Ryder Reports Second Quarter 2023 Results

Delivers Strong Results in Weak Freight Environment, Raises Full-Year Guidance 

Second-Quarter 2023 Highlights

• GAAP EPS from continuing operations of $(0.39) due to a non-cash UK exit charge, compared to $4.72 in prior year
• Comparable EPS (non-GAAP) from continuing operations of $3.61, as compared to a record $4.43 in prior year, largely reflecting weaker market conditions in used vehicle sales and rental
• Strong performance in all segments benefited EBT
• Total revenue of $2.9 billion compared to $3.0 billion in prior year
• Operating revenue (non-GAAP) of $2.3 billion, up 1%, reflecting Supply Chain Solutions (SCS) and Dedicated Transportation Solutions (DTS) revenue growth partially offset by impact from UK exit

Full-Year 2023 Forecast

• Increased comparable EPS (non-GAAP) forecast to $12.20 - $12.70 from prior forecast of $11.30 - $12.05
• Adjusted ROE (ROE) forecast increased to 17% - 19% from 16% - 18%
• Operating revenue (non-GAAP) growth forecast of 2%, down from prior forecast of 4%, reflecting lower rental demand and volumes in the omnichannel retail vertical
• Net cash provided by operating activities from continuing operations forecast of $2.5 billion, up from $2.4 billion; free cash flow (non-GAAP) forecast of ~$100 million, down from ~$200 million, reflecting accelerated timing of OEM deliveries

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:

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Ryder is a leader in supply chain, dedicated transportation, and fleet management solutions.

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

CEO Comment

"Our strong second-quarter results and increased full-year earnings guidance demonstrate the progress made on our balanced growth strategy to de-risk the business model, enhance returns and drive profitable growth," says Ryder Chairman and CEO Robert Sanchez. "All three business units met or exceeded their pre-tax earnings targets, and ROE of 24% remained above our high-teens target.

"Achieving these results against a backdrop of weakening freight conditions and declining used vehicle prices highlights the effectiveness of our transformative changes. Ryder’s operations are more diversified with expanded capabilities across three scaled businesses, which has enabled us to deliver outstanding service to our customers, outperform prior cycles, and create long-term value for our shareholders.

"Our strong balance sheet continues to provide us with ample capacity to support organic growth, pursue strategic acquisitions, and return capital to shareholders through share repurchase programs and dividends. The recently announced 15% increase to our quarterly dividend is also supported by our confidence in the long-term earnings generation of our model."

Second Quarter 2023 Segment Review

Fleet Management Solutions: Strong Earnings Despite Weaker Used Vehicle Sales and Rental Market Conditions

• FMS total revenue and operating revenue decreased 10% and 4%, respectively
  • Total revenue reflects lower fuel revenue passed through to customers and lower operating revenue
  • Operating revenue reflects a 4% negative impact from UK exit; North America remained unchanged as higher ChoiceLease and SelectCare revenue was offset by lower rental demand
• FMS EBT decreased to $180 million
  • Reflects lower used vehicle sales and rental results
  • Lower used vehicle gains due to a 34% and 41% decrease in used truck and tractor pricing, respectively, partially offset by higher volumes; sequentially from first quarter of 2023, used truck and tractor pricing decreased 14% and 15%, respectively
  • Rental power-fleet utilization was 75%, down from record level of 85% in prior year, on a 1% smaller average power fleet
  • Rental results benefited from a 2% increase in power-fleet pricing
• FMS EBT as a percentage of FMS operating revenue is above company's long-term target of low double digits for the second quarter and trailing 12-month period

Supply Chain Solutions: Strong Earnings Reflect Operating Revenue Growth

• SCS total revenue was unchanged and operating revenue grew 8%
  • Increase in operating revenue primarily driven by new business, higher volumes, and increased pricing
• SCS EBT grew 23%
  • Increase primarily due to higher operating revenue and lower incentive-based compensation costs, as well as higher prior-year customer accommodation charges
  • Partially offset by lower volumes in the omnichannel retail vertical
• SCS EBT as a percentage of SCS operating revenue is in line with company's long-term target of high single digits for the second quarter but below target for the trailing 12-month period

Dedicated Transportation Solutions: Strong Earnings Driven by Growth and Improved Labor Productivity

• DTS total revenue decreased 2% and operating revenue grew 7%
  • Total revenue reflects lower fuel revenue passed through to customers
  • Operating revenue increased due to inflationary cost recovery and higher volumes
• DTS EBT grew 43%
  • Increase primarily due to operating revenue growth and improved labor productivity
• DTS EBT as a percentage of DTS operating revenue is above the company's long-term target of high single digits for the second quarter and at the high-end for the trailing 12-month period

Corporate Financial Information

Unallocated Central Support Services (CSS)

Unallocated CSS costs declined to $20 million from $24 million in the prior year, primarily due to lower professional fees and incentive-based compensation costs.

Tax Rate

Our effective income tax rate from continuing operations was 140.8%, as compared to 29.0% in the prior year, due to a one-time, nondeductible cumulative currency translation adjustment loss from the exit of the UK in the second quarter of 2023. Our comparable effective income tax rate (a non-GAAP measure) from continuing operations was 28.6% as compared to 26.8% in the prior year.

Capital Expenditures, Cash Flow, and Leverage

Year-to-date capital expenditures increased to $1.8 billion in 2023, compared to $1.3 billion in 2022, reflecting higher investments in the lease fleet partially offset by lower investments in commercial rental.

Year-to-date net cash provided by operating activities from continuing operations increased to $1.2 billion, as compared to $1.1 billion in the prior year, driven by higher cash earnings and lower working capital needs. Free cash flow (non-GAAP) of $16 million, compared to $551 million in 2022, primarily reflecting an increase in capital expenditures and lower proceeds from used vehicle sales.

Debt-to-equity as of June 30, 2023 was 211%, compared to 216% at year-end 2022, and remains below the company's long-term target of 250% to 300%.

UK and Currency Translation Adjustment Charge

We completed the exit from the UK business as of June 30, 2023. As a result, we recorded a $183 million cumulative currency translation adjustment in our net earnings as a one-time, non-cash charge during the second quarter of 2023. The cumulative currency translation adjustment charge had no impact on our consolidated financial position or cash flows.

Outlook

"We continue to execute in a challenging market as reflected in our increased earnings and ROE guidance," says Ryder Chief Financial Officer John Diez. "Accelerated timing of OEM deliveries is expected to increase our ChoiceLease fleet growth and related capital expenditures, which should reduce free cash flow in 2023. Our ability to perform in various market conditions reflects the fundamental changes we've made to enhance returns and drive profitable growth."

Supplemental Company Information

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 such as decreasing rental demand, weakening freight conditions, declining used vehicle sales and declining volumes in our omnichannel retail vertical; expectations regarding total and operating revenue, earnings per share, comparable earnings per share, adjusted ROE, net cash provided by operating activities from continuing operations, debt-to-equity, capital expenditures and free cash flow; our ability to execute our balanced growth strategy; our expectations with respect to ChoiceLease growth, including our expectations with respect to the timing of OEM deliveries; our expectations with respect to the effect of our actions to increase returns and long-term earnings generation; our ability to outperform prior cycles; and our ability to support organic growth, make strategic investments and acquisitions, and return capital to shareholders. 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 changes in general economic and financial conditions in the U.S. and worldwide; ongoing supply chain and labor challenges and vehicle production constraints; the effect of geopolitical events; 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; professional 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 and alternative energy 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.

CONFERENCE CALL AND WEBCAST INFORMATION

Ryder’s earnings conference call and webcast is scheduled for July 26, 2023 at 11:00 a.m. ET. To join, click here.

LIVE AUDIO VIA PHONE

WEBCAST REPLAY

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

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