Ryder System, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Ryder provides fleet leasing, rental and maintenance, supply-chain logistics, and dedicated transportation services. Comparisons below are with Q1 2022 unless stated otherwise. Amounts are in U.S. dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $2.952 billion | $2.854 billion | +3% |
| Operating revenue (non-GAAP) | $2.346 billion | $2.216 billion | +6% |
| EBT from continuing operations | $201 million | $252 million | −20% |
| Comparable EBT (non-GAAP) | $179 million | $260 million | −31% |
| Net earnings | $139 million | $176 million | −21% |
| Diluted EPS from continuing operations | $2.95 | $3.35 | −12% |
| Comparable diluted EPS (non-GAAP) | $2.81 | $3.59 | −22% |
| Operating cash flow from continuing operations | $478 million | $466 million | +$12 million |
| Free cash flow (non-GAAP) | $101 million | $108 million | −$7 million |
Revenue growth was primarily driven by SCS. Lower used-vehicle sale gains, weaker commercial rental results, and a $30 million SCS impairment contributed to lower earnings. Higher interest expense also weighed on results. Reported effective tax rate was 30.5%, compared with 30.2%; the comparable rate was 25.5%, versus 27.6%.
Segments and operating margins
| Segment | Revenue | Revenue change | EBT | EBT margin on total revenue |
|---|---|---|---|---|
| Fleet Management Solutions (FMS) | $1.503 billion | −2% | $182 million (−27%) | 12.1%, down from 16.3% |
| Supply Chain Solutions (SCS) | $1.201 billion | +10% | $17 million (−60%) | 1.4%, down from 3.9% |
| Dedicated Transportation Solutions (DTS) | $454 million | +7% | $29 million (+45%) | 6.4%, up from 4.7% |
Operating revenue, which excludes fuel and subcontracted transportation, grew 19% in SCS and 9% in DTS, while FMS operating revenue declined 2%. Consolidated services gross margin was $214 million, or 12%, versus $220 million, or 13%. Lease, maintenance and rental gross margin was $305 million, or 31%, versus $326 million, or 32%.
Cash, debt and liquidity
- Cash and cash equivalents were $253 million at March 31, 2023, down from $267 million at December 31, 2022.
- Total debt was $6.340 billion; $1.674 billion was classified as short-term/current and $4.666 billion as long-term. Debt was $6.352 billion at year-end 2022.
- Available capacity under the revolving credit facility was $943 million; only $1 million was available under the trade receivables financing program. The credit-facility leverage covenant ratio was 156%, against a maximum of 300%.
- Debt-to-equity was 211%, compared with 216% at December 31, 2022. Interest expense rose 25% to $65 million; the reported effective interest rate increased to 4.1% from 3.1%.
- Cash used in investing was $377 million, versus $783 million, largely because Q1 2022 included the Whiplash acquisition. Cash capital expenditures were $641 million; gross capital expenditures were $802 million, primarily reflecting greater planned ChoiceLease investment.
- Q1 financing included $500 million of new medium-term notes bearing 5.65% interest and maturing in 2028. Ryder paid $35 million in common dividends and repurchased $45 million of shares.
Outlook, risks and notable items
- Management said used-vehicle and rental markets continued to normalize and expected both to weaken further in 2023. North American used-truck prices were down 16% and tractor prices down 35% year over year; rental power-fleet utilization was 75%, versus 82%.
- Management cited continued logistics and transportation demand, strong SCS outsourcing trends, and pricing and cost-recovery benefits. It expected moderation in DTS contract sales activity to continue through the rest of 2023; no specific full-year earnings guidance is provided in the supplied filing text.
- SCS recorded a $30 million impairment on specialized warehouse sortation and conveyor equipment after a customer’s credit deterioration and April 2023 bankruptcy. Ryder had recorded a $20 million impairment related to the customer in Q4 2022; management said further estimate changes could affect the loss.
- Ryder expected to complete its FMS U.K. operational shutdown and remaining vehicle/property sales by mid-2023. It anticipated an approximately $180 million, or $3.75-per-share, foreign-currency translation loss on liquidation; management said this would not affect consolidated financial position or cash flows.
- Other risks highlighted include weaker freight demand and omnichannel retail trends, lower used-vehicle prices and rental utilization, inflation and fuel-price changes, higher interest rates, labor shortages, vehicle/parts supply constraints, customer credit deterioration, and access to capital markets.
- On April 18, 2023, Ryder and plaintiffs reached an agreement in principle to settle the securities class action, subject to final documentation and court approval. Ryder expected insurance to cover the settlement and considered it immaterial to financial position and results. Derivative cases remained stayed, and Ryder said it intended to defend them.
- After quarter-end, the revolving credit facility was amended, including replacing LIBOR with Term SOFR; the trade receivables program was extended to April 2024. The filing reports no material change in market-risk exposures and says disclosure controls were effective.
Key facts for investors to verify
- Whether used-vehicle prices and rental utilization weaken further, and the resulting effect on FMS earnings and vehicle residual values.
- The final impairment exposure and recoverability of equipment tied to the bankrupt SCS customer.
- Progress and costs of the FMS U.K. exit, including timing and recognition of the anticipated translation loss.
- Cash generation after fleet investment, upcoming debt maturities, borrowing costs, and continued covenant and funding capacity.
- Final terms, insurance coverage, and court approval of the securities-litigation settlement.
Comparable earnings, operating revenue, free cash flow, and other measures labeled non-GAAP are company-defined measures and should be considered alongside, not instead of, GAAP results.