RYDER SYSTEM INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Update: Transformed business model and balanced growth strategy driving earnings growth. ROE of 17% for the trailing twelve-month period. Returned $202 million to shareholders in the first quarter by repurchasing 1.1 million shares and paying quarterly dividend.
• First Quarter Results: Operating revenue of $2.6 billion in the first quarter, up 2% from prior year. Comparable earnings per share from continuing operations were $2.46, up from $2.14 prior year. Free cash flow increased to positive $259 million from $13 million prior year.
• Capital Expenditures: 2025 capital expenditures forecast approximately $2.6 billion. First quarter lease capital spending $413 million, below prior year. Rental capital spending $78 million in Q1, expected to be $300 million for 2025.
• Outlook: 2025 comparable EPS range updated to $12.85-$13.60. ROE forecast revised to 16.5%-17.5%. Second quarter comparable EPS range $3-$3.25. Incremental benefits from multiyear strategic initiatives in contractual lease, dedicated, and supply chain.

Segment Performance

• Fleet Management Solutions (FMS): Operating revenue increased 1% due to higher choice lease revenue, partially offset by lower rental demand. Pretax earnings in fleet management were $94 million, down year over year. Rental utilization on the power fleet was 66%, rental fleet declined 3% year over year. Fleet management EBT as a percent of operating revenue was 7.5% in the first quarter.
• Supply Chain Solutions (SCS): Operating revenue increased 3% driven by new business and higher customer volumes. Supply chain earnings increased 35% from the prior year. Supply chain EBT as a percent of operating revenue was 8.7% in the quarter.
• Dedicated Transportation Solutions (DTS): Operating revenue increased 8% reflecting prior year acquisition. Dedicated EBT increased 50% year over year. Dedicated EBT as a percent of operating revenue was 5.9% in the quarter.

Guidance

• 2025 comparable EPS forecast range updated to $12.85 to $13.60, above prior year.
• 2025 ROE forecast revised to 16.5% to 17.5% from prior range.
• Second quarter comparable EPS forecast range $3 to $3.25.
• Class eight production in the US expected to be down 20% in 2025, vs initial forecast of up 1%.

Risks

• Extended freight downturn and economic uncertainty causing customers in lease, dedicated, and supply chain to delay decisions or downsize fleets, impacting near-term contractual sales.
• Used vehicle market challenges, including sequential declines in proceeds for tractors and trucks, and need to sell aged inventory.

Q: Talk about the used vehicle market and lease pricing.

A: Robert and Tom Havens discussed used vehicle market trends, noting sequential declines in proceeds but improvement when excluding aged inventory. Lease pricing targets a 100 to 150 basis point spread versus WACC.

Q: Discuss macro visibility and earnings profile.

A: Robert and Christyne McGarvey mentioned a muted economic environment impacting rental demand, but contractual businesses provide earnings stability. 2025 EPS range reflects benefits from strategic initiatives offsetting market impacts.

Q: What are the canary in the coal mine indicators?

A: John Diez cited rental fleet utilization, tractor class capacity, and used vehicle pricing as indicators, noting early signs of stabilization in sleeper and tractor classes.

Q: Talk about supply chain end markets and tariffs.

A: Steve Sensing discussed supply chain exposure to tariffs, with majority of auto work in US and minimal impact on new vehicle pricing. Omnichannel retail warehouse network optimized for operational efficiencies.

Q: Discuss residual chart and EPA standards impact.

A: Christyne McGarvey and Robert Sanchez discussed residual estimates, noting potential downside covered in guidance, and minimal impact of EPA standards on business due to USMCA compliant vehicles and pass-through of costs to customers.