Ryder System, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited. Ryder provides fleet management, dedicated transportation, and supply-chain services through FMS, DTS, and SCS.
Financial results
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Total revenue | $1.748 billion | $1.630 billion | +7% |
| Operating revenue (non-GAAP) | $1.445 billion | $1.406 billion | +3% |
| Continuing-operations pretax earnings | $60.0 million | $88.7 million | -32% |
| Continuing-operations earnings | $38.3 million | $56.2 million | -32% |
| Diluted continuing-operations EPS | $0.71 | $1.05 | -32% |
| Operating cash flow | $331.3 million | $368.0 million | Lower |
| Free cash flow (non-GAAP) | $82.8 million | $(60.8) million | Improved |
Comparable pretax earnings, excluding non-operating pension costs and specified other items, were $69.4 million, down 27%; comparable diluted EPS was $0.82, down 27%. These are non-GAAP measures.
Margins: Lease-and-rental gross margin was $188.8 million, or 25% of revenue, versus $215.3 million, or 28%. Services gross margin was $137.8 million, or 16%, versus $127.4 million, or 17%. Fuel-services gross margin was $2.9 million, or 2%, versus $3.9 million, or 4%.
Segments: FMS EBT fell 37% to $52.1 million; DTS EBT fell 21% to $11.3 million; SCS EBT rose 39% to $27.4 million. SCS revenue increased 19%, DTS revenue 9%, and FMS revenue 3%.
Balance sheet and liquidity: Cash was $38.0 million. Total debt was $5.326 billion, versus $5.391 billion at year-end 2016; debt-to-equity was 256%, versus 263%. Current liabilities were $1.978 billion and current assets $1.113 billion. The company reported $660 million available under its revolving credit facility and $175 million under its receivables program. Its revolving-facility covenant debt-to-net-worth ratio was 197%, against a maximum of 300%.
Cash dividends declared were $0.44 per share, compared with $0.41 a year earlier. Ryder repurchased approximately 221,000 shares for $17 million under its program.
Material changes and management commentary
- Revenue growth reflected higher SCS and DTS volumes, new business and pricing, increased ChoiceLease revenue, and higher fuel and subcontracted-transportation pass-throughs. Operating revenue excludes fuel and subcontracted transportation.
- Lower earnings primarily reflected weaker commercial rental and used-vehicle results in FMS, and higher insurance and vehicle-maintenance costs in DTS. SCS growth partly offset these pressures.
- Commercial rental revenue declined 15%; fleet utilization fell to 67.2% from 70.4%. Management attributed weak results to lower demand. Used-truck and tractor proceeds per unit fell 20% and 16%, respectively.
- FMS recorded $9 million of accelerated depreciation on vehicles expected to be offered for sale through June 2018. A $2.2 million one-time operating-tax adjustment relating to prior periods was recorded in SG&A.
- Operating cash flow decreased due to lower earnings and higher working-capital needs. Cash capital spending was $361 million; total capital expenditures were $436 million, down 12%.
Outlook, risks, and contingencies
- Management expected 2017 capital expenditures of approximately $2 billion, funded primarily through internally generated cash and additional debt financing.
- Management expected favorable ChoiceLease revenue comparisons through year-end, but unfavorable commercial-rental comparisons. DTS and SCS revenue comparisons were expected to remain favorable, though at lower growth rates.
- Ryder said operating cash flows and access to debt markets should meet foreseeable funding needs, while cautioning that disruption in unsecured-debt or commercial-paper markets could impair access to financing.
- Key risks include freight and customer-demand conditions, commercial-rental utilization and used-vehicle resale values, operating and insurance costs, competition, fuel-price volatility, interest rates, currency movements, pension funding, and access to credit.
- The company was party to ordinary-course legal, commercial, employment, environmental, insurance, and operating-tax matters. Management did not expect their resolution to materially affect the financial statements, but outcomes may differ from estimates. No material change in market-risk exposures was reported.
Most important facts for investors to verify
- Whether commercial-rental demand, utilization, and used-vehicle resale prices improve or remain weak.
- Whether DTS insurance and maintenance costs and FMS depreciation pressures continue to weigh on margins.
- Progress toward the approximately $2 billion 2017 capital-spending plan and its implications for debt and cash generation.
- Performance of SCS and DTS growth, including the durability of new business, pricing, and reported pass-through revenue.
- Available liquidity, refinancing access, and compliance with debt covenants as maturities and funding needs evolve.
- Potential effects of pension assumptions, vehicle residual values, and the forthcoming revenue-recognition and lease accounting standards.