Ryder Reports Third Quarter 2022 Results

Third Quarter 2022

• GAAP EPS from continuing operations of $4.82 versus $2.58 in prior year due to higher earnings in all three business segments
• Comparable EPS (non-GAAP) from continuing operations of $4.45 versus $2.55 in prior year
• Total revenue of $3.0 billion and operating revenue (non-GAAP) of $2.3 billion, up 23% and 18%, respectively, reflecting organic revenue growth in all business segments and SCS acquisitions

Full-Year 2022 Forecast

• Increased GAAP EPS forecast to $16.40 - $16.60 from $14.45 - $14.95
• Increased comparable EPS (non-GAAP) forecast to $15.65 - $15.85 from $14.30 - $14.80
• Adjusted ROE (ROE) forecast increased to 26% - 27% from 25% - 26%
• Net cash provided by operating activities from continuing operations forecast of $2.3 billion; free cash flow (non-GAAP) forecast of $800 million - $900 million, up from $750 - $850 million

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

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Ryder is a leader in supply chain, dedicated transportation, and fleet management solutions. (Photo: Business Wire)

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

CEO Comment

Commenting on the company's results and outlook, Ryder Chairman and CEO Robert Sanchez says, "Record third-quarter earnings reflects growth in all three business segments. Earnings exceeded our most recent forecast due primarily to better than expected results in used vehicle sales and rental. Strong ROE of 30% reflected ongoing truck capacity constraints in the market and benefits from our initiatives to increase long-term returns. We continued to see strong sales momentum and realized record multi-year contractual sales year-to-date, positioning us well for future revenue growth.

"We executed on our initiatives and returned to high single-digit earnings targets in both supply chain and dedicated, resulting in approximately 190% and 150% segment earnings growth respectively. This improvement reflects pricing adjustments to address unusually high labor cost increases that began in 2021 and benefits from profitable new business. We expect SCS and DTS results to continue to benefit from these actions going forward.

"Accelerating growth in SCS and DTS is a key driver of our strategy to create long-term shareholder value. Our recent acquisitions in fast-growing e-commerce fulfillment and multiclient warehousing continue to contribute to earnings growth in SCS. Consistent with our strategy to drive growth by bringing new technology-driven solutions to market, we recently announced the acquisition of Baton, a startup tech firm which we initially invested in through RyderVentures, our corporate venture capital fund. We are excited about the value the Baton team can create for Ryder customers as we build out a new suite of products that focus on optimizing transportation and supply chain networks.

"In FMS, used vehicle sales and rental performance contributed to strong results again this quarter. As anticipated, used truck and tractor pricing declined sequentially in the quarter and we continued to realize substantial used vehicle gains as prices remain well above our residual value estimates. Rental demand and pricing conditions remain robust and we have yet to see softening trends in the rental market. Our lease pricing initiative continues to deliver improved results, and we anticipate incremental earnings from this initiative as the remaining half of our lease portfolio is renewed at higher returns. Despite ongoing OEM delays, our North American lease fleet returned to growth at the end of the quarter. We continue to expect our year-end lease fleet to be up by approximately 2,000 vehicles, which will contribute primarily to earnings in 2023.

"Looking ahead, we've increased our 2022 ROE and comparable EPS forecasts to reflect improved rental and used vehicle sales performance and we remain confident in our outlook for continued strong core earnings. We have increased our most recent free cash flow forecast for full year 2022 to $800 - $900 million due to higher proceeds from used vehicle sales.

"Our strong balance sheet enables us to pursue targeted acquisitions and return capital to shareholders. We completed our $300 million accelerated share repurchase program in September 2022 and have existing authorization for an additional 2-million-share discretionary program and a 2.5-million-share anti-dilutive program.

"During the quarter, we released our latest Corporate Sustainability Report. We were proud to share that as a result of our initiatives to reduce our environmental footprint through efficiency and innovation, we achieved our emissions reduction targets well ahead of schedule."

Outlook Updates

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Third Quarter Business Segment Operating Results

Fleet Management Solutions: Higher Earnings Driven by Used Vehicle Sales and Rental Results

Fleet Management Solutions (FMS) total and operating revenue increased due to higher rental revenue driven by higher pricing and demand. Total revenue also increased due to higher fuel prices passed through to customers. FMS operating revenue increased globally despite a 4% negative impact from the wind down of the UK business.

FMS EBT increased by $79 million primarily from higher used vehicle sales and rental results reflecting benefits from tight truck capacity and initiatives to improve returns in these areas. Increased gains on used vehicles sold and a declining impact of depreciation expense from prior vehicle residual value estimate changes contributed $55 million in higher year-over-year earnings. Used vehicle pricing increased from the prior year for both trucks and tractors. Sequentially from the second quarter of 2022, used truck and tractor pricing decreased 11% and 22%, respectively. Used vehicle inventory levels increased sequentially to 4,700 vehicles but remains below the company's long-term target range of 7,000 - 9,000 vehicles. Rental results benefited from a 7% increase in power-fleet pricing and strong power-fleet utilization of 83% on a larger fleet. FMS EBT as a percentage of FMS operating revenue is well above the company's long-term target of low double-digits for the third quarter and for the trailing 12-month period.

Supply Chain Solutions: Higher Earnings Reflect Increased Pricing and New Business

Supply Chain Solutions (SCS) total and operating revenue increased due to acquisitions and double-digit organic revenue growth in all industry verticals reflecting higher volumes, new business, and increased pricing. Higher volumes include the prior-year impact of automotive supply chain disruptions. Operating revenue grew 23% organically year-over-year.

SCS EBT increased primarily due to higher pricing and cost-recovery initiatives as well as new business. EBT comparisons also benefited from the impact of automotive supply chain disruptions in the prior year and acquisitions. SCS EBT as a percentage of SCS operating revenue is in line with the company's long-term target of high single-digits for the third quarter 2022 but below target for the trailing 12-month period.

Dedicated Transportation Solutions: Higher Earnings Primarily Driven by Increased Pricing

Dedicated Transportation Solutions (DTS) total and operating revenue increased due to higher pricing, increased volumes, and new business.

DTS EBT increased primarily due to higher pricing as well as new business. DTS EBT as a percentage of DTS operating revenue is in line with the company's long-term target of high single-digits for the third quarter 2022 but below target for the trailing 12-month period.

Corporate Financial Information

Unallocated Central Support Services (CSS)

Unallocated CSS costs were $21 million as compared to $17 million in the prior year, primarily reflecting increased incentive-based compensation costs and professional fees.

Income Taxes

Our effective income tax rate from continuing operations was 26.3% as compared to 24.3% in the prior year due to incremental U.S. tax on higher foreign earnings related to the exit of our UK FMS business as well as a shift in the mix of earnings subject to tax in different jurisdictions.

Capital Expenditures, Cash Flow, and Leverage

Year-to-date capital expenditures increased to $2.0 billion in 2022 compared to $1.5 billion in 2021 due to higher planned investments in the lease fleet.

Year-to-date net cash provided by operating activities from continuing operations increased to $1.8 billion as compared to $1.7 billion in the prior year, reflecting higher earnings partially offset by higher working capital needs. Free cash flow (a non-GAAP measure) was $887 million, up from $829 million in 2021, primarily due to higher proceeds from the sale of revenue-earning equipment, partially offset by an increase in capital expenditures. Full-year 2022 free cash flow forecast increased by $50 million to $800 million - $900 million. This includes $200 million of capital expenditures deferred into 2023 related to OEM vehicle delivery delays and $350 million of expected proceeds from the exit of the UK business.

Debt-to-equity as of September 30, 2022 decreased to 210% from 235% at year-end 2021 and is below the company's long-term target of 250% - 300%.

Share Repurchase Programs

Ryder completed its $300 million accelerated share repurchase program in September 2022. Under this program, a total of 4 million shares were repurchased and retired at an average price of $74.47 per share. Board authorization exists for a 2-million-share discretionary program and a 2.5-million-share anti-dilutive program.

Fleet Management Solutions UK Business Update

The company continues to make significant progress in exiting the lower-return UK business and remains on track to complete the process by mid-2023. Since the beginning of 2022, Ryder has sold approximately 75% of the UK vehicles and properties, generating proceeds of $326 million.

Supplemental Company Information

Third 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 supply chain and labor shortage challenges and vehicle production constraints on our business, market conditions, e-commerce trends, freight environment, expected earnings, depreciation, commercial rental demand and utilization, and used vehicle sales volume and pricing; expectations related to our strategic investments and initiatives, including our recent supply chain acquisitions and initiatives related to maintenance costs savings and improving returns; expected benefits of lease pricing initiatives and our ability to renew leases; our expectations regarding benefits from our accelerated share repurchase program; our expectations related to timeline and cash proceeds from our exit of the FMS U.K. market; our ability to execute our strategy of accelerating growth in certain business segments; performance, including sales and revenue growth, in our product lines and segments, for example e-commerce and multi-client warehousing; residual values and depreciation expense; used vehicle inventory; earnings; free cash flow; tax rate; operating cash flow; capital expenditures; fleet growth; and expected benefits from new contracts and pricing initiatives in our supply chain and dedicated business divisions. 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. A variety of factors, many of which are outside of our control, could cause residual value estimates to differ from actual used vehicle sales pricing, such as changes in supply and demand of used vehicles; volatility in market conditions; changes in vehicle technology; competitor pricing; regulatory requirements; driver shortages; customer requirements and preferences; and 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 and future variants, including ongoing supply chain and labor challenges and vehicle production constraints; the effect of geopolitical events, including the impact of the conflict between Russia and Ukraine; our ability to adapt to changing market conditions, including lower than expected contractual sales, decreases in commercial rental demand or utilization, poor acceptance of rental pricing, and 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; our ability to effectively and efficiently integrate acquisitions into our business; lower than expected benefits from our sales, marketing and new product initiatives; 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, changes in technology 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; unanticipated changes in fuel prices; unanticipated currency exchange rate fluctuations; increases in inflation or interest rates; 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.

Financial = ryder-financial

USA = ryder-usa

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