Ryder had a first quarter that blew away all consensus expectations.
But for the broader trucking market as a whole, the company, which is a leading source of used vehicles, is running out of things to sell.
The company’s non-GAAP earnings per share of $3.59 exceeded consensus by $1.21. The revenue of just under $3 billion was up 30.6% compared to the first quarter of 2021, and it topped the consensus forecast by $330 million.
Even with a softer trucking market, Ryder’s forecasts were all bullish. For example, CEO Robert Sanchez said the company’s flagship Fleet Management Solutions is moving ahead with a program begun in 2019 to reprice leasing. He said about 40% of the company’s leases were repriced through 2021 and that the company has “considerable opportunity ahead as we expect to renew the remaining leases at higher returns.”
Ryder’s forecast for the coming year also was solidly positive. The latest guidance provided by the company is for GAAP earnings per share to come in at $12.83 to $13.83 in 2022. The previous forecast was $10.40 to $11.40. Ryder’s full-year EPS for 2021 was $9.66.
Revenue from used vehicle sales was more than twice the level of the prior year, Ryder said. But the pool of what it can sell in the future to take advantage of this strong market remains tight.
Inventories of used vehicles at Ryder are down to 3,200 vehicles and are far less than the long-term target of 7,000 to 9,000. It marks a significant shift in less than two years, when the company at one point reported about 14,000 vehicles in its inventory for resale.
However, the inventory at the end of the first quarter was more than the 2,500 at the close of the fourth quarter. A year ago, Ryder had 6,200 vehicles in inventory.
In a slide presentation released by the company, Ryder provided more details on its used vehicle sales. Its proceeds from tractor sales were up 146% from the first quarter of 2021 and up 29% sequentially from the fourth quarter. Revenue from its used truck sales rose 109% from a year ago and 16% sequentially.
Because of the reduced inventory, Ryder sold just 4,300 vehicles in the quarter, down from 6,600 a year ago and 5,400 a quarter earlier.
There are other shifts going on in Ryder (NYSE: R) that portend longer-term shifts in the company’s structure.
The percentage of Ryder revenue that comes from its Supply Chain Solutions (SCS) and Dedicated Transportation Solutions (DTS) is closing in on 50% of total revenues. For the quarter, the combined revenue of those two groups was 47.7% of total revenue, while the larger Fleet Management Solutions group was the balance.
In the company’s prepared earnings statement, Sanchez said DTS and SCS were about 40% of revenues three years ago. “We continue to make progress on our strategy to create long-term shareholder value by accelerating growth in SCS and DTS while improving returns in FMS.”
And while FMS’ growth numbers were strong, they were better at DTS and SCS, which will need to continue if those two segments are to ultimately account for 50% of total Ryder revenue. Revenue at SCS was $1.08 billion, up 54% from the first quarter of 2021. At DTS, revenue rose to $424.9 million, up 33% from a year ago.
Meanwhile, FMS revenue was up 10% to $1.28 billion. The end result was revenue for Ryder as a whole increased 22%, to $2.21 billion.
But revenue didn’t tell the story on profitability. FMS saw its operating earnings climb a staggering 291%, to $248.2 million, while SCS, despite the big jump in revenue, saw only a 4% increase in operating earnings, to $34.2 million. DTS earnings climbed 56% to $20.2 million.
In its prepared statement, Ryder said FMS’ profitability was enhanced by “improved used vehicle sales and rental performance, reflecting benefits from tight truck capacity and initiatives to improve returns.” The earnings contributed by used vehicle sales were a combination not only of higher prices but a declining impact from earlier reductions in the residual values carried on Ryder’s books. The used vehicle sales contributed $115 million to the segment’s increase in earnings.
Other benchmark numbers for the FMS division also were positive. Ryder said utilization of FMS’ vehicles was at a record level (82% versus 73% a year earlier), and power fleet pricing was up 8%. The company reported a smaller fleet, down 2%, but said delays in deliveries from OEMs was the primary cause of the drop.
At the SCS segment, the small increase in profitability despite the big jump in revenue was created by what Ryder said were lower earnings from its automotive operations due to “supply chain disruptions and labor challenges.” The result was that earnings before taxes (EBT) at SCS rose to just $34 million from $33 million a year earlier, despite the 54% jump in revenue. That brought EBT as a percentage of total revenue down to 3.1% from 4.7%.
At DTS for the quarter, EBT as a percentage of total revenue rose to 4.8% from 4.1%. Ryder also cited labor costs as a headwind for profitability at DTS, like it did with SCS, but said the overall performance was boosted by “revenue growth, improved performance and higher gains on sales of vehicles.”
While Ryder’s truck leasing is well known and highly visible, the activities of the other segments are less so. SCS services several verticals, and the company says it has five product offerings: distribution management, dedicated transportation, transportation management, last mile and professional services.
DTS is like most other dedicated offerings from trucking companies: It provides the full suite of services that are outsourced by a company with transportation needs.