Ryder System, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Ryder provides fleet leasing, rental and maintenance through Fleet Management Solutions (FMS), and supply-chain and dedicated transportation services through Supply Chain Solutions (SCS). Comparisons are with Q1 2012.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $1.563 billion | $1.536 billion | +2% |
| Operating revenue (non-GAAP) | $1.268 billion | $1.229 billion | +3% |
| Pre-tax earnings from continuing operations | $62.5 million | $47.7 million | +31% |
| Continuing-operations earnings | $40.8 million | $34.9 million | +17% |
| Net earnings | $39.9 million | $34.3 million | +16% |
| Diluted EPS, continuing operations | $0.79 | $0.68 | +16% |
| Diluted net EPS | $0.77 | $0.67 | +15% |
Segment results: FMS revenue was $1.100 billion (+3%) and segment EBT was $60.7 million (+20%); EBT was 5.5% of total segment revenue versus 4.7%. SCS revenue was $576.5 million (+1%) and segment EBT was $23.8 million (+9%); EBT was 4.1% of revenue versus 3.8%. These are management’s segment measures and are not consolidated GAAP earnings.
Revenue-source margins: Lease and rental gross margin rose 6% to $189.6 million, with margin increasing to 29% from 28%. Services gross margin rose 1% to $104.0 million and remained 15% of revenue. Fuel-services gross margin declined 21% to $3.6 million and remained 2% of revenue.
Cash flow, balance sheet and liquidity
- Operating cash flow from continuing operations was $248.9 million, up from $186.3 million. Cash purchases of property and revenue-earning equipment were $420.1 million; reported free cash flow, a company-defined non-GAAP measure, was negative $26.6 million versus negative $175.0 million.
- Cash and cash equivalents were $76.5 million at March 31, 2013, versus $66.4 million at December 31, 2012. Total assets were $8.392 billion and shareholders’ equity was $1.491 billion.
- Total debt was $3.846 billion, up from $3.821 billion at year-end; $259.7 million was classified as short-term debt and current maturities, and $3.586 billion as long-term debt. Total obligations, including specified operating-lease commitments, were $3.990 billion.
- Available funding included $434 million under the $900 million revolving credit facility, net of commercial-paper support, and a $175 million receivables program. No receivables-program borrowings were outstanding at quarter-end; its availability is subject to restrictions and it was scheduled to expire October 25, 2013 absent early termination.
- The revolving-facility covenant required debt to defined net worth of no more than 300%; the ratio was 180% at quarter-end. Credit ratings and outlooks were stable at the three agencies reported.
- Quarterly dividend declared was $0.31 per share, compared with $0.29 a year earlier. Ryder issued $250 million of medium-term notes in February, using proceeds to repay commercial paper and for general corporate purposes.
Changes, outlook and management commentary
- Management attributed growth to organic expansion in both segments. FMS benefited from higher full-service lease pricing and miles driven, a younger fleet and improved rental utilization. SCS growth reflected automotive volumes and new business, partly offset by lower high-tech volumes.
- Management expected full-year 2013 accrual-basis capital expenditures of $1.8–$1.9 billion. It anticipated favorable full-service lease revenue comparisons and SCS comparisons supported by new business; near-term commercial rental comparisons were expected to be unfavorable because of lower demand, though demand was better than originally planned.
- Management expected approximately $66 million of pension contributions in 2013, of which $4.0 million had been contributed by quarter-end. Management said operating cash flow and access to debt financing should meet foreseeable needs, while cautioning that disruption in commercial-paper markets could impair access.
- No specific full-year earnings or EPS guidance is stated in the provided filing text.
Unusual items, risks and contingencies
- Reported Q1 2013 results included a $7.4 million pre-tax benefit from revised estimated residual values on certain vehicles, effective January 1, 2013, and a $1.9 million foreign-currency translation benefit. The prior-year quarter included a $0.9 million restructuring charge and a $5.0 million tax benefit from resolution of a prior-period tax item. Excluding specified items, management reported comparable continuing-operations pre-tax earnings of $65.8 million versus $56.6 million, comparable earnings of $42.0 million versus $35.5 million, and comparable diluted EPS of $0.81 versus $0.69; these are non-GAAP measures.
- The effective tax rate was 34.7%, versus 26.9% reported in Q1 2012; excluding the prior-year tax benefit, the prior-year rate was 37.3%. Discontinued operations generated a $0.9 million after-tax loss, associated with adverse legal developments and professional and administrative costs related to former South American operations.
- Ryder disclosed unreserved Brazilian tax assessments of $4.7 million for federal taxes and $5.1 million for state operating-tax credits. Management considered losses reasonably possible but believed its positions were more likely than not to be sustained. Gross unrecognized tax benefits were $53.2 million at quarter-end.
- Key risks identified include weaker economic or freight demand, commercial rental and used-vehicle market conditions, customer losses, competition and pricing pressure, fuel-price volatility, vehicle and maintenance costs, labor and driver availability, pension funding, interest and currency movements, access to capital markets, tax matters and legal claims. Management stated ordinary-course claims not otherwise discussed were not expected to have a material effect, while noting outcomes may differ from estimates.
- Other comprehensive loss was $28.3 million, primarily reflecting a $33.7 million currency-translation loss as the British pound and Canadian dollar weakened against the U.S. dollar. The share-repurchase program was temporarily paused to manage leverage and preserve near-term flexibility. Disclosure controls were assessed as effective, with no material change in internal controls reported.
Important facts for investors to verify
- How much of reported earnings growth depends on the $7.4 million residual-value benefit and other excluded items, and whether the stated comparable measures reconcile to GAAP results.
- Whether planned capital spending, vehicle replacement activity and used-vehicle sales support fleet utilization, residual values and future cash generation.
- Debt maturities, refinancing access and covenant headroom, including continued availability of the revolving facility and receivables program.
- Actual pension contributions and funded-status changes, and the outcomes of Brazilian tax assessments, other tax audits and former-operation legal matters.
- Whether management’s expected FMS and SCS revenue trends materialize amid rental-demand, freight, customer-volume and foreign-exchange risks.