Ryder System did not have a particularly strong quarter in the sale of its used vehicles, but the company is trying to lessen its dependence on that revenue flow.
In announcing and discussing its first quarter earnings with analysts Tuesday–which overall were solid–Ryder said it had sold 4,200 used vehicles in the quarter, down 7% from the first quarter of 2017. However, that number was up 5% from the fourth quarter of last year.
The company’s performance on used vehicles was not particularly bad. Its used vehicle inventory at the end of the quarter stood at 6,000 vehicles, compared to 7,100 at the end of the first quarter of last year. Vehicles sold totaled 4,200 compared to 4,500 last year, but in a more recent comparison, the sales were up 5% from the fourth quarter of 2017.
Ryder chairman and CEO Robert Sanchez said that at 6,000, the used inventory number is unchanged from the end of 2017 and is at the low end of the company’s goal of keeping used vehicle inventory between 6,000 and 8,000.
As far as prices, year-on-year prices—or what Ryder calls “proceeds per unit”—were up 5% for tractors and 2% for trucks. But compared to the fourth quarter, they were up 3% for tractors and down 3% for trucks.
And the company believes it has changed the business model enough that it won’t be so completely tied to the value of its used vehicle sales. “We have a lot of headwinds,” Ryder chairman and CEO Robert Sanchez said on the company’s earnings call. “We have had for a couple of years. But now earnings in the rest of the business is offsetting earnings from used sales and deprecation. We are at a point where we can offset and grow earnings meaningfully in the face of continued softness on the used truck side.”
Still, Sanchez and other executives on the call several times noted that the sales prices the company was receiving had much to be desired.
“Volumes are in line with what we thought,“ Sanchez said. “Pricing is a little lower than what we thought.”
He added that Ryder is not banking on any change in that outlook, and that the company’s guidance going forward calls for almost a doubling of its projected losses on used vehicle sales. In a follow-up email, Ryder vice president for corporate strategy and investor relations Robert Brunn said Ryder’s original forecast was for losses on used vehicle sales to total around $10 million, or 14 cts per share, in 2018. That projection is now out to $25 million, or 35 cts per share.
(But it’s relatively minor in the big scheme of things: in its explanation in its earnings release on why it was reducing its full-year GAAP earnings forecast, used vehicle sales weren’t mentioned. And its projection of earnings from operations actually is rising slightly.)
When asked by an analyst about the possibility of a flood of used vehicles entering the market, given the high order numbers being reported for new builds, Sanchez remained as steady as his forecast: Ryder expects flat used vehicle prices.
The one bright spot besides volume that has helped used vehicle sales has been the fact that Ryder is shifting its sales increasingly toward retail outlets, rather than wholesale. Its sales are now 72% through retail outlets in the U.S. and that number is expected to rise.
That projection of flat prices comes even as Ryder holds out some hope that the stronger market for new vehicles and later model used vehicles could “trickle down” into the market for older used vehicles, which is where Ryder conducts most of its activities. “You hear the marketplace improving on newer model years,” Sanchez said. “That’s encouraging for us but we have not yet seen that impact. But you would expect over time it should trickle down as people trade down as prices move up on newer models.”
The leasing part of the Ryder business is strong, Sanchez said. Ryder is seeing customers that had owned their own fleets converting to leasing, and “we also saw growth in the customer base, and that is not a phenomenon that we have seen in a long time,” Sanchez said. “Our growth is not just from leasing but from existing fleets beginning to grow.”
Forward business looks good, Sanchez said, in part because of the long lead times that OEMs have in putting new vehicles on the market. “Production has been extended a bit, so business is already settled in the second quarter, and we think there is potential for upside. We have a healthy pipeline and we will see the lease business grow.”
At the end of the first quarter, Ryder announced a truck-sharing digital platform, COOP. Sanchez said if it is successful, “it could provide us with a significant supply of surge capacity vehicles.” The result could be that capital might not need to be deployed to have inventory waiting for those few periods of a surge in demand. He also conceded: “It’s still early.”
The earnings release and conference call came a day after a branding manager’s nightmare: a Ryder van was used to kill 10 people in Toronto and injure many more, and dozens of pictures of the scene showed the van with the highly-visible Ryder logo. At the start of the call, Brunn did acknowledge the tragedy.