RYDER SYSTEM INC quarterly report, Q2 FY2021

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Ryder System, Inc. — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Ryder provides fleet leasing, rental and maintenance, supply-chain logistics, and dedicated transportation services through FMS, SCS, and DTS.

Financial performance

  • Revenue: Q2 revenue was $2.382 billion, up 26%; first-half revenue was $4.604 billion, up 13%. Operating revenue, a company-defined non-GAAP measure excluding fuel, subcontracted transportation, and specified insurance revenue, rose 18% in Q2 and 10% for the first half.
  • Profit: Q2 continuing-operations earnings before tax (EBT) were $203.6 million versus a $94.8 million loss; net earnings were $149.1 million versus a $74.1 million loss. Diluted EPS was $2.77 versus a $1.42 loss. First-half net earnings were $199.9 million versus a $183.7 million loss; diluted EPS was $3.73 versus a $3.52 loss.
  • Comparable results: Non-GAAP comparable EBT was $175.6 million in Q2 and $254.2 million for the first half, compared with losses of $64.0 million and $154.9 million, respectively. Comparable diluted EPS was $2.40 and $3.49, versus losses of $0.95 and $2.33.
  • Margins: Lease, maintenance and rental gross margin was 28% in Q2 versus 11%; services gross margin was 14% versus 16%. Q2 segment EBT was $158.5 million for FMS (versus a loss), $41.0 million for SCS (up 11%), and $13.2 million for DTS (down 38%).
  • Cash flow and investment: First-half operating cash flow was $1.131 billion versus $1.099 billion. Free cash flow, a non-GAAP measure, was $602 million versus $612 million. Gross capital expenditures rose 61% to $963 million, mainly reflecting rental-fleet investment.
  • Debt and liquidity: Total debt was $6.236 billion at June 30, down 6% from year-end 2020; cash was $268 million. The debt-to-equity ratio was 258%, down from 293%. Ryder reported $1.319 billion available under its revolving credit facility and $300 million under its trade-receivables program; its covenant ratio was 177% against a 300% maximum.
  • Shareholder returns: First-half dividends paid were $60.8 million and share repurchases totaled $49.0 million. In July, the board declared a quarterly dividend of $0.58 per share, up from $0.56.

Material changes versus 2020

  • The year-over-year earnings turnaround reflected recovery from COVID-19 disruption, lower effects from prior vehicle residual-value depreciation changes, stronger used-vehicle sales, and improved rental performance. Q2 used-vehicle sales produced a net gain of $51.6 million versus a $9.5 million loss; first-half net gains were $80.5 million versus a $30.2 million loss.
  • FMS revenue increased 18% in Q2, including 58% growth in commercial rental revenue; rental power-fleet utilization increased to 79.6% from 55.9%. SCS revenue grew 49%, with automotive activity recovering from prior-year shutdowns. DTS revenue grew 21%, but segment EBT declined 38%.
  • Services gross margin percentage declined as labor and subcontracted transportation costs rose. Management cited a tight driver labor market, higher insurance and medical costs, and strategic investments as pressures.
  • Interest expense declined 20% in Q2 and 16% in the first half, primarily due to lower average debt. First-half cash flow from operations was broadly stable, while free cash flow edged lower as capital spending increased.

Outlook, commentary, risks, and unusual items

  • Management reported positive business momentum and said operating cash flows and access to debt financing should meet foreseeable needs, while cautioning that capital-market disruption could restrict financing access. The filing does not provide a clear consolidated earnings or revenue guidance range.
  • Management’s adjusted ROE was 12.2% for the twelve months ended June 30, 2021; the stated interim target is 11% and long-term, through-cycle target is 15%.
  • A Q2 fleet review changed residual-value estimates for certain tractors and useful lives for certain equipment classes, affecting about 15% of the fleet. The changes are expected to increase 2021 depreciation by $18 million, approximately 1% of estimated annual depreciation; Q2 impact was not material.
  • Q2 results included $35.3 million of gains on property sales, primarily U.K. FMS properties, and strong used-vehicle gains. These items materially affect comparisons; company-defined comparable measures exclude certain specified items.
  • Risks include COVID-19 effects, semiconductor-related customer production constraints and delayed vehicle deliveries, driver and technician shortages, labor and insurance cost inflation, used-vehicle prices and residual-value estimates, rental demand, customer volumes, fuel and interest-rate movements, and access to financing.
  • Ryder is defending a securities class action alleging misstatements concerning vehicle depreciation policy and residual-value estimates, along with related derivative suits. The court had reserved decision on the motion to dismiss; derivative cases were stayed. The company said it considers the claims without merit. Management stated ordinary-course claims are not expected to have a material financial-statement effect.
  • The financial ERP module went live in April 2021, replacing existing core financial systems; the implementation resulted in changes to internal controls. Management concluded disclosure controls were effective at quarter-end. No material changes in risk factors were reported.

Important facts for investors to verify

  • How much of the earnings rebound and used-vehicle gains is sustainable, and how much reflects unusual market pricing, prior-year COVID-19 comparisons, or property-sale gains?
  • Whether residual-value assumptions, depreciation levels, and used-vehicle prices remain appropriate if truck and tractor markets weaken.
  • Whether driver, labor, insurance, and subcontracted transportation cost pressures continue to weigh on SCS and DTS margins.
  • How semiconductor shortages affect automotive customer volumes and the timing and availability of new fleet vehicles.
  • Debt maturities, refinancing and commercial-paper access, covenant headroom, and the effect of elevated fleet capital spending on cash generation.
  • Developments in the residual-value securities litigation and related derivative claims, and any resulting financial or reputational exposure.