Ryder System (R) Cuts Q3, FY15 EPS Outlook

Ryder System (NYSE: R) revised its earnings guidance for the third quarter and full-year 2015 due to lower than expected earnings growth in its Fleet Management Solutions (FMS) business segment. The revision is due to a temporary execution issue, related to record fleet growth, which the Company expects to resolve during the fourth quarter, and less robust demand conditions in used vehicle sales. Performance in Ryder’s Dedicated Transportation Solutions (DTS) and Supply Chain Solutions (SCS) business segments is expected to remain generally in line with the Company’s previous forecast.

Commercial rental demand remained robust and rental revenue grew by 7% in the third quarter. Earnings, however, were impacted by a greater than planned number of out-of-service vehicles during the quarter, as maintenance technicians were supporting new levels of fleet growth across all product lines. The elevated level of out-of-service vehicles resulted in lower than expected rental utilization. Rental utilization remained solid at 76.4% in the third quarter, but was below expectations, reflecting out-of-service vehicles. Rental pricing grew by 2% in the third quarter, as compared with the Company’s prior forecast of 3%, as a greater percentage of the rental fleet was used to satisfy lease customers whose vehicles were down for service. These vehicles would have otherwise been available to generate rental revenue. The Company anticipates fourth quarter rental demand to be generally consistent with prior expectations. Earnings, however, will be impacted as the Company resolves the out-of-service vehicle issue in the fourth quarter.

Used vehicle sales results also impacted earnings in the quarter, particularly in the month of September. The impact was due to 7% fewer than anticipated used power vehicles sold in the U.S., as well as moderating price growth. Used truck inventories remained relatively unchanged and at the low end of the Company’s target range. The Company expects fourth quarter results to continue to be impacted by reduced used truck sales volumes and lower price expectations that are now consistent with prior-year pricing.

Overall revenue growth remains strong and in line with Ryder’s prior expectations for the third quarter. The Company continued to realize strong sales in full service lease and anticipates lease fleet growth for the full year to be at the high end of the Company’s previous forecast of 5,000 to 6,000 vehicles. Ryder also sees continued strong customer interest in the new on-demand maintenance product following the official launch in August. Additionally, DTS and SCS are expected to deliver solid earnings generally in line with the Company’s previous third quarter forecast.

Commenting on the Company’s announcement, Ryder Chairman and Chief Executive Officer Robert Sanchez said, “We are confident that during the fourth quarter we will resolve the temporary execution issue related to our unprecedented growth. We have adjusted our technician labor model to accommodate this growth and are reducing out-of-service vehicles to a normalized level. The lower outlook also accounts for our expectations of the used vehicle sales environment. In commercial rental, we anticipate continued strong demand, as evidenced by recent trends and supported by growth in the overall customer base. We are pleased that we continue to deliver increased year-over-year earnings, while also realizing strong top line revenue growth driven by secular outsourcing trends and the enhancements we’ve made to our sales and marketing efforts.”

Based on these factors, Ryder has revised its comparable third quarter 2015 earnings per dilutive share (EPS) forecast to a range of $1.72 to $1.74, from $1.82 to $1.87, as compared with $1.63 in the prior year. The Company also established its comparable fourth quarter 2015 EPS forecast of $1.72 to $1.82, as compared with $1.60 in the prior year, an increase of 8% to 14%. Fourth quarter results include an expected reduction of $0.02 due to the absence of anti-dilutive share repurchases. The Company is revising its full-year 2015 comparable EPS forecast to $6.17 to $6.29, down from a prior range of $6.45 to $6.55, as compared with the prior year of $5.58. This represents an increase of 11% to 13%. Ryder will provide additional details on its third quarter earnings conference call scheduled for Thursday, October 22nd.

** The Street sees Q3 and FY15 EPS of $1.86 and $6.49, respectively

Revised Earnings Per Share Forecast

Business Description

Ryder System, Inc. is a FORTUNE 500® commercial fleet management, dedicated transportation, and supply chain solutions company. Ryder’s stock (NYSE: R) is a component of the Dow Jones Transportation Average and the Standard & Poor’s 500 Index. The Company’s financial performance is reported in the following three, inter-related business segments:

• Fleet Management Solutions – Ryder’s FMS business segment provides one-stop outsourcing of a range of solutions for commercial truck fleet operators, including vehicle maintenance, leasing and rental, used vehicle sales, as well as services such as roadside assistance, fueling, safety, and financing options.
• Dedicated Transportation Solutions – Ryder’s DTS business segment provides customers with vehicles, drivers, management, and administrative support, with the assets committed to a specific customer for a contractual term. DTS supports customers with specialized equipment or product handling needs, complex routes, rigorous service level agreements or high driver turnover.
• Supply Chain Solutions – Ryder’s SCS business segment offers a broad range of innovative solutions designed to optimize day-to-day logistics operations and synchronize the supply of parts and finished goods with customer demand. Solutions are strategically engineered to address customer requirements and include lead logistics management, dedicated services, warehousing, transportation management, packaging, and other value-added services.

For more information on Ryder System, Inc., visit http://investors.ryder.com/.

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