Ryder System, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Update: Ryder delivered fourth consecutive quarter of earnings per share growth. The business outperforms prior cycles due to balanced growth strategy, derisking the business, increasing return profile, and accelerating growth in asset-light supply chain and dedicated businesses. Revenue mix shifted towards Supply Chain and Dedicated with 60% of 2025 revenue expected from these asset-light businesses compared to 44% in 2018.
• Third Quarter Results: Total company operating revenue $2.6 billion, up 1% from prior year. Comparable earnings per share from continuing operations $3.57, up 4% from prior year. Return on equity 17%, up from prior year.
• Capital Spending: Year-to-date lease capital spending $1.2 billion, rental capital spending $271 million, both below prior year. Full year 2025 gross capital expenditures forecast approximately $2.3 billion, below prior year. Balance sheet remains strong with leverage at lower end of target range.
• Share Repurchases: Board authorized new 2 million share repurchase program. Since 2021, repurchased ~22% of shares outstanding and increased quarterly dividend by 57%.

Segment Performance

• Fleet Management Solutions (FMS): Operating revenue in line with prior year. Pretax earnings up year-over-year due to higher ChoiceLease performance, but offset by lower used vehicle sales and rental results. Rental demand was weak, with rental utilization at 70% (down slightly from prior year) and rental Powerfleet pricing up 5% year-over-year. FMS EBT as a percent of operating revenue was 11.4% in the third quarter, below the long-term target of low teens over the cycle.
• Supply Chain Solutions (SCS): Operating revenue increased 4% driven by new business in omnichannel retail. However, supply chain earnings decreased 8% as benefits from revenue growth were offset by e-commerce network performance and higher medical costs. SCS EBT as a percent of operating revenue was 8.3% in the quarter, at the segment's long-term target of high single digits.
• Dedicated: Operating revenue decreased 6% due to lower fleet count reflecting the prolonged freight downturn. Dedicated EBT was in line with prior year, reflecting acquisition synergies, offset by lower operating revenue. Dedicated EBT as a percent of operating revenue was 7.8% in the quarter, at the segment's long-term high single-digit target.

Guidance

• EPS: Full year 2025 comparable EPS forecast range $12.85 to $13.05, above prior year $12, driven by higher contractual earnings and lower share count. Fourth quarter comparable EPS forecast range $3.50 to $3.70.
• ROE: 2025 ROE forecast unchanged at 17%, in line with current market conditions.
• Free Cash Flow: 2025 free cash flow forecast unchanged at $900 million to $1 billion, reflecting lower capital expenditures and annual cash flow benefit of ~$200 million from permanent reinstatement of tax bonus depreciation.
• Strategic Initiatives: Expected to generate annual pretax earnings benefits of approximately $150 million from multiyear strategic initiatives, with $50 million incremental to 2024 by year-end 2025.

Risks

• CDL Regulations: Tightening driver market, which could impact certain segments, but uncertainty remains on timing and full impact. Potential pressure on wages and outsourcing activity.
• Freight Market Uncertainty: Prolonged freight downturn and economic uncertainty causing customers and prospects in Lease and Dedicated to delay decisions, impacting near-term contractual sales.
• Tariffs: Uncertainty around tariff impacts on used truck pricing and new truck purchases, with potential effects on used vehicle prices and supply chain volumes.

Q: How do CDL regulations impact the business model? What are the puts and takes?

A: Robert Sanchez and John Diez discussed that CDL regulations could tighten the driver market. Tighter driver market is good news for dedicated business as companies look for help. Majority of lease portfolio not impacted, but could put pressure on wages over time and favor outsourcing. Estimated 5% impact to overall capacity.

Q: What are the drivers of earnings growth next year? Are there headwinds to be thinking about?

A: Robert Sanchez mentioned contractual earnings growth from remaining strategic initiatives, strong supply chain sales year, and potential freight cycle upturn. Headwinds include muted sales in Lease and Dedicated due to freight market softness, but supply chain contracts expected to come in next year.

Q: How to frame thinking about truck tariffs and its impact on used truck prices?

A: Robert Sanchez stated uncertainty on tariff impact and pricing pass-through. Higher new truck pricing could lift used truck prices, slow new truck purchases, and accelerate freight market balance. Used equipment purchased prior to tariffs may be more valuable over time.

Q: Contrast Supply Chain Solutions headwinds this quarter with future outlook?

A: John Sensing and Cristina Gallo-Aquino mentioned higher medical costs, e-com productivity miss, and strategic initiative moves as Q3 headwinds. Forecast for Q4 includes flat rental demand, modest used vehicle market improvement, and potential retail mix benefit. Supply chain sales pipeline strong, expected to impact next year.