Ryder System, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Update: Ryder achieved third consecutive quarter of double-digit earnings per share growth. Second quarter results were above expectations, with Supply Chain segment outperformance offset by increased used vehicle wholesale volumes. The business benefits from a resilient contractual portfolio (over 90% of operating revenue from multiyear contracts) and a return on equity of 17% for the trailing 12 months.
• Second Quarter Results: Total company operating revenue was $2.6 billion in Q2, up 2% from prior year. Comparable earnings per share from continuing operations were $3.32, up 11% from prior year. Year-to-date free cash flow increased to $461 million from $71 million in the prior year. Fleet Management Solutions revenue increased 1%, Supply Chain Solutions revenue increased 3%, and Dedicated Transportation Solutions revenue decreased 3%.
• Capital Spending: Year-to-date lease capital spending was $832 million, below prior year. Full-year 2025 lease spending is expected to be $1.8 billion, down $300 million from prior forecast. Rental capital spending was $268 million, below prior year levels. Forecasted net capital expenditures for 2025 are approximately $1.8 billion.
• Outlook: 2025 comparable earnings per share forecast is updated to a range of $12.85 to $13.30. Return on equity forecast is revised to 17%. Free cash flow forecast is increased by $500 million to a range of $900 million to $1 billion. Incremental pretax earnings benefits from multiyear strategic initiatives are expected, including $20 million from FMS lease pricing, $50 million from FMS maintenance, $40 million to $60 million from DTS Cardinal synergies, and $100 million from SCS omnichannel retail network optimization.

Segment Performance

• Fleet Management Solutions (FMS): Operating revenue increased 1%, driven by 2% growth in ChoiceLease revenue. Pretax earnings in FMS were $126 million, down year-over-year due to weaker freight market conditions. Higher ChoiceLease performance from pricing and maintenance cost savings partially offset lower used vehicle sales. Used vehicle sales in Q2 were negatively impacted by aged inventory wholesale, but retail sales mix improved with tractor retail pricing up 10% and truck retail pricing up 4%. Rental results were weak with 70% utilization on power fleet, up from 69% prior year, but below historical trends. FMS EBT as a percent of operating revenue was 9.7% in Q2, below long-term target of low teens.
• Supply Chain Solutions (SCS): Operating revenue increased 3% due to new business, higher customer volumes, and pricing. Earnings in SCS increased 16% from prior year, reflecting operating revenue growth and optimization of the omnichannel retail network. SCS EBT as a percent of operating revenue was 9.7% in the quarter, at the high end of the segment's long-term target of high single digits.
• Dedicated Transportation Solutions (DTS): Operating revenue decreased 3% due to lower fleet count. EBT in DTS increased 1% year-over-year due to acquisition synergies from Cardinal, but was partially offset by lower operating revenue. DTS EBT as a percent of operating revenue was 7.9% in the quarter, at the segment's long-term high single-digit target.

Guidance

• 2025 comparable earnings per share forecast: $12.85 to $13.30, above prior year.
• Return on equity forecast: Revised to 17%.
• Free cash flow forecast: Increased by $500 million to $900 million to $1 billion, reflecting lower capital expenditures and tax bonus depreciation benefits.
• Third quarter comparable earnings per share forecast range: $3.45 to $3.65.
• Incremental annual pretax earnings benefits from strategic initiatives: Approximately $150 million, including $20 million from FMS lease pricing, $50 million from FMS maintenance, $40 million to $60 million from DTS Cardinal synergies, and $100 million from SCS omnichannel retail network optimization.

Risks

• Prolonged freight downturn and economic uncertainty causing delays in contractual sales for Lease and Dedicated businesses.
• Weak rental market conditions impacting results.
• Impact of aged inventory wholesale on used vehicle sales results, though expecting used vehicle sales to be in line with first quarter levels for the next two quarters.

Question and Answer

Q: Are you confident in deploying the dry powder on the balance sheet?

A: Yes, we feel good about the dry powder, with repurchase programs in place, looking for acquisition opportunities, and planning organic investment in the freight up cycle.

Q: Why did losses occur on sales in Q2 and what to expect in Q3?

A: Losses in Q2 were driven by incremental wholesaling of aged inventory. Expecting less wholesaling in Q3, leading to more gains similar to Q1.

Q: How does bonus depreciation impact customer behavior?

A: Bonus depreciation stimulates the economy, encouraging customers to make investments, which in turn increases leasing and service opportunities for Ryder.

Q: What is the margin cadence outlook for the back half of the year?

A: FMS and SCS expected to see margin growth due to rental stabilization and initiative benefits. Dedicated impacted by lower fleet count but benefits from synergies.

Q: What is the outlook for maintenance services?

A: Focus on Torque mobile maintenance, with revenue up 75% year-over-year. Traditional SelectCare fleet seeing sequential growth, and looking to grow through acquisitions and investments.

Q: Thoughts on residual values for trucks and tractors?

A: Impacted by aged inventory, but retail pricing holding and improving slightly. Residuals are reasonable, with no material impact on results expected from prolonged freight conditions.

Q: Status of dedicated contract delays and their impact on guidance?

A: Still seeing hesitation in dedicated contracts, with pipelines solid but uncertainty continuing. Not much improvement baked into the back half guidance, with potential benefits in 2026.