Ryder System, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Balanced Growth Strategy: Made progress in derisking the business model, exiting underperforming geographies and services, and achieving cost savings from multiyear lease pricing and maintenance initiatives, with combined annual pretax earnings benefit over $225 million.
• Strategic Priorities: Focused on operational excellence, customer-centric innovation, and profitable growth, expecting $50 million in benefits from next phase of maintenance cost savings, optimizing omnichannel retail warehouse network, and investing in customer-centric technology including AI in proprietary technologies like Ryder Share and Ryder Guide.
• Capital Allocation: Strong balance sheet with leverage at lower end of target range, generating significant free cash flow since 2021, repurchasing shares and increasing dividends, with capital allocation priorities on profitable growth, strategic investments, and returning capital to shareholders.

Segment Performance

• Fleet Management Solutions: Operating revenue was down 1%, with pretax earnings of $136 million, reflecting weaker market conditions in rental and used vehicle sales. Rental demand was below prior year, but rental power fleet pricing was up 5% year over year. Fleet management EBT as a percent of operating revenue was 10.5% in the fourth quarter.
• Supply Chain: Operating revenue increased 3% driven by new business and volumes in omnichannel retail, but earnings decreased 8% due to lost business and extended customer production shutdowns in automotive. Supply chain EBT as a percent of operating revenue was 8% in the quarter.
• Dedicated: Operating revenue decreased 4% due to lower fleet count. Dedicated EBT was above prior year reflecting lower bad debt and benefits from acquisition synergies, but was partially offset by lower operating revenue. Dedicated EBT as a percent of operating revenue was 8.9% in the quarter.

Guidance

• 2026 Outlook: Operating revenue expected to grow ~3% with revenue growth in supply chain offset by pressures in dedicated and fleet management. Comparable EPS expected to increase by 12% at high end of $13.45 to $14.45 range, driven by $70 million benefits from strategic initiatives. Return on equity expected to increase to 17-18%. Free cash flow expected to be between $700 million to $800 million. Segment-wise, Fleet Management EBT percent expected to be up year over year but below target, Supply Chain operating revenue growth expected to accelerate, Dedicated operating revenue growth muted but EBT percent in target range.
• First Quarter Forecast: Comparable EPS forecast range of $2.1 to $2.35, reflecting weak used vehicle sales and rental market conditions and challenging supply chain comparisons.

Risks

• Uncertainties: Forward-looking statements subject to uncertainty due to changes in economic, business, competitive, market, political, and regulatory factors. Actual results may differ materially from expectations.

Question and Answer

Q: Hey, good morning. It is Andre on for Jordan. Thanks for taking our question. It is a helpful earnings walk on Slide 16 to get to the high end of your EPS guide for 2026. Just curious between the buckets you lay out in terms of the year-over-year earnings tailwind, if you could just share where the largest variability lies within those buckets with respect to getting to the low end versus the high end. And then maybe what is driving that variability.

A: Sure. Hey, Andre, it is John here. If you look at page 16, I would say the biggest variability there is really tied to our transactional business. When you look at the improved earnings of the businesses, on the FMS side, a lot of it is coming from lease pricing and another year of maintenance, strategic initiatives. I would say we feel really confident in our lease pricing based on the momentum we had at the end of last year, and that will carry over into this year. Maintenance, there is some variability there, but we see that the business continues to execute at a better level than we were previously. If you look at supply chain, clearly, there you do have the omnichannel optimization. And you heard in our prepared remarks, we took some actions last year that really set us up to deliver incremental benefits from both the omnichannel as well as the dedicated flex structure activity that we made. So, overall, I would say probably the biggest variability in our strategic initiatives is probably tied to our maintenance organization and some of it tied to our omnichannel optimization activity. Clearly, Redwood and UBS, we have no meaningful improvement in those transactional businesses. The low end of our range does contemplate further deterioration from Q4 if rental and UVF were to pull back. And that is what is contemplated in the 13.45 at the low end. But we feel really good about the strong contractual portfolio performance and obviously the confidence we have in executing again on our strategic initiatives.

Q: Hi. Yes. Good morning. Appreciate taking our question. Great print on the used gain of $12 million in 4Q. Wanted to ask, what is your view on cadence for that? You mentioned 1Q should be softer. Should we be looking at a step down not too much from that 12 mil? And then gradually improving beyond that 12 mil throughout the year, or what is your view on kind of 1Q through 'twenty-six for used gain, please?

A: Yeah, Ben. Let me make a few remarks, and then I will turn it over to Tom. We do see the environment on the used vehicle sales side kind of gradually improving as we get through the year. We do expect Q1 to be kind of consistent with what we saw in Q4. We are expecting tractor pricing to improve as a lot of capacity keeps coming out of the market, and that will bode well for tractor pricing going into the second half of the year. Trucks, which is the majority of our inventory today, we do expect trucks to continue to be kind of depressed at the current fourth-quarter levels. Which, as you recall, year over year, truck pricing was declining all of last year, so it is going to make the comparables a little bit more difficult. We do expect to improve retail mix next year, but I will let Tom talk about what he is seeing in the business.

Q: Thank you very much. Well, first of all, congratulations, Robert, on a tremendous run. It really transformed the company and also congratulations, John. We look forward to your leadership. So I guess two questions. All these trucking equities are going up. And spot rates are up and people are enthusiastic that maybe we are starting to see a bit of a turn. And I know they are more focused on pricing and driver constriction as opposed to vehicle demand that is actually shown signs of increasing yet. But it seems like your forecast is a little more dour than that. And particularly when I look at the ratio of rental equipment to lease, you know, normally, you have, like, 25% rental trucks to lease trucks because you are going to need full-service lease support, but you guys are down to 22% and it looks like you are headed toward 20, just based on the guide. So I guess kind of what are you seeing differently than the optimism that some of the freight carriers are seeing out there?

A: Let me let John give you a little more color. I will just start by telling you that clearly, the range that we have given for the year the top end of the range does not assume any significant pickup in the market. That is not because we have a different crystal ball than the rest of the market. We just have not seen evidence of that yet in our business. So clearly, things got better, there is an opportunity for things to get above that number. But given what we are seeing today, that is the guidance we are giving. But I will let John give you color on that.

Q: Hey, thanks for taking the question. Can I just ask about the Flex operating structure and the benefits you are expecting to see from that in Dedicated and you could you know, if dedicated, you know, sales ramp up and you start to get seeing some new contracts, could, you know, some of that structure offset some of the margin headwinds with normally expect? In an upswing of the dedicated business?

A: Yes, David. I think right now, what we have seen is really optimization in the back-office resources. As John talked a little bit a bit ago about LATAM, we are implementing some AI technology into the flex model that should allow us to, you know, reduce driver dwell time and better allocate drivers to the right operation. So certainly as the market comes back up, density comes into the flex model. And there should be some upside growth on the top line.

Q: Hi. This is Nancy on for Ravi. Thanks for taking my question. I just wanted to touch on your January commentary a bit more. Is sort of the lackluster January seen so far just because you are going to be seeing a delayed impact from the cycle? Just trying to hammer down the difference between what you are seeing and maybe others in the market.

A: Yeah. I think, Nancy, it is really more the service offerings and the products that we have. We are not in the spot truckload business. So there is a lag when there is tightening of the market. Between when you start to see that and you start to see an increase in our rental business in our used vehicle business. So part of it could just be that, that you are just not seeing it yet. We did we that is one of the reasons why we did not build into our full-year guidance any meaningful improvement in the market. Obviously, that holds and it continues to move in that direction, that could give us some benefits in the back half of the year.

Q: Great. Thank you for taking my question. Robert, John, congrats on the upcoming transition here. I wanted to revisit UBS, but maybe in the context of what some of your fleet strategy is for the year. You discussed a dynamic where both your lease and rental fleet are likely to come down throughout or end of year to end of year with maybe a little bit more punitive coming down in the beginning part of the year and we have seen some other freight companies take some decisive actions, you know, through large impairments on some underutilized assets. Is your UBS certainly being negative in the upside of your case, does that include the potential for maybe Ryder System, Inc. taking some more decisive actions on moving some of that underutilized fleet into the wholesale channel in the first half of this year? And if we could potentially see something similar to the losses that we saw in 2Q of twenty twenty-five.

A: Yeah. Harrison, on the UBS environment, as we look forward, we do see a stabilizing environment. And as I mentioned earlier, we do expect actually tractor pricing to improve. So we are not expecting any sort of dramatic downturn on the upper end of our guidance. Clearly, if there is some pullback, and pricing does continue to move downward, we do not expect to have to take any sort of impairment charges. We think our residual values are appropriately set. So any level of pullback that is out there will be, in our opinion, will be, you know, low single digits. That being said, we do expect UVS to kind of, I would say, perform in line with what we saw in 2025. Yeah, you may see some unevenness as we go through the year depending on the retail wholesale mix that we implement in any one quarter. But you are going to see some performance similar to what you saw in 2025. That is what is in the guide. That we put out.

Q: Hey. Thanks. Morning or, I guess, afternoon. We have seen a pickup in the class eight orders the last couple of months. Are you seeing a pickup in leasing demand, leasing activity? What is your sense? Is this sort of just replacement or is there some growth? Do you think there is a big pre-buy coming this year? So that was the first question. And then just secondly, the comment in the bridge about lease pricing increases, is that sort of is that an incremental tailwind this year? Or is that more so carryover from last year?

A: Okay. Scott, let me answer the second question. I will make a remark on the first question and turn it over to Tom. The lease pricing and the reason for the upsize from the $1.50 to the $1.70 is largely due to the pricing initiative where we have seen that has come in stronger and obviously the replacement cycle of our existing portfolio has extended out to 2026. So the $20 million is predominantly the pricing initiative. As being incremental. And that is the reason for the upsides from $1.50 to $1.70. As far as what we are seeing in the class a, sales numbers, most of that, as we understand it, is coming from the for-hire carriers. That are, for the first time, kind of coming back into the market. And planning ahead for 2026. They may be getting their orders in. We are not seeing any sort of pre-buy activity from our customers on our lease side. So I will let Tom maybe provide a little bit more color, but that is kind of what we are seeing.