Ryder System, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with Q1 2020 unless noted. Ryder provides fleet leasing, rental and maintenance, supply chain logistics, and dedicated transportation services. Financial statements are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $2.222 billion, up 3% | $2.161 billion |
| Continuing-operations pretax earnings (loss) | $70.3 million | $(113.6) million |
| Continuing-operations diluted EPS | $0.97 | $(2.09) |
| Net earnings (loss) | $50.8 million | $(109.6) million |
| Operating cash flow, continuing operations | $465.7 million | $438.6 million |
| Free cash flow (non-GAAP) | $241.3 million | $110.6 million |
Comparable pretax earnings, a company-defined non-GAAP measure, were $78.6 million versus a loss of $90.8 million; comparable diluted EPS was $1.09 versus a loss of $1.38. Comparable EBITDA was $567.4 million, up 10%. Management cautions that non-GAAP measures supplement, and do not replace, GAAP measures.
Margins and operating costs: Lease, maintenance and rental gross margin rose to 22% from 12%, on revenue up 1% and direct costs down 11%. Services gross margin was 14%, unchanged, on revenue and costs each up 5%. Fuel gross margin remained 1%. SG&A increased 8% to $241.7 million, or 11% of revenue versus 10%.
Cash investment: Gross capital expenditures were $406.6 million, up 4%; cash purchases of property and revenue-earning equipment were $381.1 million. Investing cash outflow was $226.0 million. Financing cash outflow was $298.1 million, reflecting lower borrowing needs, debt repayments, dividends and share repurchases. Cash declined $59.6 million during the quarter.
Balance sheet and liquidity
At March 31, 2021, cash was $91.7 million, total assets $12.67 billion, and shareholders’ equity $2.28 billion. Total debt was $6.37 billion, down 4% from year-end 2020; $789.9 million was short-term or current debt and $5.58 billion was long-term debt. The debt-to-equity ratio was 280%, versus 293% at December 31, 2020. Current assets were $1.53 billion and current liabilities $2.29 billion.
Available funding included $1.253 billion under the global revolving credit facility and $300 million under the trade receivables program. The debt-to-consolidated-net-worth covenant ratio was 188% against a maximum of 300%. Management said operating cash flows and access to debt markets should meet foreseeable needs, while noting that market disruption could impair access. The trade receivables program maturity was extended to April 2022 after quarter-end.
Material changes and segment results
- Fleet Management Solutions (FMS): Revenue was essentially flat at $1.335 billion; segment pretax earnings improved to $63.4 million from a $114.6 million loss. Management attributed the improvement largely to a $92 million decline in the impact of prior residual-value estimate changes, stronger used-vehicle results, and better lease and rental performance. Used-vehicle sales produced a $28.9 million gain versus a $20.7 million loss. Tractor and truck proceeds per unit increased 25% and 35%, respectively.
- Supply Chain Solutions (SCS): Revenue increased 12% to $706.7 million and segment pretax earnings rose 6% to $33.0 million. Growth reflected consumer packaged goods and retail and industrial activity, new business, pricing and volumes.
- Dedicated Transportation Solutions (DTS): Revenue decreased 4% to $320.5 million, mainly on lower subcontracted transportation; segment pretax earnings increased 7% to $13.0 million.
- Debt and interest: Interest expense fell 13% to $54.7 million, primarily due to lower average debt. The reported effective interest rate was 3.4%, versus 3.1%.
- Shareholder returns: Ryder declared a $0.56-per-share quarterly dividend and repurchased approximately 288,000 shares for $19 million.
Outlook, risks and unusual items
The filing provides no specific consolidated earnings or revenue guidance for the remainder of 2021. Management reported positive business momentum but warned that COVID-19 effects could continue and that the global semiconductor shortage was expected to negatively affect SCS results in 2021, particularly automotive customer production. Management also identified risks from used-vehicle prices and residual-value assumptions, rental demand and utilization, customer volumes, labor and maintenance costs, fuel and interest-rate movements, and access to financing. Adjusted return on equity was 4.5%; management cited an interim target of 11% and a long-term, through-the-cycle target of 15%.
Comparability was materially affected by a sharp improvement in used-vehicle sales and a $92 million reduction in the impact of prior residual-value estimate changes. Restructuring and other items were $10.7 million, including $7.6 million of ERP implementation costs. Ryder completed its exit from the ChoiceLease liability insurance extension program in Q1 2021; its financial results are excluded from certain company-defined comparable measures.
A securities class action and related derivative actions allege misstatements concerning vehicle depreciation policy and residual-value estimates. The court heard Ryder’s motion to dismiss the class action on April 7, 2021 and reserved decision; derivative cases were stayed pending that decision. Ryder disputes the claims and intends to defend them. Management stated that ordinary-course claims and proceedings are not expected to materially affect the financial statements. Disclosure controls were reported effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether the gains and pricing strength in used-vehicle sales persist, and how residual-value estimates and depreciation affect future earnings.
- The duration and financial impact of semiconductor-related production constraints on SCS automotive customers.
- Fleet demand, rental utilization and pricing, and whether FMS earnings improvement continues as prior depreciation effects diminish.
- Capital spending, free cash flow, debt maturities, covenant headroom and continued access to commercial paper and other financing.
- Developments in the securities and derivative litigation, including the court’s decision on the motion to dismiss.
- That comparable earnings, comparable EBITDA, free cash flow and adjusted ROE are non-GAAP measures; review their reconciliations and the related GAAP results.