Ryder System, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; the filing also reports fourth-quarter results. Ryder provides fleet leasing, maintenance and rental services through Fleet Management Solutions (FMS), and logistics and dedicated transportation services through Supply Chain Solutions (SCS). In 2012, Ryder combined dedicated contract carriage with SCS for segment reporting; prior periods were recast. Robert E. Sanchez became CEO during 2012.
Financial performance
| Metric | FY 2012 | Change vs. 2011 |
|---|---|---|
| Total revenue | $6.257 billion | +3% |
| Operating revenue (non-GAAP) | $5.066 billion | +5% |
| Pre-tax earnings from continuing operations | $303.1 million | +8% |
| Earnings from continuing operations | $200.9 million | +17% |
| Diluted EPS from continuing operations | $3.91 | +18% |
| Net earnings / diluted EPS | $210.0 million / $4.09 | +24% / +25% |
| Operating cash flow from continuing operations | $1.134 billion | Up from $1.042 billion |
| Free cash flow (non-GAAP) | $(384.2) million | $(256.8) million in 2011 |
| Capital expenditures paid | $2.133 billion | Up from $1.699 billion |
| Total debt at year-end | $3.821 billion | Up 13% |
Operating revenue excludes FMS fuel and SCS subcontracted transportation, which Ryder describes as largely pass-through items. Reported continuing-operations diluted EPS was $3.91; comparable diluted EPS, a non-GAAP measure excluding selected items, was $4.04, up 16%.
Segments, margins and fourth quarter
- FMS: Revenue was $4.405 billion, up 4%; operating revenue was $3.321 billion, up 6%. Segment EBT rose 16% to $307.6 million. EBT was 7.0% of total segment revenue versus 6.3% in 2011. Full-service lease revenue grew 5%, while commercial rental utilization fell to 74.9% from 77.6%; management cited weaker rental demand and lower utilization. Used-vehicle sales gains increased 42% to $89.1 million, supported by higher volume and 8% higher average pricing.
- SCS: Revenue was $2.281 billion, up 3%; operating revenue was $1.945 billion, up 5%. Segment EBT rose 10% to $115.2 million, and EBT as a share of operating revenue improved to 5.9% from 5.6%. Automotive revenue grew 20%; high-tech revenue declined 5%. Automotive represented about 30% of SCS revenue.
- Reported gross margins: Lease and rental gross margin was 30% versus 32% in 2011, reflecting weaker rental performance; services gross margin remained 16%. Fuel services gross margin remained about 2%.
- Fourth quarter: Revenue was $1.584 billion, up 3%; operating revenue was $1.288 billion, up 4%. Continuing-operations EBT was $81.8 million, up 12%; continuing-operations earnings were $54.9 million and diluted EPS was $1.07. Results included $8.2 million pre-tax ($5.1 million after tax, or $0.10 per diluted share) of Superstorm Sandy vehicle-related losses. Excluding selected items, comparable diluted EPS was $1.17, up 21%.
Liquidity, debt and capital
- Year-end cash was $66.4 million; current assets were $1.040 billion and current liabilities $1.273 billion, leaving negative working capital of $232.4 million.
- Shareholders’ equity was $1.467 billion. Debt-to-equity was 260%, compared with 257% in 2011; total obligations including specified off-balance-sheet vehicle leases were 270% of equity, versus 261%.
- Ryder reported $538 million available under its $900 million revolving credit facility and a $175 million receivables program, with no amounts outstanding under the receivables program at year-end. The revolver matures in June 2016 and includes a maximum 300% debt-to-net-worth covenant; the reported covenant ratio was 180%.
- Management expected 2013 capital expenditures of $1.8–$1.9 billion and free cash flow of negative $130–$190 million. It expected to fund capital spending with internally generated funds and additional debt financing. The company temporarily planned to pause anti-dilutive share repurchases to manage leverage and preserve flexibility.
Outlook, notable items and risks
- For 2013, management forecast total revenue of $6.5 billion and operating revenue of $5.3 billion, each up 4%. It projected FMS contractual leasing and maintenance revenue up 4%, commercial rental revenue down 2%, and SCS total revenue up 5% and operating revenue up 6%. Management cited soft economic conditions, customer caution on long-term contracts, and higher insurance, medical and compensation costs.
- 2012 included $8.1 million of restructuring and other charges, $8.2 million of Superstorm Sandy vehicle-related losses, and a $5.0 million tax benefit from resolving a prior-year tax item. Used-vehicle residual-value changes benefited 2012 pre-tax earnings by about $18 million; a further estimated $28 million benefit was expected in 2013 from 2012 depreciation estimate revisions.
- Ryder acquired U.K. fleet services company Euroway in August 2012. The acquisition included about 1,360 vehicles and 60 contractual customers; it was small relative to Ryder overall. Hill Hire, acquired in 2011, continued to contribute to growth.
- Pension plans had $2.207 billion in obligations and $1.613 billion in assets at year-end, an underfunded status of about $594 million. 2012 pension expense was $49.4 million, up from $34.3 million; estimated 2013 required contributions were $66 million. The company also cited potential multi-employer plan exposure, including an estimated $35 million contingent withdrawal obligation.
- Key risks include economic cyclicality and unpredictable rental demand; used-vehicle residual values and rental utilization; leverage, borrowing access and substantial fleet investment needs; pension funding and actuarial assumptions; customer concentration in SCS and automotive exposure; competition and contract-pricing assumptions; labor availability and disputes; regulatory and environmental compliance; and self-insurance reserve estimation. Management said ordinary-course legal matters were not expected, in aggregate, to materially affect consolidated financial condition or liquidity. Environmental liabilities were $12.6 million; ultimate costs remain uncertain.
Important facts for investors to verify
- Whether 2013 revenue and segment-growth forecasts were achieved, particularly given expected rental softness and uncertain customer demand.
- Whether fleet capital spending, negative free cash flow and rising debt remain within management’s financing and leverage expectations.
- Whether commercial rental utilization and used-vehicle pricing support reported and forecast margins and residual values.
- How pension discount rates, asset returns, required contributions and multi-employer plan funding affect future earnings and cash needs.
- The recoverability of the $8.2 million Sandy-related liability and the status of related insurance claims and asset recoveries.