Ryder Reports Second Quarter 2021 Results

Second Quarter 2021

• GAAP EPS from continuing operations of $2.78 versus a loss of $(1.41) in prior year, reflecting significantly improved results in fleet management solutions and prior-year COVID-19 effects
• Comparable EPS (non-GAAP) from continuing operations of $2.40 versus a loss of $(0.95) in prior year
• Total revenue of $2.4 billion and operating revenue (non-GAAP) of $1.9 billion up 26% and 18% respectively, reflecting double-digit revenue growth across all business segments

Full-Year 2021 Forecast

• Increased GAAP EPS forecast to $7.40 - $7.70 from $5.65 - $6.05
• Increased comparable EPS (non-GAAP) forecast to $7.20 - $7.50 from $5.50 - $5.90
• Expect to achieve adjusted ROE (ROE) of 16% - 17% exceeding our long-term target of 15%
• Maintained cash flow from operating activities forecast of $2.2B; increased free cash flow (non-GAAP) forecast to $650M - $750M to reflect OEM vehicle delivery delays

Ryder System, Inc. (NYSE: R), a leader in supply chain, dedicated transportation, and fleet management solutions, reported results for the three months ended June 30 as follows:

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20210728005235/en/

A forklift operator loads a trailer at a Ryder-managed supply chain solutions warehouse. (Photo: Business Wire)

Total and operating revenue for the three months ended June 30 were as follows:

CEO Comment

Commenting on the company's results and outlook, Ryder Chairman and CEO Robert Sanchez said, "Our team delivered strong second quarter results that exceeded our expectations, driven by significant improvement in FMS results due to higher gains on used vehicles sold as well as strong lease and rental performance. We're excited to see strong sales activity across all segments, reflecting continued strength in secular growth trends. Our innovative technology offerings, such as RyderShare™, are strategic differentiators for us, as our customers seek expanded supply chain and transportation capabilities and increased resiliency.

"We continue to make significant progress on our longer-term return initiatives and now anticipate achieving ROE of 16% - 17% this year while generating strong free cash flow. We expect these results to be driven by improved used vehicle sales results from strong demand and limited market inventory, better pricing in our lease and commercial rental businesses, and strong demand in commercial rental as the economic outlook continues to improve. Given our outlook for a strong freight environment going into 2022, we expect continued favorable performance in FMS driven by lease, rental, and used vehicle sales. We now expect nearly all of our leases to perform above target returns. In SCS and DTS, we are on track to meet or exceed our revenue growth targets, but we anticipate returns to be impacted by increased labor and insurance costs as well as strategic investments in new technologies, new locations in our Ryder Last Mile network, and our Ever better™ brand awareness campaign.

"Based on this outlook and the actions we have implemented to enhance returns over the long term, we have significantly increased our forecast and expect to deliver comparable EPS of $7.20 - $7.50 compared to a loss of $0.27 in 2020. In addition, we're raising our free cash flow forecast for the year. Our balance sheet remains strong and leverage is near the bottom end of our target range, providing opportunity for future strategic acquisitions and/or share repurchases."

Outlook

Second Quarter Business Segment Operating Results

Fleet Management Solutions: Higher Earnings Reflect Improved Used Vehicle Sales, Rental, and Lease Results

FMS revenue increased due to higher rental and ChoiceLease revenue. Total revenue also increased from higher fuel pricing.

FMS EBT increased by $262 million reflecting higher gains on used vehicles sold and a declining impact of depreciation expense from prior vehicle residual value estimate changes, which together totaled $131 million. Used vehicle pricing on trucks and tractors increased 72% and 73%, respectively, from the prior year, and ending inventory levels declined to 4,300 vehicles, well below our target range of 7,000 - 9,000 vehicles. Rental results benefited from a 13% increase in pricing and better utilization. Rental power fleet utilization increased to 80% (up from 56% in the prior year) on a 2% smaller average power fleet. Prior-year rental results were negatively impacted by COVID-19. Lease results benefited from higher lease pricing and increased miles driven, partially offset by a smaller lease fleet. FMS EBT as a percentage of FMS operating revenue surpassed the company's long-term target of high single digits; however, it was below the target for the trailing twelve-month period, reflecting depreciation from residual value estimate changes in prior quarters.

Supply Chain Solutions: Higher Earnings from Revenue Growth, Partially Offset by Higher Overhead Including Strategic Investments

SCS total revenue and operating revenue increased due to higher automotive revenues, reflecting increased volumes and prior-year COVID-19 impacts. Total and operating revenue also increased by double-digit percentages due to new business and higher volumes in other industry verticals.

SCS EBT benefited from revenue growth, primarily in automotive, and were partially offset by strategic investments in marketing and technology, as well as increased incentive compensation and medical costs. SCS EBT as a percentage of SCS operating revenue is below the company's long-term target of high single digits, but it is at target for the trailing twelve-month period.

Dedicated Transportation Solutions: Earnings from Strong Revenue Growth More Than Offset by Higher Labor Costs, Insurance Expense, and Strategic Investments

DTS total and operating revenue increased due to new business and higher volumes. Revenue growth from new business can be largely attributed to wins from competitors and private fleet conversions.

DTS EBT decreased primarily due to increased labor costs, higher insurance costs, and strategic investments. DTS EBT as a percentage of DTS operating revenue is below the company's long-term target of high single digits.

Corporate Financial Information

Unallocated Central Support Services (CSS)

Unallocated CSS costs were $18 million as compared to $11 million in the prior year, primarily due to higher incentive compensation-related expenses reflecting significantly improved company performance.

Income Taxes

Our effective income tax rate from continuing operations was an expense of 26.5% as compared to a benefit of 22.2% in the prior year. The prior-year tax rate was impacted by a reduction in earnings due to accelerated depreciation charges and COVID-19 effects.

Capital Expenditures, Cash Flow, and Leverage

Year-to-date capital expenditures increased to $963 million in 2021 compared with $597 million in 2020 primarily due to higher planned investments in the rental fleet.

Year-to-date operating cash flow remained at $1.1 billion, reflecting higher earnings, offset by higher working capital needs. Free cash flow (a non-GAAP measure) was $602 million, down from $612 million in 2020 due an increase in cash paid for capital expenditures, partially offset by higher proceeds from the sale of revenue earning equipment and operating property and equipment. We forecast full-year 2021 cash from operating activities of approximately $2.2 billion and free cash flow of $650 million - $750 million, which is at the high end of our previous forecast range and primarily reflects a cash flow benefit from OEM vehicle delivery delays.

Debt-to-equity as of June 30, 2021 declined to 258% from 293% at year-end 2020, and is within the company's long-term target of 250 - 300%. The decrease in debt-to-equity from year-end 2020 was driven by lower debt as a result of higher free cash flow.

Supplemental Company Information

Second Quarter Net Earnings

Business Description

Ryder System, Inc. is a leading supply chain, dedicated transportation, and fleet management solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the S&P MidCap 400^® index. The company’s financial performance is reported in the following three, inter-related business segments:

• Supply Chain Solutions – Ryder’s SCS business segment optimizes logistics networks to make them more responsive and able to be leveraged as a competitive advantage. Globally-recognized brands in the automotive, consumer goods, food and beverage, healthcare, industrial, oil and gas, technology, and retail industries rely on Ryder’s leading-edge technologies and world-class logistics engineers to help them deliver the goods that consumers use every day.
• Dedicated Transportation Solutions – Ryder’s DTS business segment combines the best of Ryder’s leasing and maintenance capability with the safest and most professional drivers in the industry. With a dedicated transportation solution, Ryder helps customers increase their competitive position, reduce risk, and integrate their transportation needs with their overall supply chain.
• Fleet Management Solutions – Ryder’s FMS business segment provides a broad range of services to help businesses of all sizes, across virtually every industry, deliver for their customers. From leasing, maintenance, and fueling, to rental and used vehicle sales, customers rely on Ryder’s expertise to help them lower their costs, redirect capital to other parts of their business, and focus on what they do best – so they can grow.

For more information on Ryder System, Inc., visit investors.ryder.com and ryder.com.

Note: Regarding Forward-Looking Statements

Certain statements and information included in this news release are “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including our forecast, expectations regarding market trends and economic environment; impact of the COVID-19 pandemic on market conditions, e-commerce trends, freight environment, earnings, depreciation, commercial rental demand and utilization, and used vehicle sales volume and pricing, expected benefits from our strategic investments and initiatives, including our multi-year maintenance cost-savings initiatives; expected benefits of lease pricing initiatives; implementation of our asset management strategy; performance, including sales and revenue growth, in our product lines and segments; residual values and depreciation expense; used vehicle inventory; rental utilization; free cash flow; operating cash flow; capital expenditures; fleet growth; and profitability of our Ryder Last Mile operations. Our forward-looking statements also include our estimates of the impact of our changes to residual value estimates on earnings and depreciation expense. The expected impact of the change in residual value estimates is based on our current assessment of the residual values and useful lives of revenue-earning equipment based on multi-year trends and our outlook for the expected near- and long-term used vehicle market. Our assessment is subject to risks, uncertainties, and assumptions as to future events that may not prove to be accurate. Factors that could cause actual results related to vehicle residual values to materially differ from estimates include changes in supply and demand, competitor pricing, regulatory requirements, driver shortages, changes in customer requirements and preferences, as well as changes in underlying assumption factors.

All of our forward-looking statements should be evaluated by considering the many risks and uncertainties inherent in our business that could cause actual results and events to differ materially from those in the forward-looking statements. Important factors that could cause such differences include, the effect of the COVID-19 pandemic; our ability to adapt to changing market conditions, lower than expected contractual sales, decreases in commercial rental demand or utilization or poor acceptance of rental pricing, declining market demand for or excess supply of used vehicles impacting current or estimated pricing and our anticipated proportion of retail versus wholesale sales; declining customer demand for our services; higher than expected maintenance costs; lower than expected benefits from our cost-savings initiatives; lower than expected benefits from our sales, marketing and new product initiatives; higher than expected costs related to our ERP implementation; setbacks in the economic market or in our ability to retain profitable customer accounts; impact of changing laws and regulations, difficulty in obtaining adequate profit margins for our services; inability to maintain current pricing levels due to soft economic conditions, business interruptions or expenditures due to labor disputes, severe weather or natural occurrences; competition from other service providers and new entrants; driver and technician shortages resulting in higher procurement costs and turnover rates; impact of worldwide semiconductor shortage, higher than expected bad debt reserves or write-offs; decrease in credit ratings; increased debt costs; adequacy of accounting estimates; higher than expected reserves and accruals particularly with respect to pension, taxes, insurance and revenue; impact of changes in our residual value estimates and accounting policies, including our depreciation policy; unanticipated changes in fuel prices; unanticipated currency exchange rate fluctuations; our ability to manage our cost structure; and the risks described in our filings with the Securities and Exchange Commission (SEC). The risks included here are not exhaustive. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on our business. Accordingly, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Note: Regarding Non-GAAP Financial Measures

This news release includes certain non-GAAP financial measures as defined under SEC rules. Refer to Appendix - Non-GAAP Financial Measure Reconciliations at the end of the tables following this press release for reconciliations of the non-GAAP financial measures contained in this release to the nearest GAAP measure and why management believes that presentation of each measure provides useful information to investors. Additional information regarding non-GAAP financial measures as required by Regulation G and Item 10(e) of Regulation S-K can be found in our most recent Form 10-K, Form 10-Q and our Form 8-K filed as of the date of this release with the SEC, which are available at http://investors.ryder.com.

CONFERENCE CALL AND WEBCAST INFORMATION

Ryder’s earnings conference call and webcast is scheduled for July 28, 2021 at 11:00 a.m. ET. To join, click here.

LIVE AUDIO VIA PHONE

Toll Free Number: 888-352-6803

USA Toll Number: 323-701-0225

Audio Passcode: Ryder

Conference Leader: Bob Brunn

AUDIO REPLAY VIA PHONE

An audio replay of the call will be available one hour after call ends for 30 days.

Toll Free Number: 888-203-1112

USA Toll Number: 719-457-0820

Replay Passcode: 1420126

AUDIO REPLAY VIA MP3 DOWNLOAD

A podcast will be available within 24 hours after the end of the call. Click here then select Financials/Quarterly Reports and the date.

AUDIO & SLIDE REPLAY VIA INTERNET

An audio replay including the slide presentation will be available on the Internet within two hours following the call. Click here then select Financials/Quarterly Reports and the date.

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