Ryder System, Inc. — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; this annual filing reports full-year results, not standalone fourth-quarter results. Ryder provides fleet management, supply-chain logistics and dedicated transportation services through FMS, SCS and DTS.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Total revenue | $8.42 billion | $8.93 billion |
| Operating revenue (non-GAAP) | $7.02 billion | $7.19 billion |
| Continuing-operations EBT | Loss of $130 million | Loss of $42 million |
| Net loss | $122 million; diluted EPS $(2.34) | $24 million; diluted EPS $(0.47) |
| Comparable EBT (non-GAAP) | Loss of $29 million | Income of $56 million |
| Comparable EBITDA (non-GAAP) | $2.26 billion | $2.24 billion |
| Operating cash flow | $2.18 billion | $2.14 billion |
| Free cash flow (non-GAAP) | $1.59 billion | Use of $1.08 billion |
| Capital expenditures | $1.07 billion | $3.62 billion |
| Total debt | $6.61 billion | $7.92 billion |
Operating revenue excludes fuel, subcontracted transportation and ChoiceLease liability-insurance revenue. The filing reports gross margins of 16% for lease, maintenance and rental revenue (18% in 2019) and 15% for services (also 15% in 2019). Segment EBT was FMS loss of $142 million, SCS income of $160 million and DTS income of $73 million.
At year-end, cash was $151 million; $1.123 billion was available under the revolving credit facility and $300 million under the trade-receivables program. Debt-to-equity was 293%, down from 320%. The revolving-facility covenant ratio was 195%, against a maximum of 300%. The balance sheet reported current assets of $1.60 billion and current liabilities of $2.05 billion.
Material changes and drivers
- Total revenue declined 6%; operating revenue declined 2%. Lower fuel revenue and pandemic-related weakness in commercial rental and automotive logistics were key factors.
- FMS revenue fell 7% to $5.17 billion and segment EBT loss widened to $142 million, primarily reflecting residual-value-related depreciation and weaker rental demand. Rental utilization fell to 67.4% from 75.0%; commercial rental revenue declined 17%, while ChoiceLease revenue rose 3%.
- SCS revenue was nearly flat at $2.54 billion; EBT rose 10% to $160 million, supported by pricing, new business and operating performance. Automotive customer activity weakened during shutdowns, while consumer packaged goods and retail revenue increased.
- DTS revenue declined 13% to $1.23 billion and EBT declined 9% to $73 million, mainly due to lower sales and subcontracted transportation revenue.
- Used-vehicle residual-value changes drove substantial additional depreciation: the filing identifies $491 million of accelerated and policy depreciation in 2020, including effects of prior estimate changes. The first-half 2020 estimate revisions reduced net earnings by $146 million, or $2.78 per diluted share. Net used-vehicle sales results were a $0.4 million gain, compared with a $59 million loss in 2019.
- Debt declined 17%, reflecting lower capital spending and debt repayments. Interest expense nevertheless rose 8% to $261 million, including a $9 million charge for early redemption of notes.
Outlook, risks and unusual items
- For 2021, management expected operating cash flow of approximately $2.2 billion, capital expenditures of $2.0–$2.3 billion and free cash flow of $400–$700 million.
- Management expected high-single-digit revenue growth in SCS and DTS. The filing does not provide a clear consolidated earnings forecast in the supplied text.
- Management said residual-value-related depreciation effects were expected to diminish, but disclosed that a hypothetical additional 10% reduction in policy residual values would increase depreciation over the remaining vehicle lives by approximately $280 million.
- COVID-19 impacts remained uncertain. Risks included further demand disruption, customer credit deterioration, rental utilization and used-vehicle pricing, and the early-2021 semiconductor shortage’s possible effects on automotive customers and vehicle supply.
- Other significant exposures include customer concentration in SCS and DTS, driver and technician shortages, competition, cybersecurity and ERP implementation, insurance and self-insurance claims, pension funding, regulation, and access to capital markets. The company reported $6.6 billion of debt.
- Unusual items included $110.6 million of restructuring and other charges, including $34.3 million of ERP implementation costs; a $28 million frontline employee recognition and retention bonus; a $9 million early debt-redemption charge; and an $8 million accrual in discontinued operations related primarily to Brazil transportation-payment cases.
- Ryder disclosed a securities class action and related shareholder derivative litigation alleging misstatements concerning vehicle depreciation and residual values. The company said it considered the claims without merit and intended to defend them. Management said ordinary-course claims, in aggregate, were not expected to materially affect consolidated financial condition or liquidity.
Key facts for investors to verify
- Reconcile GAAP losses with management’s comparable earnings and EBITDA measures, including excluded items and tax effects.
- Track used-vehicle pricing, residual-value assumptions and future depreciation; these estimates were a critical audit matter and materially affected earnings.
- Assess whether rental utilization, ChoiceLease growth and FMS profitability recover as management anticipated.
- Monitor SCS and DTS growth, customer concentration, automotive exposure and semiconductor-related disruption.
- Review 2021 capital spending and free-cash-flow delivery against the forecast, alongside debt maturities and revolving-credit covenant headroom.
- Follow the securities and derivative litigation, insurance reserves, pension funding and other contingencies for changes in expected exposure.
Audit note: PwC issued unqualified opinions on the consolidated financial statements and internal control over financial reporting as of December 31, 2020. The auditor identified residual-value estimates and the FMS North America goodwill assessment as critical audit matters; no goodwill impairment was recorded in 2020.