Ryder System, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2016; comparisons are with the quarter and nine months ended September 30, 2015 unless stated otherwise. Ryder provides fleet leasing and rental, dedicated transportation, and supply-chain services. Financial statements are unaudited.
Financial performance
| Metric | Q3 2016 | Change vs. Q3 2015 | Nine months 2016 | Change vs. 2015 |
|---|---|---|---|---|
| Total revenue | $1.724 billion | +3% | $5.058 billion | +3% |
| Operating revenue (non-GAAP) | $1.468 billion | +3% | $4.324 billion | +5% |
| EBT from continuing operations | $131.7 million | -6% | $337.2 million | -6% |
| Net earnings | $84.8 million | -6% | $214.3 million | -6% |
| Diluted EPS from continuing operations | $1.59 | -6% | $4.02 | -7% |
- Q3 gross margins: lease and rental 31% (unchanged); services 18% (up from 17%); fuel services 3% (up from 1%). For the nine months, lease and rental margin was 30% (down from 31%); services 17% (unchanged); fuel services 3% (unchanged).
- Used-vehicle gains, net, fell to $1.9 million in Q3 from $25.0 million and to $33.0 million year to date from $82.2 million. Ryder cited lower tractor prices and higher fair-value write-downs.
- Operating cash flow from continuing operations was $1.185 billion for the nine months, versus $1.071 billion. Capital spending was $1.404 billion; cash paid for property and revenue-earning equipment was $1.511 billion. Free cash flow, a company-defined non-GAAP measure, was $72.0 million versus negative $643.8 million.
- Cash was $75.0 million at September 30. Total debt was $5.520 billion, versus $5.503 billion at year-end 2015; debt-to-equity was 263%, down from 277%. Current debt and short-term debt totaled $1.055 billion; long-term debt was $4.464 billion.
- Liquidity included $514 million available under a $1.2 billion revolving facility and a $175 million receivables program, with no amounts outstanding under the latter. The revolving-facility covenant requires debt to defined net worth of no more than 300%; the reported ratio was 206%.
- Quarterly dividends declared were $0.44 per share, up from $0.41 a year earlier. Ryder repurchased 379,896 shares for $25.7 million during the nine-month period.
Material changes and segment results
- FMS revenue was essentially flat in Q3 and up slightly year to date; FMS EBT declined 11% and 10%, respectively. Full-service lease growth was offset by lower commercial rental demand and weaker used-vehicle results. Commercial rental utilization for the first nine months fell 210 basis points to 73.9%.
- DTS revenue rose 15% in both periods; EBT increased 32% in Q3 and 39% year to date, supported by new business, volume and pricing.
- SCS revenue grew 8% in Q3 and 5% year to date; EBT rose 16% and 13%, respectively, primarily on new business, volume and pricing.
- Services revenue increased 9% in Q3 and 8% year to date, while fuel-services revenue fell 8% and 19%, largely reflecting lower fuel prices passed through to customers.
Outlook, commentary and risks
- Management expected full-year 2016 capital expenditures of approximately $2 billion, funded primarily by internally generated cash and additional debt financing. It said operating cash flow and financing access should meet foreseeable needs, while cautioning that disruption in debt or commercial-paper markets could limit funding access.
- Management expected full-service lease revenue comparisons to remain favorable through year-end, but commercial rental comparisons to remain unfavorable. DTS and SCS comparisons were expected to stay favorable, though at lower growth rates. Non-revenue-earning vehicle levels were expected to remain around then-current levels through year-end.
- Ryder reported a $7.7 million one-time, non-cash pension charge in Q2 related to pension benefit improvements made in 2009 that had not been fully reflected in the projected benefit obligation. It contributed $65.3 million to pension plans through September and expected approximately $80 million in total 2016 contributions.
- Key risks include weaker freight and commercial-rental demand, lower used-vehicle prices or residual values, customer volume and retention changes, competition and pricing pressure, fuel-price volatility, labor availability and costs, pension funding, interest rates, currency movements, and access to capital markets. Ryder reported ordinary-course claims and proceedings; it identified approximately $4 million in open Brazilian tax assessments, penalties and interest and said it believed its position would likely be sustained.
- The company reported effective disclosure controls and no material changes in internal control over financial reporting during the first nine months of 2016.
Important facts for investors to verify
- Whether tractor resale prices, used-vehicle gains and fair-value write-downs stabilize, and how they affect earnings and fleet residual values.
- Whether commercial-rental demand and utilization recover, and whether lease-fleet growth and pricing offset rental weakness.
- How the approximately $2 billion capital-spending plan affects debt, free cash flow and liquidity, including upcoming debt maturities and covenant headroom.
- Whether DTS and SCS growth continues at the lower rates management anticipated, and whether reported non-GAAP measures reconcile consistently to GAAP results.
- Developments in pension funding and assumptions, foreign-exchange exposure, and the Brazilian tax proceedings.