Ryder System, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Ryder provides fleet management, supply chain and dedicated transportation services. Comparisons below are against the corresponding 2022 periods unless noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $2.884 billion | $3.034 billion | $5.836 billion | $5.888 billion |
| Operating revenue (non-GAAP) | $2.326 billion | $2.307 billion | $4.672 billion | $4.523 billion |
| EBT | $44 million | $338 million | $245 million | $590 million |
| Comparable EBT (non-GAAP) | $237 million | $308 million | $416 million | $568 million |
| Net earnings (loss) | $(18) million | $239 million | $121 million | $415 million |
| Diluted EPS from continuing operations | $(0.39) | $4.72 | $2.60 | $8.05 |
| Comparable diluted EPS (non-GAAP) | $3.61 | $4.43 | $6.42 | $8.00 |
Q2 revenue fell 5%, while operating revenue increased 1%, reflecting growth in SCS and DTS partly offset by the FMS U.K. exit and lower pass-through fuel and subcontracted-transportation revenue. Q2 GAAP results included a $188 million noncash currency translation loss related to the completed U.K. exit; the filing reports its after-tax effect as $183 million. Q2 comparable EPS excludes specified items and is a non-GAAP measure.
Margins and segments: Q2 lease, maintenance and rental gross margin was $315 million (32% of revenue), versus $362 million (34%). Services gross margin was $271 million (15%), versus $254 million (14%); fuel-services gross margin was $4 million (3%), versus $8 million (4%). Q2 segment EBT was FMS $180 million (down 37%), SCS $76 million (up 23%) and DTS $33 million (up 43%). For the first half, segment EBT was FMS $362 million (down 32%), SCS $93 million (down 11%) and DTS $62 million (up 44%).
Cash flow and investment: First-half operating cash flow from continuing operations was $1.221 billion, compared with $1.103 billion. Capital expenditures paid were $1.652 billion, versus $1.195 billion; free cash flow, a non-GAAP measure, was $16 million, versus $551 million. Management attributed the decline in free cash flow primarily to increased capital spending and lower used-vehicle sale proceeds. Cash and cash equivalents were $218 million at June 30, 2023, versus $267 million at year-end 2022.
Debt and liquidity: Total debt was $6.525 billion, including $1.330 billion of short-term debt and current maturities and $5.195 billion long term. Debt-to-equity was 211%, compared with 216% at year-end. Ryder reported $754 million available under its revolving credit facility and $217 million available under its trade receivables financing program; its revolving-facility covenant ratio was 164% against a maximum of 300%. Q2 interest expense rose 29% to $72 million, primarily reflecting higher interest rates.
Material changes versus the prior period
- FMS results weakened as used-vehicle proceeds and commercial rental demand/utilization declined. North American used-vehicle prices were sharply lower year over year: Q2 tractor proceeds per unit fell 41% and truck proceeds fell 34%. Rental utilization was 75%, versus 85% a year earlier.
- SCS operating revenue rose 8% in Q2, but omnichannel retail revenue declined 6%; automotive, consumer packaged goods, and industrial and other revenue increased. DTS operating revenue rose 7%, with improved labor productivity and cost recovery supporting earnings.
- First-half capital expenditures increased substantially, principally for ChoiceLease vehicles. Debt increased from $6.352 billion at year-end 2022 to $6.525 billion.
- Ryder completed the shutdown and sale of its remaining FMS Europe operations by June 30, 2023. The exit generated $394 million in cash proceeds and $95 million of gains from the beginning of 2022 through the first half of 2023.
Outlook, risks and contingencies
- Management expects used-vehicle sales and rental market conditions to weaken further in the second half of 2023. It expects SCS and DTS revenue growth to moderate over the remainder of the year; the supplied filing text does not provide clear numerical full-year earnings or revenue guidance.
- Management cited continued outsourcing demand in warehousing and distribution, pricing initiatives, and expected benefits as ChoiceLease contracts renew at higher returns. It also noted softer freight conditions and slowed DTS contract sales activity.
- Risks include weaker freight and customer demand, declining rental utilization and used-vehicle prices, inflation and higher interest costs, labor shortages, vehicle and parts supply disruptions, fuel-price volatility, customer losses, and access to capital markets.
- A $30 million SCS asset impairment was recorded in Q1 after a customer’s credit deterioration and bankruptcy; the same customer had prompted a $20 million impairment in Q4 2022. Further changes in circumstances could affect the impairment estimate.
- The securities class action concerning historical vehicle depreciation and residual-value disclosures reached an agreement in principle to settle, subject to court approval. Ryder expects insurance to cover the settlement and considers it immaterial to its financial position and results. Related derivative cases remain stayed; management disputes those claims.
- Management said operating cash flows and available financing should meet foreseeable needs, while cautioning that disruption in unsecured debt or commercial paper markets could impair access to funding. Disclosure controls were concluded effective, and no material change in internal control was reported.
Important facts for investors to verify
- Track used-vehicle resale prices, rental utilization and FMS earnings as market conditions evolve.
- Assess whether SCS and DTS growth and profitability can continue as management expects growth to moderate and freight conditions soften.
- Review capital expenditure, free cash flow, debt maturities, borrowing costs and available liquidity; free cash flow is a company-defined non-GAAP measure.
- Confirm the final court-approved securities class-action settlement and monitor the stayed derivative cases.
- Reconcile GAAP results with Ryder’s comparable earnings and operating-revenue measures, which exclude selected items and are not substitutes for GAAP results.