Ryder System closed out 2021 with a 12-month performance during which its revenue growth was solid and its profitability improvement was spectacular.
Post-tax operating earnings for Ryder (NYSE: R) as a whole rose to $181.8 million in the fourth quarter, a more than 700% increase from the $25.8 million in operating earnings for the fourth quarter of 2020. For the company as a whole, an operating loss of $112 million in 2020 turned into operating earnings of $521.6 million in 2021.
Equity markets showed early enthusiasm about the earnings report. At about 10 a.m. Wednesday, Ryder’s stock was up $4.49 per share to $81.04, a gain of 5.84% from the Tuesday close. For the full year through the Tuesday close, Ryder was up 26.1%, while the S&P 500 is up about 14.4%.
Revenue growth at Ryder also was solid but was dwarfed by the percentage gains in profitability. Total revenue of $2.6 billion was up 17% quarter to quarter, while operating revenue of $2.1 billion was up 14%.
What was notable about the big gain in profitability at Ryder was that all of it came in its core segment, Fleet Management Solutions. Operating earnings in FMS rose more than 400% on a quarterly basis to $254.8 million. For the year, an operating loss in 2020 at FMS of $142 million turned into a full-year operating profit of $663.1 million.
Individual data in the earnings reports suggests some of the reasons for the increase in profitability. For example, while the number of used vehicles sold in the quarter declined to 5,400 from 7,000, the average tractor price increase from the fourth quarter of 2020 was 111%. For trucks, it was 99%.
On a full-year basis, tractors brought in 78% more while truck prices were up 70%.
Fleet Management Solutions is the core of the Ryder business. It includes the leasing of vehicles, maintenance of those vehicles and the sale of used vehicles. In 2021, it was about 58% of total Ryder revenues.
Operating revenue at the company’s other two segments also rose, but profitability did not. For Supply Chain Solutions, which offers logistics management services, operating revenue for the quarter was up 21% compared to the fourth quarter of 2020, rising to $614.1 million. But operating earnings declined 38% to $21.2 million. For the full year, the segment saw its operating revenue rise 18% but its operating earnings fall 27%.
Dedicated Transportation Solutions, which provides dedicated drivers and other services to clients, had a 15.3% decline in quarterly earnings, down to $11.6 million. And for the year, the drop was 33%, to $49.1 million. Meanwhile, operating revenue growth in the segment was 26% for the quarter and 14% for the year.
For the company as a whole, non-GAAP net income rose to $3.52 per share for the quarter, up from 83 cents a year ago. And for the full year, a net loss of $2.34 in 2020 turned into net earnings of $2.34 per share.
That earnings per share for the quarter beat consensus estimates by $1.03, according to Seeking Alpha. The quarterly revenue of $2.6 billion was ahead of consensus estimates by $120 million.
Ryder made two acquisitions during the quarter. Its last-mile business grew with the acquisition in December of Whiplash. And in October, it increased its warehouse footprint by acquiring Midwest Warehouse & Distribution System.
Ryder remains in a strong position to make further acquisitions. At the end of 2021, its cash holdings were $234 million. A year earlier, it was $151 million.
In August, S&P Global Ratings moved its outlook on Ryder to “positive,” while affirming its solid investment grade rating of BBB, which suggests it has the borrowing capacity to turn to debt markets to fund an acquisition as well. Ryder also produced free cash flow of $1.1 billion for the year, a key metric in determining a company’s debt rating and its ability to finance any new debt.
“Tight truck capacity fueled an exceptionally strong rental and used vehicle sales market,” Ryder Chairman and CEO Robert Sanchez said in the prepared statement that accompanied the company’s earnings release. “We have repriced approximately 40% of the lease fleet at higher return spreads and lower residual value assumptions, raising and de-risking portfolio returns.”
Sanchez said repricing of leases coming up for renewal has been strong and about 40% of the fleet has been repriced. “We expect a strong used vehicle sales and rental environment to continue in 2022, slowly moderating in the second half of the year,” he said.
Sanchez said earnings in Dedicated and Supply Chain were “negatively impacted” by a tight labor market and higher wages. Disruptions in the automotive supply chain also played a part.
But his pricing outlook in those segments was optimistic. “We are making progress with our customers to implement related price adjustments,” he said.