Ryder System (NYSE: R) reported record total revenue and record operating revenue for the third quarter. Both total and operating revenue grew across all business segments, which the company attributed to new business and higher volumes.
Ryder reported $2.15 billion in total revenue across all three business segments combined, up 17 percent from $1.84 billion in the third quarter of 2017. Operating revenue across all segments came in at $1.71 billion, up 13 percent from $1.52 billion in the third quarter of 2017.
"We delivered double-digit revenue growth with strong increases in all three business segments, benefiting from new outsourcing wins and a favorable freight environment. Ryder's largest product line, ChoiceLease, grew organically by 5,600 vehicles year-to-date,” Ryder Chairman and CEO Robert Sanchez said. “We continue to successfully penetrate non-outsourced markets and are also seeing expansions with current customers. We are on track for another record sales year in 2018, driven by ChoiceLease and Dedicated Transportation Solutions, positioning us well for accelerating contractual revenue growth.”
Ryder reported earnings per share of $1.69, up $0.57 or 51 percent. The company reported comparable (non-GAAP) earnings per share of $1.64, up $0.30 or 22 percent. The company attributed this climb to a lower tax rate, lower pension-related expenses and improved operating performance.
The company raised its guidance for the full year EPS to a range of $4.88 to $4.98 vs. $4.71 to $4.91 (GAAP adjusted) and comparable EPS (non-GAAP) to $5.72 to $5.82 vs. $5.62 to $5.82.
"We are pleased to again deliver year-over-year pretax earnings growth, which was at the high end of our expectations. This quarter's comparable pre-tax earnings improvement was driven by revenue growth in all segments and the benefit of cost actions taken earlier in the year,” Sanchez said. “Third quarter pre-tax earnings grew by 6 percent despite used vehicle sales and depreciation headwinds of $18 million (17 percent of prior-year pre-tax earnings), and higher maintenance costs on certain older-model-year vehicles. During the quarter, used vehicle prices were stable, while our inventories remained at the bottom end of our target range.”
Sanchez said the second-quarter acquisition of MXD Group, Inc. (MXD) attributed to revenue growth in the Supply Chain Solutions business segment.
"We are pleased with the integration and performance of our recent MXD acquisition, positioning Ryder as a leading last-mile provider for big-and-bulky goods. Ryder's last-mile network now includes 136 facilities covering 95% of the U.S. and Canada within a two-day timeframe and provides us with a solid platform for growth in the e-commerce space,” he said. "Additionally, we continue to invest in innovative, customer-facing technology. The second release of RyderGyde, our mobile fleet-management app which already has more than 4,000 users, now allows customers to rent vehicles from their mobile devices, as well as browse Ryder's used vehicle inventory."
The Fleet Management Solutions business segment reported $1.34 billion in total revenue, up from $1.20 billion in the third quarter of 2017. Operating revenue came in at $1.12 billion, up 9 percent from $1.02 billion in the third quarter of 2017.
Commercial rental revenue increased 19 percent from the third quarter of 2017 due to higher demand and pricing. Fuel services revenue increased 26 percent, thanks to higher fuel costs passed through to customers.
FMS earnings before tax were $95.2 million, down 6 percent compared with $100.8 million in the same period of 2017.
“Higher commercial rental and ChoiceLease performance was more than offset by higher depreciation of $12.7 million due to vehicle residual-value changes and accelerated depreciation, as well as lower used vehicle sales results,” according to Ryder’s earnings report. “Used vehicle results primarily reflect lower units sold and higher inventory valuation adjustments due to more challenging prior year comparisons.”
Rental power fleet utilization was 80.4 percent for the third quarter, up 240 basis points from 2017. FMS earnings before tax as a percentage of FMS total revenue and FMS operating revenue were 7.1 percent and 8.5 percent, respectively, both down 130 basis points from 2017.
The Dedicated Transportation Solutions business segment reported $340 million in total revenue up 25 percent from $272 million in the third quarter of 2017. Operating revenue came in at $222 million, up 12 percent from $197 million in the third quarter of 2017.
DTS earnings before tax of $13.9 million increased 1 percent compared with $13.7 million in 2017. DTS earnings before tax as a percentage of DTS total revenue and DTS operating revenue were 4.1 percent and 6.3 percent, respectively, down 90 and 60 basis points from 2017.
The Supply Chain Solutions business segment reported $628 million in total revenue, up 29 percent from $488 million in the third quarter of 2017. Operating revenue came in at $462 million, up 23 percent from 376 million in the third quarter of 2017.
SCS earnings before tax of $37.4 million increased 69 percent in the third quarter of 2018 compared with $22.1 million in 2017. SCS earnings before tax as a percentage of SCS total revenue and SCS operating revenue were 5.9 percent and 8.1 percent, respectively, up 140 basis points and up 220 basis points from 2017.
"Our overall earnings outlook for the fourth quarter remains on track with our prior expectations. We anticipate year-over-year earnings growth in Fleet Management Solutions driven by strong operating performance and a lower impact from used vehicle sales and depreciation headwinds. Based on robust year-to-date lease sales activity, our outlook for ChoiceLease fleet growth remains at a record 8,500 vehicles for the full year,” Sanchez said. “We expect a continued strong rental demand environment and favorable year-over-year results, although to a lesser extent, due to more challenging prior-year comparisons. We anticipate Ryder's used vehicle inventory to remain near the low end of our target range. Our outlook for used vehicle sales pricing remains stable at recent levels. Dedicated Transportation Solutions is anticipated to deliver continued double-digit revenue growth and improved earnings performance as compared to the third quarter. We expect strong year-over-year improvement in Supply Chain Solutions results consistent with year-to-date performance."
Deutsche Bank released an optimistic report following Ryder’s earnings release, maintaining its buy recommendation.
“A more pronounced move, however, won’t come until more clarity emerges on how the recent rise in new orders will ultimately impact the used truck market,” the Deutsche Bank note reads. “We remain encouraged, however, with our positive stance, predicated on solid underlying earnings growth and potential for majority of headwinds associated with used truck values in the rear-view mirror.”
Ryder established a fourth quarter EPS forecast of $1.73 to $1.83 and a comparable EPS forecast of $1.75 to $1.85, which is $0.1 short of the $1.81 consensus estimate at its midpoint, according to SeekingAlpha. Ryder’s stock was down about 8 percent as of 2:30 p.m. Friday.
Deutsche Bank analysts released a note in the afternoon stating that, while the broader market is down, the sell-off of Ryder shares seems particularly harsh. The analysts said this could be due to lease accounting changes coming to Ryder that involve decoupling maintenance components from lease payments.
“We also note that there are no impacts to cash flows from this new rule. In this sense, while there is clearly uncertainty around the impact to EPS next year as a result of these changes, we don’t expect the magnitude of revisions to be as significant as today’s move implies,” the note reads.
The analysts said they consider today’s sell-off an attractive buying opportunity.