Ryder System, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Comparisons are with the corresponding 2021 periods unless noted. Ryder provides fleet leasing, rental and maintenance (FMS), supply chain services (SCS), and dedicated transportation (DTS).
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $3.034B | $2.382B | $5.888B | $4.604B |
| Operating revenue (non-GAAP) | $2.307B | $1.923B | $4.523B | $3.740B |
| Continuing-operations pretax earnings | $338M | $204M | $590M | $274M |
| Continuing-operations earnings | $240M | $150M | $416M | $201M |
| Diluted continuing-operations EPS | $4.72 | $2.78 | $8.05 | $3.75 |
| Comparable diluted EPS (non-GAAP) | $4.43 | $2.40 | $8.00 | $3.49 |
Revenue rose 27% in Q2 and 28% year to date; operating revenue increased 20% and 21%, respectively. Q2 gross margin was 34% for lease, maintenance and rental revenue (29% prior year) and 14% for services (15% prior year). Fuel services margin was 2%. GAAP continuing-operations pretax margin was approximately 11.2% in Q2, compared with 8.5% a year earlier. Comparable measures are non-GAAP and should be considered alongside, not instead of, GAAP results.
Segment results, Q2: FMS revenue was $1.621B (+15%) and pretax earnings $285M (+80%); SCS revenue was $1.174B (+51%) and pretax earnings $53M (+28%); DTS revenue was $450M (+27%) and pretax earnings $23M (+76%). SCS and DTS revenue growth included acquisitions, new business, higher volumes and pricing.
Cash flow, debt and liquidity
- For the six months, cash from continuing operating activities was $1.103B, versus $1.131B. Capital spending on property and revenue-earning equipment was $1.195B, and free cash flow (non-GAAP) was $551M, down from $602M.
- Cash and cash equivalents were $448M at June 30, 2022, versus $234M at December 31, 2021. Total debt was $6.593B, compared with $6.580B at year-end; long-term debt was $5.179B. Debt-to-equity was 233%, versus 235%.
- Ryder reported $654M available under its revolving credit facility and $250M under its trade receivables financing program. The credit-facility covenant ratio was 172%, against a maximum of 300%. Management said operating cash flow and access to debt markets should meet foreseeable funding needs, while noting market access could be impaired.
- Six-month financing activity included $300M of common-stock repurchases under a $300M accelerated repurchase program. A quarterly dividend of $0.62 per share was declared in July, up 7% from the prior rate.
Material changes and management commentary
- FMS benefited from strong used-vehicle prices, rental demand and pricing, improved lease pricing, and lower year-over-year effects from earlier residual-value estimate changes. North American used-vehicle proceeds per unit rose substantially: tractors +91% and trucks +81% in Q2. Management said used-vehicle and rental markets were expected to moderate in the second half, although tight capacity could continue to support pricing.
- SCS and DTS faced labor shortages and higher labor costs. Management said Q2 pricing adjustments more than covered the increased labor costs and expected them to help these segments return to target earnings levels in the second half.
- Ryder acquired Whiplash, an omnichannel fulfillment and logistics provider, on January 1 for approximately $483M. Its preliminary allocation included $280M goodwill and $157M in customer-relationship and other intangible assets; the allocation remained subject to change.
- Ryder plans to exit its FMS U.K. business by mid-2023. Q2 results included $20M in gains on U.K. vehicle sales and $23M in property-sale gains; restructuring costs and other comparability items also affected reported results.
Risks, contingencies and unusual items
Management identified possible adverse effects from economic or freight slowdowns, inflation and fuel prices, prolonged labor shortages, rising interest rates, vehicle and parts supply constraints, OEM delivery delays, and weaker used-vehicle values or rental demand. These conditions may affect revenue, costs, fleet growth, estimates and access to financing. Used-vehicle gains and residual-value estimates are notable sources of earnings sensitivity.
A securities class action concerning historical vehicle depreciation and residual-value disclosures survived a motion to dismiss in May 2022; discovery was scheduled through October 2023, with trial set to begin in June 2024. Related shareholder derivative cases were stayed. Ryder said it considers the claims without merit and intends to defend them. The company stated that ordinary-course claims and proceedings were not expected to have a material financial-statement effect.
Management reported disclosure controls were effective at quarter-end and no material change in internal control over financial reporting during the six months.
Investor verification priorities
- Assess how much earnings growth depends on unusually strong used-vehicle gains and how quickly those markets may moderate.
- Verify the sustainability of labor-cost pass-throughs and target-margin recovery in SCS and DTS, including SCS margin pressure.
- Review cash conversion, working-capital needs, planned fleet capital expenditures, and refinancing requirements alongside debt and available facilities.
- Track Whiplash integration, final purchase-price allocation, and acquisition contribution to reported revenue and earnings.
- Monitor the U.K. exit timeline, remaining costs and asset-sale gains, and the residual-value securities litigation and related cases.
- Compare GAAP results with management’s non-GAAP comparable earnings and free-cash-flow measures, noting the adjustments and definitions in the filing.