Ryder System, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. Ryder provides fleet leasing, rental and maintenance services (Fleet Management Solutions, FMS), supply-chain and logistics services (SCS), and dedicated transportation (DTS). This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are U.S. dollars.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $2.924bn | $3.035bn | $8.760bn | $8.923bn |
| Operating revenue (non-GAAP) | $2.379bn | $2.347bn | $7.051bn | $6.870bn |
| Pre-tax earnings from continuing operations | $213m | $334m | $458m | $924m |
| Comparable pre-tax earnings (non-GAAP) | $227m | $309m | $643m | $877m |
| Net earnings | $161m | $246m | $282m | $661m |
| Diluted EPS from continuing operations | $3.44 | $4.82 | $6.01 | $12.86 |
| Comparable diluted EPS (non-GAAP) | $3.58 | $4.45 | $10.00 | $12.44 |
Q3 GAAP pre-tax earnings fell 36% and comparable pre-tax earnings fell 27% year over year. For the nine-month period, the respective declines were 50% and 27%. Comparable measures exclude non-operating pension costs and selected items; they are not substitutes for GAAP results.
Segments and margins
- FMS: Q3 revenue was $1.487bn, down 6%; segment pre-tax earnings were $169m, down 36%. Lower used-vehicle gains and weaker commercial rental results weighed on performance. Rental utilization was 75%, versus 83% a year earlier.
- SCS: Q3 revenue was $1.194bn, down 1%, while operating revenue rose 9% to $909m. Segment pre-tax earnings increased 14% to $81m. Earnings margin on operating revenue was 9.0%, versus 8.6%.
- DTS: Q3 revenue was $448m, down 1%; segment pre-tax earnings were $28m, broadly unchanged. Operating revenue rose 3% to $325m.
- Consolidated lease, maintenance and rental gross margin was $320m, or 32% of revenue, versus $353m and 34% in Q3 2022. Services gross margin increased to $275m from $261m, with margin rising to 15% from 14%.
Cash flow, debt and liquidity
- Nine-month cash from continuing operating activities was $1.842bn, versus $1.786bn. Purchases of property and revenue-earning equipment were $2.457bn; free cash flow, a non-GAAP measure, was $32m versus $887m.
- Cash and cash equivalents were $159m at September 30, 2023, compared with $267m at year-end 2022. Current assets were $2.112bn and current liabilities $3.987bn.
- Reported total debt was $6.621bn, including $1.888bn of short-term debt and current maturities and $4.733bn of long-term debt. Debt-to-equity was 214%. Interest expense rose 32% in Q3 to $75m; the effective interest rate was 4.6%, versus 3.6%.
- Available capacity was $642m under the revolving credit facility and $167m under the trade receivables financing program. The credit-facility debt-to-consolidated-net-worth covenant ratio was 166%, against a maximum of 300%.
- Ryder paid $96m of common dividends and repurchased $282m of stock during the first nine months. The board authorized two new repurchase programs in October, each for up to 2 million shares.
Material changes and unusual items
- Total revenue declined 4% in Q3, while operating revenue increased 1%, reflecting growth in SCS and DTS partly offset by lower FMS rental revenue and lower fuel and subcontracted-transportation pass-through revenue.
- North American used-vehicle proceeds per unit fell substantially year over year: Q3 tractor prices declined 31% and truck prices 30%. Used-vehicle gains were $52m in Q3, versus $116m a year earlier.
- Ryder completed its exit from FMS U.K. in June 2023. The nine-month results include a $188m non-cash currency-translation loss, which reduced GAAP earnings and contributed to a 38.5% GAAP effective tax rate for the nine months. The company reported no cash-flow impact from that translation charge.
- A customer bankruptcy led to a $30m SCS equipment impairment in Q1 2023; the filing notes estimates could change if circumstances or expected cash flows change.
- Capital expenditures increased, principally from investment in the ChoiceLease fleet and earlier vehicle deliveries. Ryder issued $1.15bn of medium-term notes in 2023, including $500m at 5.65% and $650m at 5.25%, primarily to refinance maturities and for general corporate purposes.
Outlook, commentary and risks
Management expects used-vehicle sales and commercial rental conditions to remain weak in Q4 2023, citing a slower freight environment. It expects SCS and DTS revenue growth to moderate in the final quarter due to softer consumer demand in omnichannel retail and slower freight conditions. Management cited continued benefits from SCS/DTS pricing and cost-recovery initiatives, FMS lease-pricing renewals, and maintenance savings. The filing text does not provide a clear numerical full-year earnings or revenue guidance figure.
Key risks identified include weaker freight and customer demand, further declines in used-vehicle values or rental utilization, lower omnichannel retail volumes, customer losses, inflation and higher interest rates, fuel-price volatility, labor shortages or interruptions, vehicle and parts supply disruptions, and reduced access to commercial-paper or debt markets. Management stated operating cash flows and available financing should meet foreseeable needs, while warning that market disruption could constrain funding access.
Ryder agreed in principle to acquire IFS Holdings, a contract packaging, manufacturing and warehousing company, for approximately $250m; completion was anticipated in Q4 2023, with expected annual revenue of about $250m. The securities class-action settlement remained subject to court approval; Ryder expects insurance to cover it and considers it immaterial. A derivative-case resolution was agreed in principle, subject to definitive documents and court approval, with expected insurance coverage of related fees and expenses. Management said other ordinary-course claims are not expected to have a material financial-statement effect.
Important facts for investors to verify
- Whether used-vehicle proceeds, rental utilization and FMS earnings stabilize, and how residual-value assumptions compare with actual resale results.
- Whether SCS and DTS maintain pricing, margins and contract growth amid weaker freight activity and omnichannel retail volumes; monitor the customer-related impairment estimates.
- Completion, purchase price, financing and integration of the IFS acquisition, and whether its expected revenue contribution is achieved.
- Debt maturities, borrowing costs, covenant headroom and access to commercial paper and other funding as rates and credit conditions change.
- Final court approval and insurance coverage for the securities and derivative settlements, and any material change in expected exposure.
- Execution of Q4 expectations, capital spending and cash generation, given nine-month free cash flow of only $32m.