Ryder continues shift toward less reliance on leasing, talks up Cardinal
Ryder System’s fourth quarter saw the continued rise of its Supply Chain Solutions (SCS) segment as a growing contributor to revenue and profitability, with used vehicle sales hurting the performance of its signature Fleet Management Solutions (FMS) vehicle leasing division.
In prepared remarks released with the earnings, CEO Robert Sanchez, who has been leading the push to have FMS account for a declining percentage of the Ryder business while SCS and Dedicated Transportation Solutions (DTS) rise, said the company has been operating in a “challenging” freight market, but “the transformative actions we’ve taken to de-risk the model, enhance returns and drive profitable growth have meaningfully improved business model resilience.”
SCS provides contract logistics services while DTS provides dedicated transportation services. DTS recently grew significantly bigger with the acquisition of Cardinal Logistics.
In the fourth quarter of 2023, SCS operating revenue of $972 million came in at 76% of the FMS operating revenue total of $1.27 billion. A year earlier, the SCS figure was 70.5% of what FMS produced.
On the profitability front, SCS and FMS went in significantly different directions quarter to quarter.
In the fourth quarter of 2023, FMS earnings before taxes as a percent of total revenue declined to 9.1% from 16% a year earlier. As a percent of operating revenue, it dropped to 10.6% from 19.4%. On an outright basis, EBT at FMS dropped to $134 million from $256 million.
At SCS, EBT rose to $57 million from $42 million a year earlier. Other measurements of profitability such as EBT as a percent of total revenue were higher, rising to 4.4% from 3.4%, while as a percent of operating revenue SCS climbed to 5.8% from 4.8%.
Hit by the fall in used truck prices
Meanwhile, used vehicle sales at Ryder (NYSE: R) weighed on the performance of FMS.
The vast difference in used vehicle markets between 2022 and 2023 was stark in the Ryder data. In the fourth quarter of 2023, the average price Ryder received for a tractor was down 39% from the previous year. In the fourth quarter of 2022, when the freight market’s downturn was advancing but not yet at a low point, the year-on-year decline for tractors was 6%.
For the full year, the decline in used tractor prices received by Ryder was 37% from 2022. But in 2022, Ryder saw an increase in used tractor prices of 43% from 2021.
Used vehicle inventory increased to 8,000 vehicles at the end of the quarter. Ryder said that figure is in line with the target of 7,000 to 9,000 vehicles for sale.
The challenging freight market referred to by Sanchez led to a earnings per share from continuing operations — a GAAP measurement — of $2.74 compared to $4.06 a year earlier. On a non-GAAP basis, the decline was narrower, down to $2.95 from $3.89, “reflecting weaker market conditions in used vehicle sales and rental, partially offset by improved SCS results.”
The consensus pre-earnings estimate on the non-GAAP figure was $2.74, according to SeekingAlpha.
For the full year, Ryder posted non-GAAP EPS from continuing operations of $12.95.
Wall Street reaction to the earnings was not positive. Although Ryder has been regularly recording 52-week highs in recent months, at about 2:10 p.m. Eastern time Wednesday, the stock was down $7.80, or 6.58%, to $110.71. Its intraday low was $107.85.
In providing its first guidance for 2024, the company didn’t see earnings improving that much this year. Its projection is non-GAAP EPS of $11.50-$12.50.
Ryder also foresees an increase in operating revenue of approximately 13%, but that would include Cardinal Logistics. Full-year revenue for Ryder in 2023 was $11.78 billion, and 13% of that would be about $1.5 billion. Elsewhere during the call, Sanchez put Cardinal’s revenue at about $1 billion.
Source: freightwaves.com
