Ryder System, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Ryder provides fleet leasing, rental and maintenance services (FMS), supply-chain logistics (SCS), and dedicated transportation (DTS). Figures are in U.S. dollars; amounts are in millions except per-share data.
Financial results and key metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $3,098 | $2,952 | +5% |
| Operating revenue (non-GAAP) | $2,495 | $2,346 | +6% |
| EBT from continuing operations | $114 | $201 | -43% |
| Net earnings | $85 | $139 | -39% |
| Diluted EPS from continuing operations | $1.89 | $2.95 | -36% |
| Comparable diluted EPS (non-GAAP) | $2.14 | $2.81 | -24% |
| Operating cash flow | $526 | $478 | +$48 |
| Free cash flow (non-GAAP) | $13 | $101 | -$88 |
Services gross margin was $295 million (14% of services revenue), versus $214 million (12%) a year earlier, helped by a prior-year SCS impairment charge and improved SCS pricing. Lease, maintenance and rental gross margin fell to $267 million (29% of revenue) from $305 million (31%), mainly reflecting weaker rental demand and utilization. Fuel services gross margin was $3 million in both periods.
- Segment EBT: FMS $100 million, down 45%; SCS $64 million, up from $17 million; DTS $18 million, down 38%. SCS’s comparison benefited from a $30 million impairment in Q1 2023. DTS costs included Cardinal Logistics integration-related costs and higher insurance expense.
- Cash and investment: Cash was $234 million at March 31, 2024. Operating cash flow increased, but investing cash outflow rose to $810 million, including the $297 million Cardinal acquisition. Capital expenditures paid were $686 million; free cash flow declined partly because proceeds from equipment and property sales were lower.
- Debt and liquidity: Total debt was $7.543 billion, compared with $7.114 billion at year-end 2023; long-term debt was $6.802 billion. Interest expense rose 42% to $92 million, and the effective interest rate was 5.0% versus 4.1%. Debt-to-equity was 246% at quarter-end versus 232% at year-end. Ryder reported $540 million available on its revolving facility and $197 million available under its receivables financing program; its credit-facility leverage ratio was 190% against a maximum of 300%.
Material changes and business developments
- Revenue growth reflected acquisitions and contractual growth, partly offset by lower FMS commercial rental revenue and lower fuel revenue. Operating revenue excludes fuel and subcontracted transportation and is a non-GAAP measure.
- FMS revenue declined 3%; ChoiceLease revenue grew 9%, while commercial rental revenue declined 24%. Rental utilization fell to 66% from 75%, and used truck and tractor proceeds per unit fell 30% and 34%, respectively. Net gains on used vehicle sales were $20 million, compared with $72 million.
- SCS revenue rose 8% and operating revenue 11%, driven mainly by acquisitions, including IFS and Cardinal. DTS revenue rose 24% and operating revenue 33%, primarily from Cardinal.
- Ryder acquired Cardinal Logistics on February 1 for $297 million. Preliminary purchase accounting includes $74 million of goodwill and $165 million of intangible assets; allocation remains subject to finalization.
- Debt increased following new note issuances and acquisition funding. Ryder issued $350 million of notes due 2027 at 5.30% and $550 million due 2029 at 5.38% in February.
Outlook, risks and contingencies
Management expects used-vehicle sales and commercial rental conditions to remain weak through most of 2024, with gradual improvement toward the second half. The filing does not provide a clear numerical full-year earnings or cash-flow guidance value in the supplied text. Management cited logistics outsourcing as a longer-term opportunity, said recent acquisition integration was proceeding in line with expectations, and expects Cardinal to significantly benefit DTS revenue for the rest of 2024. SCS and DTS contract sales activity slowed in Q1 in the weaker freight environment.
Risks highlighted include continued freight weakness, lower rental demand and used-vehicle prices, fuel and inflationary cost pressures, higher interest rates, labor shortages or interruptions, vehicle and parts supply disruptions, customer concentration or volume changes, and access to capital markets. Management stated that operating cash flows and financing access should meet foreseeable needs, while noting that disruption in debt or commercial-paper markets could impair access or raise costs.
Ryder is involved in ordinary-course claims and proceedings and believes their resolution will not materially affect its financial statements. A securities class action concerning historical vehicle depreciation and residual-value estimates received preliminary settlement approval in February 2024; Ryder expects insurance to cover the settlement. Related derivative cases have an agreement in principle, subject to definitive documentation and court approval, and expected attorneys’ fees and expenses are also expected to be insured. Management reported no residual-value or useful-life estimate adjustments in Q1. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether used-vehicle values and commercial rental demand improve as management expects, and the impact on FMS earnings and margins.
- Cardinal’s final purchase-price allocation, integration costs, and contribution to DTS revenue and profitability.
- Debt, interest expense, leverage and available borrowing capacity as acquisition and fleet investment needs continue.
- Cash conversion and free cash flow, including the effect of capital spending and equipment-sale proceeds.
- Final court approval and insurance coverage for the securities and derivative settlements.
- Non-GAAP comparable earnings and operating-revenue measures alongside the GAAP results and their reconciliations.