The aggressive approach Ryder has taken toward writing down the value of its used vehicle fleet is paying off on the company’s bottom line, as evidenced by a big shift in net earnings for the third quarter.
Even as net income rose to $35.8 million from a loss of $91.5 million in the third quarter of last year, overall revenue was down. The Fleet Management sector’s total revenue declined 7%, to $1.3 billion from $1.4 billion. Fleet Management includes the businesses Ryder is most known for: leasing commercial vehicles and then selling them.
But because of the earlier accounting changes, Fleet Management Solutions’ earnings before taxes rose to $16.2 million from a loss of $108.6 million in the third quarter of last year. Earnings for Ryder’s other segments also rose, to $57.8 million from $34.6 million for Supply Chain Solutions and to $24.7 million from $18.5 million for Dedicated Transportation Solutions.
The report blew away forecasts. According to SeekingAlpha, Ryder was expected to report earnings per share of negative 32 cents per share. Instead, its adjusted non-GAAP earnings came in at $1.21 per share. Total revenue of $2.2 billion was more than the consensus forecast of $2.1 billion.
In early trade, investors rewarded Ryder with a small decline in its stock price in the midst of a broad sell-off.
The shift in the company’s bottom line came despite the drop in revenues to $2.15 billion from $2.2 billion. But a variety of expenses were lower, including the cost of leases. Costs declined to $2.1 billion from $2.3 billion in the third quarter of last year.
The Dedicated division provides leased trucks and drivers to dedicated customers, while Supply Chain Solutions provides logistics support and networks to its customers.
Ryder had estimated that the impact from the changes in the estimate of residual values would be $115 million in the quarter. It actually came in at $100 million, primarily because the revenues received from the sales of vehicles beat estimates, for an impact of $15 million.
That change reflected the overall strength in the used vehicle market that benefited the Fleet Management group. In a prepared statement, company CEO Robert Sanchez said Ryder “realized gains on used vehicle sales from higher sequential pricing.” It also reduced its inventory from the second quarter, “driven by record used vehicle sales volume.”
Ryder now expects its used vehicle inventory at the end of the year to be “within our target range.”
The earlier write-downs of the value of used vehicles continues to impact earnings negatively in some ways. The company’s earnings for the Fleet Management group as a percentage of operating revenue remains below the long-term targets of high single digits, Ryder said, “reflecting depreciation from prior residual value estimate changes and lower rental results.” Earnings before taxes as a percent of total revenue came in at 1.2% for the quarter.
The Supply Chain sector, which posted a 11% increase in revenue, benefited from an upturn in the automotive business, Sanchez said. The numbers are now pre-pandemic, he said.
That is also the part of the Ryder business that benefits from final-mile distribution of large goods. “Ryder Last Mile revenues were up nearly 30%, delivering returns in the quarter well above our overall target for SCS,” Sanchez said. “These results were driven by new business as well as higher volumes partially due to COVID-19.”
Sanchez said in the company’s earnings statement that it would be paying frontline employees a bonus that will result in a one-time expense of $30 million.