $9.2 million, respectively, related to non-operating pension costs and restructuring charges. Excluding these items in both periods, comparable earnings per diluted share from continuing operations for the second quarter of 2013 were $1.25, up 15% from $1.09 in the same period of 2012. Excluding these items, comparable earnings from continuing operations were $65.5 million in the second quarter, up 17% from $56.0 million in the year-earlier period. The increase in comparable earnings reflects improved performance in both business segments, Fleet Management Solutions (FMS) and Supply Chain Solutions (SCS).

“Based on these factors, we are narrowing our comparable full-year 2013 earnings forecast from a range of $4.70 to $4.85 per share, to a new range of $4.75 to $4.85 per share. We have also established a third quarter comparable earnings forecast of $1.41 to $1.46 per share.”

Total revenue for the second quarter of 2013 was $1.60 billion, up 3% from $1.56 billion in the same period last year. Operating revenue (revenue excluding FMS fuel and all subcontracted transportation), was $1.31 billion, up 4% compared with $1.27 billion in the year-earlier period, reflecting new business in SCS, as well as full service lease growth. FMS total revenue increased 2% due to higher operating revenue, partially offset by lower fuel services revenue. FMS operating revenue increased 3% due primarily to higher full service lease revenue. SCS total revenue increased 5%, driven by higher operating revenue, partially offset by lower subcontracted transportation revenue. SCS operating revenue increased 6% due primarily to new business, especially in dedicated services.

Commenting on the Company’s second quarter 2013 performance, Ryder Chairman and CEO Robert Sanchez said, “We delivered strong year-over-year results in the quarter, despite continuing uncertain economic conditions. The improvement was driven by higher performance in our lease, commercial rental and supply chain offerings. Strong performance in our full service lease product line continued to reflect the vehicle replacement cycle that is currently underway with customers, as well as the benefit of improved residual values. We continued to see solid demand for our commercial rental product in the U.S., partially offset by lower rental demand in the U.K. We also made progress on our maintenance initiatives, although we have not realized all of the anticipated benefits. Our used vehicle sales product line continued to perform in line with expectations, with historically strong pricing levels. In Supply Chain Solutions, we began to see growth from the strong sales performance that began in 2012, supported by favorable outsourcing trends, especially within our dedicated services offering.”

Second Quarter Business Segment Operating Results

Fleet Management Solutions (FMS)

In the FMS business segment, total revenue in the second quarter of 2013 was $1.12 billion, up 2% compared with the year-earlier period. Fuel services revenue in the second quarter of 2013 decreased slightly compared with the same period in 2012. Operating revenue (revenue excluding fuel) in the second quarter of 2013 was $852.5 million, up 3% compared with the year-earlier period. Full service lease revenue increased 4% in the second quarter of 2013 due primarily to higher prices on replacement vehicles. The number of full service lease units declined 1% from the year-earlier period, reflecting the anticipated non-renewal of certain low-margin trailer units in the U.K., the impact of economic uncertainty, and more efficient redeployment of off-lease vehicles. Commercial rental revenue decreased 1% reflecting lower demand in the U.K., partially offset by increased global pricing.

FMS earnings before tax were $88.7 million in the second quarter of 2013, up 16% compared with $76.7 million in the same period of 2012. Earnings increased due to better full service lease results and depreciation benefits associated with increased residual values. Full service lease results benefited from higher per-vehicle pricing reflecting new engine technology. Commercial rental performance improved as a result of higher pricing and improved utilization on a smaller average fleet, partially offset by lower performance in the U.K. Rental power fleet utilization was 80.5% for the second quarter of 2013, up from 75% in the year-earlier period. Used vehicle sales results improved modestly with stable pricing. FMS earnings before tax as a percentage of operating revenue were 10.4% in the second quarter of 2013, up 120 basis points from 9.2% in the same quarter a year ago.

Supply Chain Solutions (SCS)

In the SCS business segment, second quarter 2013 total revenue was $597.2 million, up 5%, as higher operating revenue offset lower subcontracted transportation. Operating revenue (revenue excluding subcontracted transportation) was $514.8 million, an increase of 6% from the prior year. SCS operating revenue grew as a result of new business sales, primarily in dedicated services.

SCS earnings before tax of $32.7 million increased 8% in the second quarter of 2013 compared with $30.4 million in 2012. Earnings benefited from new business, offset, in part, by higher commissions on new sales activity. The earnings improvement in the current quarter also reflects unusually high medical benefit costs in the prior year, largely offset by higher self-insurance costs in the current period. SCS earnings before tax as a percentage of operating revenue were 6.3% in both periods.

Corporate Financial Information

Central Support Services

Central Support Services (CSS) are overhead costs incurred to support all business segments and product lines. Most CSS costs are allocated to the various business segments. In the second quarter of 2013, CSS costs were $52.1 million, up from $48.7 million in the year-earlier period, primarily driven by planned higher investments in information technology and compensation-related expenses.

Items Excluded from Comparable Earnings

Non-operating components of pension costs are excluded from both comparable earnings and segment earnings before tax in order to more accurately reflect the operating performance of the business. Non-operating pension costs totaled $5.0 million ($2.9 million after tax) or $0.06 per diluted share in the second quarter of 2013, down from $7.7 million ($4.7 million after tax) or $0.09 per diluted share in the year-earlier period. This decrease primarily reflects the benefit of higher pension asset returns in 2012, as well as contributions, partially offset by a lower discount rate.

Second quarter results in the year-earlier period included pre-tax restructuring charges of $7.1 million ($4.5 million after tax), or $0.09 per diluted share related to workforce reductions associated with cost reduction initiatives implemented at the end of the second quarter of 2012.

Income Taxes

The Company’s effective income tax rate from continuing operations for the second quarter of 2013 was 35.7% of earnings before tax compared with 36.6% in the year-earlier period. The decline in the effective income tax rate was due to a higher proportionate amount of 2013 earnings in lower tax rate jurisdictions, as well as the impact of a prior-year tax law change.

Capital Expenditures

Capital expenditures from continuing operations were $989 million for the second quarter of 2013, down from $1.32 billion in the same period of 2012. Net capital expenditures (including proceeds from the sale of assets) from continuing operations were $760 million, down from $988 million in the same period of 2012. The decrease in capital expenditures primarily reflects lower planned investments in the commercial rental fleet.

Cash Flow

Operating cash flow from continuing operations through June 30, 2013 was $564 million, up from $472 million in the same period of 2012, due to lower working capital needs and higher earnings. Total cash generated (including proceeds from used vehicle sales) from continuing operations through June 30, 2013 was $841 million, compared with $834 million in the same period of 2012, as improved operating cash flow was offset by the impact of a sale leaseback transaction in the prior year. Free cash flow from continuing operations through June 30, 2013 improved to negative $107 million, compared with negative $370 million for the same period of 2012. The improvement was due primarily to higher cash flows from operations and lower cash payments for commercial rental capital spending.

Leverage

Balance sheet debt as of June 30, 2013 increased by $94 million compared with year-end 2012 resulting from negative free cash flow. The leverage ratio for balance sheet debt as of June 30, 2013 was 253%, compared with 260% at year-end 2012. Total obligations to equity as of June 30, 2013 were 262%, compared with 270% at year-end 2012. The Company maintains a long-term target range for total obligations to equity that reflects Ryder’s focus on solid investment grade credit ratings and broad access to capital markets. In line with these long-term objectives, the Company has marginally revised its target range from 250% to 300% to a new range of 225% to 275%.

2013 Earnings Forecast

Commenting on the Company’s outlook, Mr. Sanchez said, “We continued to deliver increased revenue and earnings in an uncertain economic environment during the second quarter. Looking ahead, we expect many of the same trends that drove second quarter performance to continue into the second half of the year. Our full service lease product should remain the driver of overall earnings growth in 2013. Lease revenue is expected to grow largely due to higher prices on replacement vehicles. Although the lease fleet size declined somewhat more than expected in the second quarter, the fleet size should remain relatively unchanged from current levels in the second half. Our fleet outlook is driven by positive recent sales activity in the U.S. offset by additional non-renewal of low margin trailers in the U.K. We anticipate commercial rental will continue to perform above our original expectations, driven by a better-than-anticipated demand environment in the U.S., with some continuing offset from soft economic conditions in the U.K. Additionally, we’re pleased by the positive customer response from the early stages of new product initiatives including on-demand maintenance and our natural gas vehicle offering. We also anticipate further maintenance cost benefits from the lease vehicle replacement cycle and our continued progress on initiatives. In used vehicle sales, we expect pricing to remain stable. In Supply Chain Solutions, we’re forecasting continued revenue growth and solid earnings for the balance of the year. Improved operating performance will be partially offset by a negative impact to earnings per share from a higher share count and a higher tax rate compared with our original plan for the year.

“Based on these factors, we are narrowing our comparable full-year 2013 earnings forecast from a range of $4.70 to $4.85 per share, to a new range of $4.75 to $4.85 per share. We have also established a third quarter comparable earnings forecast of $1.41 to $1.46 per share.”

Supplemental Company Information

Year-to-Date Operating Results

Total revenue for the six months ended June 30, 2013 was $3.17 billion, up 2% from $3.10 billion in the same period of 2012. Operating revenue (revenue excluding FMS fuel and all subcontracted transportation) for the first six months of 2013 was $2.58 billion, up 3% from $2.50 billion in the first six months of 2012. Ryder’s 2013 year-to-date earnings from continuing operations were $103.4 million, up 27%, compared with $81.6 million in the year-earlier period. Earnings per diluted share from continuing operations were $1.98 for the first six months of 2013 compared with $1.59 for the same period of 2012. Comparable year-to-date earnings from continuing operations were up 17% to $107.5 million, and comparable earnings per diluted share from continuing operations were up 16% to $2.06. Year-to-date net earnings including discontinued operations were $102.1 million, compared with $81.0 million in the year-earlier period. Net earnings per diluted share were $1.96 for the first six months of 2013, compared with $1.58 for the same period of 2012.

Business Description

Ryder System, Inc. is a FORTUNE 500® commercial transportation, logistics and supply chain management solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the Standard & Poor’s 500 Index. The Company’s financial performance is reported in the following two, inter-related business segments:

• Fleet Management Solutions – The FMS business segment combines several capabilities into a comprehensive package that provides one-stop outsourcing of the acquisition, financing, maintenance, management, and disposal of vehicles. Ryder’s commercial rental service offers customers a method to expand their fleets in order to address short-term capacity needs.
• Supply Chain Solutions – The SCS business segment offers a broad range of innovative logistics management services that are designed to optimize a customer’s supply chain and address key customer business requirements. The segment also includes all activity related to the Company’s dedicated solution (formerly dedicated contract carriage). These solutions involve strategically designed processes that direct the movement of materials and related information from the acquisition of raw materials to the delivery of finished products to the end user.

Notations

Earnings Before Tax (EBT): Ryder’s primary measurement of business segment financial performance, earnings before tax (EBT), allocates Central Support Services to each business segment and excludes restructuring and other items, as well as non-operating pension costs.

Capital Expenditures: In Ryder’s business, capital expenditures are generally used to purchase revenue earning equipment (trucks, tractors, and trailers) primarily to support the full service lease product line and secondarily to support the commercial rental product line within Ryder’s FMS business segment. The level of capital required to support the full service lease product line varies directly with customer contract signings for replacement vehicles and growth. These contracts are long-term agreements that result in ongoing revenues and cash flows to Ryder, typically over a three- to ten-year term. The commercial rental product line utilizes capital for the purchase of vehicles to replenish and expand the Company’s fleet available for shorter-term use by contractual or occasional customers.