Business context and reporting period
Ryder System, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. Its segments are Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS). Comparisons below are with the corresponding 2021 periods unless stated otherwise.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $3.035 billion | $2.459 billion | $8.923 billion | $7.063 billion |
| Operating revenue (non-GAAP) | $2.347 billion | $1.983 billion | $6.870 billion | $5.723 billion |
| EBT from continuing operations | $334.2 million | $183.2 million | $924.4 million | $457.0 million |
| Net earnings | $246.0 million | $138.1 million | $661.0 million | $338.0 million |
| Diluted EPS from continuing operations | $4.82 | $2.58 | $12.86 | $6.33 |
Revenue rose 23% in Q3 and 26% year to date; operating revenue rose 18% and 20%, respectively. Management’s non-GAAP comparable diluted EPS was $4.45 for Q3 and $12.44 for the nine months, versus $2.55 and $6.05 in 2021. Comparable measures exclude specified pension and other items and are not GAAP results.
Q3 gross margin was 34% for lease, maintenance and rental revenue (29% in 2021) and 15% for services (12%); fuel services remained approximately breakeven. Nine-month gross margin was 33% for lease, maintenance and rental (27%) and 14% for services (14%). SG&A was 12% of revenue in both comparative periods.
Q3 segment revenue and EBT were: FMS $1.582 billion and $265.3 million; SCS $1.207 billion and $64.0 million; DTS $454.3 million and $28.2 million. Segment EBT increased across all three segments. Q3 revenue growth was particularly strong in SCS, supported by acquisitions, new business, volume and pricing.
Cash flow, debt and liquidity
For the nine months, operating cash flow from continuing operations was $1.786 billion, versus $1.685 billion. Capital spending on property and revenue-earning equipment was $1.917 billion, versus $1.428 billion. Free cash flow, a company-defined non-GAAP measure, was $886.5 million, versus $829.0 million; it includes proceeds from equipment and property sales and is not simply operating cash flow less capital expenditures.
At September 30, 2022, cash and cash equivalents were $456.3 million, total debt was $6.334 billion, and shareholders’ equity was $3.011 billion. Debt-to-equity was 210%, down from 235% at year-end 2021. Current assets were $2.339 billion and current liabilities were $3.202 billion. Ryder reported $551 million available under its revolving credit facility and $174 million under its trade receivables financing program; its credit-facility debt-to-net-worth covenant ratio was 157% against a maximum of 300%. Cash was supported by $1.005 billion of debt proceeds and reduced by $1.511 billion of debt repayments and $300.3 million of share repurchases during the nine months.
Material changes, outlook and risks
- Profit growth reflected stronger used-vehicle gains, commercial rental performance, and a declining impact from depreciation tied to prior residual-value estimate changes. Used-vehicle sales net gains were $113.5 million in Q3 and $356.0 million year to date, including U.K. exit-related gains of $15 million and $43 million, respectively.
- Ryder acquired Whiplash, an omnichannel fulfillment and logistics provider, for approximately $483 million on January 1, 2022. Its purchase-price allocation remained preliminary; the company expected to finalize it by December 31, 2022.
- Ryder expects to complete its FMS U.K. business exit by mid-2023. Management noted that used-vehicle pricing remained strong but had declined sequentially and expected the historically strong sales environment to weaken during 2022. Vehicle-delivery delays may constrain fleet growth and used-vehicle sales volumes.
- Labor shortages and higher labor costs affected SCS and DTS; management said pricing and cost-recovery measures helped those segments return to target earnings levels in Q3. Inflation, higher fuel prices, rising interest rates, prolonged labor shortages, and vehicle and parts supply disruptions could pressure demand, costs and results.
- The filing provides no specific numerical earnings or revenue guidance. Management said operating cash flows and access to debt markets were expected to meet foreseeable needs, while warning that disruption in debt or commercial-paper markets could impair funding access.
- A securities class action concerning historical vehicle depreciation and residual-value estimates survived a motion to dismiss; discovery was scheduled through October 2023 and trial was scheduled to begin in June 2024. Related derivative actions were stayed. Ryder says it considers the claims without merit and intends to defend itself. It also says ordinary-course claims are not expected to materially affect the financial statements.
- The company reported no material change in market-risk exposures since year-end 2021, and management concluded disclosure controls were effective at quarter-end.
Most important facts for investors to verify
- How much earnings growth is sustainable after separating operating performance from unusually strong used-vehicle gains, U.K. asset-sale gains and other comparability items.
- Used-vehicle pricing, residual-value assumptions, depreciation expense and fleet availability as vehicle markets and OEM deliveries change.
- Whether SCS and DTS can retain pricing and recover labor and transportation costs, and how Whiplash integration and its final purchase accounting affect results.
- Cash generation relative to fleet investment, debt maturities, borrowing costs and the company’s liquidity facilities.
- Progress and costs of the U.K. exit, and developments in the residual-value securities litigation and related derivative cases.