Ryder System, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Figures are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and results
Ryder provides fleet leasing, rental and maintenance, supply-chain services, and dedicated transportation. It reports Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS). Management cited strong demand for outsourced logistics and rental services amid supply-chain disruption and vehicle shortages. Results also benefited from higher used-vehicle prices and pricing improvements.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $2,853.9 | $2,221.6 | +28% |
| Operating revenue (non-GAAP) | $2,215.6 | $1,817.4 | +22% |
| Continuing-operations pretax earnings | $251.9 | $70.3 | +258% |
| Continuing-operations earnings | $175.8 | $51.6 | +241% |
| Diluted EPS, continuing operations | $3.35 | $0.97 | +245% |
| Comparable diluted EPS (non-GAAP) | $3.59 | $1.09 | +229% |
| Comparable EBITDA (non-GAAP) | $647.4 | $567.4 | +14% |
Services gross margin was 13%, down from 14%, reflecting labor and subcontracted transportation costs and disruption in SCS automotive. Lease and related maintenance/rental gross margin rose to 32% from 22%, reflecting pricing, utilization, and lower year-over-year effects from prior depreciation estimate changes. The effective tax rate increased to 30.2% from 26.6%.
Segments and material changes
- FMS: Revenue grew 15% to $1,529.2 million; segment pretax earnings rose 291% to $248.2 million. Strong rental demand and pricing, higher used-vehicle gains, and reduced depreciation headwinds drove the increase. Rental power-fleet utilization was 81.6%, versus 72.9%; ChoiceLease revenue per average active vehicle increased 4%, while average active fleet size declined 2%.
- SCS: Revenue grew 54% to $1,088.5 million, including acquisitions and new business. Pretax earnings rose 4% to $34.2 million; margin on operating revenue fell to 4.6% from 6.6%, pressured by labor costs and automotive supply disruptions.
- DTS: Revenue rose 33% to $424.9 million and pretax earnings increased 56% to $20.2 million, supported by new business, pricing, and vehicle-sale gains; higher labor costs partly offset improvement.
- Net gains on used-vehicle sales were $113.0 million, compared with $28.9 million a year earlier. Management attributed the increase to higher proceeds per unit. Prior residual-value estimate changes added depreciation expense of about $49 million in Q1 2022, versus $88 million in Q1 2021.
Cash flow, liquidity, and debt
- Cash from continuing operating activities was $465.7 million, essentially unchanged from $465.7 million. Higher earnings were offset by working-capital needs.
- Free cash flow, a non-GAAP measure, was $107.7 million, down from $241.3 million, primarily due to higher capital spending. Cash purchases of property and revenue-earning equipment were $584.3 million; gross capital expenditures were $661.9 million.
- Investing cash outflow was $783.6 million, including $424.8 million for acquisitions, principally Whiplash. Financing cash outflow was $129.7 million and included $300.3 million of share repurchases.
- Cash and cash equivalents were $221.9 million at quarter-end. Total debt was $6.781 billion, including $1.560 billion short-term/current debt and $5.221 billion long-term debt. Debt-to-equity was 256%, compared with 235% at year-end 2021.
- Ryder reported $798 million available under its global revolving credit facility and $250 million under its trade receivables financing program. Its credit-facility debt-to-consolidated-net-worth ratio was 188%, below the 300% maximum.
Outlook, unusual items, and risks
- No full-year earnings or revenue guidance is specified in the provided filing text. Management expected labor shortages and related higher labor and subcontracted transportation costs to persist at least through the first half of 2022; pricing adjustments were expected to help SCS and DTS return to target earnings levels in the second half.
- Management said vehicle shortages supported rental and used-vehicle demand and pricing, but OEM delivery delays could constrain fleet growth. It also flagged pandemic effects, inflation, higher fuel prices, supply-chain disruption, labor availability, and uncertainty in residual values and other accounting estimates.
- In January, Ryder acquired Whiplash for approximately $482 million to expand e-commerce and omnichannel fulfillment capabilities. Purchase accounting remained preliminary.
- Ryder announced plans to exit its FMS U.K. business by mid-2023. A subsequent April 12 agreement to sell its U.K. trailer leasing and mobile maintenance operations, including about 4,500 trailers and other vehicles, was expected to close in June.
- Q1 included $14.3 million of restructuring and other charges, including U.K. severance and Whiplash transaction costs; it also included $8.3 million of gains on U.K. vehicle sales and $0.6 million of gains on property sales. Comparable earnings measures exclude specified items and are non-GAAP.
- The filing describes a securities class action concerning historical vehicle depreciation and residual-value estimates, with a motion to dismiss awaiting decision, and related derivative suits stayed pending that decision. Ryder said it believed the claims were without merit. Management stated other ordinary-course claims were not expected to materially affect the financial statements.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether labor and subcontracted transportation costs ease as expected, and whether SCS and DTS pricing restores target earnings and margins.
- Whether elevated used-vehicle prices and gains persist, and how vehicle supply, residual values, depreciation assumptions, and fleet replacement affect future results.
- Whiplash’s final purchase-price allocation and contribution to SCS growth, as well as the completion, proceeds, and effects of the U.K. exit and asset sale.
- Capital-spending needs, free cash flow, working-capital trends, debt levels, and the effect of the $300 million accelerated share repurchase on leverage and share count.
- Developments in the residual-value securities litigation and any changes to the company’s legal contingencies or risk disclosures.