Falling used truck values weigh on Ryder earnings

Ryder System Inc. (NYSE: R) reported solid financial and operating results for the fourth quarter of 2019, a quarter that was spoiled by a collapse in used truck prices and subsequently higher depreciation expenses in Ryder’s Fleet Management Solutions, which leases trucks to carriers.

Ryder reported a comparable earnings-per-share loss of $0.01 compared to a profit of $1.87/share in the fourth quarter of 2018. GAAP losses were $1.02/share compared to earnings of $2.12/share in the fourth quarter of 2018.

Ryder breaks out its results into three business units: Fleet Management Solutions (FMS), which leases trucks to carriers and performs maintenance; Supply Chain Solutions (SCS), a fourth-party logistics provider that offers warehousing, transportation management and other services; and Dedicated Transportation Solutions (DTS), which provides trucks, drivers, maintenance, compliance and administrative support to trucking carriers.

FMS grew its top-line revenue by 4% year-over-year to $1.43 billion, while SCS revenue fell 3% year-over-year to $649 million and DTS revenue fell 5% year-over-year to $346 million. Overall revenues were up 1% to $2.27 billion, a fourth-quarter record for Ryder.

“In the fourth quarter, we delivered record total and operating revenue, driven by continued favorable outsourcing trends,” Ryder CEO Robert Sanchez said in a statement. “Our earnings reflect the impact of the previously announced vehicle residual value estimate change. Comparable EPS in the fourth quarter was at the lower end of our forecast range, reflecting a modest increase in the depreciation impact of the vehicle residual value estimate change. As anticipated, the impact in the fourth quarter was less than in the prior quarter and is expected to continue to lessen, which will benefit sequential earnings comparisons in future periods.”

Sanchez noted that for the full year of 2019, Ryder delivered EBITDA growth of 11%. 

Ryder’s losses were concentrated in FMS, where lower used truck prices caused an increase of $118 million in depreciation expenses compared to the year-ago period.

Ryder’s business is designed to grow through a downturn, but it takes on the risk of owning assets that cash-strapped carriers can’t afford. Going forward, the company plans to grow its Supply Chain Solutions and Dedicated Transportation Solutions businesses faster than FMS.

“We anticipate executing a strategy of moderate growth in FMS and accelerating growth in Dedicated and Supply Chain, delivering a balance of revenue and earnings growth with positive free cash flow over a cycle,” Sanchez said in a statement.

Ryder gives unusually detailed guidance in its earnings release and forecast comparable earnings per share of $1.10 to $1.50 for the full year of 2020 but a loss of $0.65 to $0.80 in the first quarter of the year.